SANTIAGO, Oct 7 (Reuters) - Chile's real estate market is set for solid long-term growth as strong fundamentals among its main construction companies will outweigh a severe, short-term slump, the CEO of major homebuilder Paz Corp said in an interview.
Chilean construction firms posted historically high sales last year, as buyers rushed to purchase houses before a new tax on new homes went into effect. As the last developments approved under the old tax regime are completed, the sector is struggling and many fear the downturn will worsen.
Approved new construction in terms of area fell more than 50 percent in annual terms in July, and home sales in Santiago fell almost 40 percent in the second quarter, Chile's construction industry body said.
Paz was not immune, as net profit fell 89 percent in annual terms in the second quarter.
"There was a rise above the mean, and now there's a reverse to the mean, which is normal," Paz Chief Executive Officer Ariel Magendzo told Reuters late Thursday. Magendzo added that he believed the natural rate of annual construction to be around 40,000 new housing units in Chile.
"But in the long-term, we're very positive."
Investors seem to share Magendzo's sanguinity. Sector stocks have surprisingly spiked in the last three months on the Santiago stock exchange, most rising more than 30 percent.
For Magendzo, the only surprise was that the rally did not happen sooner.
"If you look at the indicators - price-to-earnings, price-to-book - everything, the sector is still discounted, and we've been discounted for a long time," he said.
According to Magendzo, international investors have been hunting for Chilean small caps. As of the latest securities filing, Latin American-focused private equity firm Compass Group had scooped up 12 percent of shares in Paz, while buying into Chilean construction firms Socovesa and Salfacorp as well.
Magendzo said his five-year plan for Paz foresaw the equivalent of $236 million to $275 million in annual sales in Chile, though he does not expect to meet that target next year.
Paz, among other Chilean construction companies, also operates in neighboring Peru. Magendzo said his company plans around $60 million in annual sales over five years.
New Peru President Pedro Pablo Kuczynski has passed reforms that allow Peruvians to withdraw pensions savings to use for mortgages. Magendzo said, however, that formalizing the economy and developing Peru's credit market would have a more profound effect.
"What we have seen is that the large part of withdrawals realized have been used to pay debt, rather than buy new homes," Magendzo said. "It'll help a little, but formalizing the economy is key." (Reporting by Gram Slattery; editing by Grant McCool)