MACh 45

R E P O R T 2016 2017 O UTLO O K CO N S TR U C TI O N S E C TO R

M A C h 45

DECE MB E R 2016

We forecast that 2017 will be the third year in a row with very low levels of investment in construction.

This is not just worrying for our industry, but also because it reflects the weakness of the economy and the stagnation of investment decisions, factors that affect the country’s future growth trajectory.

Disaggregated construction investment A N N U A L V A R I AT I O N ( I N % ) Estimated

Projected

2016

2017

2,5

3,4

1,7

-8,5

-7,4

4,3

-1,6

3,8

1,1

5,6

3,2

2,6

Copay social programs

1,1

-2,8

0,2

1,3

0,8

Unsubsidized real estate

4,5

2,2

7,0

3,7

3,0

INFRASTRUCTURE

6,5

2,0

-2,0

-1,8

-1,1

PUBLIC

3,8

6,9

12,6

-1,8

1,3

2,1

-1,1

11,6

-6,1

2,0

Autonomous Companies

20,5

81,4

24,0

13,4

-1,4

Public Works Concessions

4,2

0,2

1,2

2,9

1,6

7,7

-0,2

-8,7

-1,9

-2,4

State Enterprises

5,4

22,0

-11,1

0,7

7,8

PRIVATE

7,8

-1,3

-8,5

-2,0

-3,0

5,7

0,9

-0,6

-0,2

-0,1

SECTOR

2013

2014

2015

HOUSING

3,9

-1,3

PUBLIC

4,5

PRIVATE

PUBLIC

Productive

INVESTMENT IN CONSTRUCTION

When consolidated, growth in construction investment was practically zero in 2016.

The situation will not change much in 2017, with a base scenario showing a slight contraction of -0.1%.

The figure is consistent with an expected decline in infrastructure investment and limited additional growth in housing investment.

2016 R E P O RT /

M ACh 4 5

Housing I N V E S T M E N T I N P R I V AT E H O U S I N G There was significant investment in housing construction in 2015-2016, in response to the demand generated by purchases that were moved ahead due to the imminent entry into effect of VAT on housing.

Housing sales fell sharply once this effect concluded. There was an annual decline around 40% in 2016, though this has not yet translated into a significant decline in construction investment.

3,2%

Estimated annual growth in private housing construction investment in 2016.

INVESTMENT IN PUBLIC HOUSING Almost 119,000 subsidies were awarded to lowincome sectors in 2012-2016 (DS 49). Over 50% (62,000) have not been executed.

At any rate, housing policy is changing, privileging the extraordinary reactivation and social integration program (DS 116) and its successor, in the form of a permanent program, DS 19.

4,3%

Estimated annual growth in public housing construction investment in 2016.

Housing

THOUSANDS OF HOMES

M O N T H S TO E X H A U S T O F F E R

Supply and speed of sales The high demand for housing in 2015, product of the anticipation of purchases, encouraged the entry of new projects starting late last year.

Because the supply of new housing through October 2016 registered an increase of 13% annually.

For its part, the lower demand for housing during all of 2016 caused a decline in the speed of sale.

APARTMENT OFFERS

HOUSE OFFERS

APARTMENT MONTHS

HOUSE MONTHS

Index of real housing prices Home prices in Santiago have fallen, in line with lower demand.

-1,5%

-0,9%

The price index for apartments as of October registered a sharp decline of 1.5% in 2016.

The index of housing prices fell 0.9% over the same period.

Activity and employment INVESTMENT IN CONSTRUCTION

-0,2%

anually

Estimated decline in construction investment in 2016.

This contraction is consistent with the decline in investment in infrastructure (-1.8%) and the moderate growth in housing investment (3.4%) registered in 2016 when compared to the year before.

S E C TO R A L E M P LOY M E N T

8,8%

Unemployment in the construction sector through December 2016.

Employment in the construction sector gradually deteriorated throughout all of 2016, which was made clear with a significant increase in self-employed workers.

Infrastructure I N V E S TM E NT I N PU B LI C I N F R AS TR U C TU R E (M O P)

M O N T H LY F LO W ( B I L L I O N S O F D O L L A R S )

B I L L I O N S O F D O L L A R S AC C U M U L AT E D

MOP 2016 Investment flow (excluding administration of concessions)

PROG. MONTH

EFEC. MONTH

-1,8%

In public housing construction investment in 2016.

Despite the fact that the MOP has ample financial room this year, financial execution has beenbelow planned levels since June This is in addition to the fact that the MOP’s investment budget in 2016 was lower than in 2015 and the fact that the vast majority was allocated to continuing projects.

INVESTMENT IN CONCESSIONS

US$ 752 million

Estimated cost flow for concessions in 2016.

The concessions portfolio in force in 2016 considers 10 projects for US$ 3.447 billion, eight of which are already under construction.

Infrastructure INVESTMENT IN PRODUCTIVE INFRASTRUCTURE

Construction spending and investment

(US$ Million)

-1,9%

Investment in construction of productive infrastructure in 2016.

INVESTMENT

CONSTRUCTION EXPENSE

Private productive investment is expected to reach US$ 13.88 billion in 2016.

Of these, US$ 6,73 billion correspond to spending on construction, which registered the negative impact of a decline in the development of mining projects..

2017 O UTLO O K /

M ACh 4 5

THOUSANDS OF HOMES

M O N T H S TO E X H A U S T O F F E R

Expectations: Construction Business Confidence Indicator

DEMAND GENER AL SITUATION OF THE COMPANY

LEVEL OF ACTIVIT Y (3 MONTHS) FINANCIAL STATUS OF THE COMPANY

Construction sector business people have expressed an ever-deeper lack of confidence and remain pessimistic.

The situation is a worrying one, because a pessimistic atmosphere affects key dimensions for the industry: level of activity, demand and the financial situation companies are in.

INVESTMENT IN PUBLIC HOUSING

Almost 119,000 subsidies were awarded to low-income sectors in 2012-2016 (DS 49).

Over 50% (62,000) have not been executed.

At any rate, housing policy is changing, privileging the extraordinary program for reactivation and social integration (DS 116) and its successor, in the form of a permanent program, DS19.

Consistent with the foregoing, for 2017 we foresee a 40% decline in the resources allocated to programs for low-income sectors, (DS49 & DS 174), while $245.303 billion will be allocated for the new DS 116, mainly to cover the execution of subsidies during the period.

The 1.6% contraction projected for 2017 is explained by the high comparison base, as the amount allocated to subsidies in 2016 was the highest of the decade.

-1,6%

I N V E S TM E NT I N PU B LI C I N F R AS TR U C TU R E (M O P) Department, Service or Program

2016

2017

Initial

Adjustment for

Announced

Nominal Variation

Real Variation

A.P. Rural

71.502

73.790

89.991

26%

22%

Airports

43.953

45.360

45.272

3%

-0,2%

Architecture

25.720

26.543

28.284

10%

6,6%

Water Projects

127.293

131.366

121.636

-4%

-7,4%

Port Projects

66.005

68.118

68.152

3%

0,1%

Roads Works

935.196

965.122

982.538

5%

1,8%

7.272

7.505

6.210

-15%

-17%

1.276.942

1.317.804

1.342.084

5,1%

1,8%

235.321

242.852

253.549

8%

4,4%

1.512.263

1.560.656

1.595.633

5,5%

2,2%

Other Departments

Total without Concessions Administration of Concessions Overall total

I N V E S TM E NT I N PU B LI C I N F R AS TR U C TU R E (M O P)

1,3%

Expected growth

2017

The 2017 Budget Act allocates to the mop for Investment initiatives worth a total of $1,595,633,000 This represents a real annual variation of 2.2% compared to the initial budget of 2016.

In all, 88% of resources associated with the MOP in 2017 are to finance ongoing projects.

This proportion is worrying because of the restrictions that emerge to finance new works, especially in the Road Works Department.

The CChC projects that investment in public infrastructure will grow by 1.3% in 2017 compared to the year before.

INVESTMENT IN CONSTRUCTION

-0,1%

anually

Projected decline in construction investment in 2017

This contraction is consistent with the decline in investment in infrastructure (-1.1%) and low growth in investment in housing (1.7%) that is expected for next year.

INVESTMENT IN PRODUCTIVE INFRASTRUCTURE The investment in productive infrastructure that will be materialized in 2017 totals US $12.003 billion. Of this amount, US$ 6.247 billion correspond to spending on construction.

This represents a 2.4% decline compared to 2016.

Spending on construction in 2017 falls to approximately US$ 4.9 billion when adjusted for the energy projects that have not yet begun works.

-2,4

I N V E S T M E N T I N P R I V AT E H O U S I N G Fewer homes were sold in 2016 compared to 2015, in a scenario affected by the unusual demand generated by the so-called VAT effect the year before.

2,6%

This situation is not likely to be reversed in 2017, meaning that there will not be a mass incorporation of new projects.

This means that investment in private housing will increase by just 2.6% annually next year.

INVESTMENT IN CONCESSIONS The marginal increase in the flows in 2017 can be explained by the expected start of the Punilla dam and the AmĂŠrico Vespucio Oriente (the stretch El Salto-Principe de Gales) projects.

This reflects reduced dynamism in concessions and levels of investment that are lower than those needed when considering the country’s infrastructure needs.

US$ 763 million

Flow of costs expected for Concessions in 2017

S E C TO R A L E M P LOY M E N T

10,1% Projected sectoral unemployment in December 2017

Sectoral unemployment will worsen in 2017 compared to 2016, as it is estimated that a percentage of self-employed workers try to find formal employment again with fewer jobs available.

-0,2% Estimate of annual variation in investment under construction in 2016.

-0,1% Projection of annual variation in investment under construction for 2017.

F U L L R E P O R T I N W W W.C C H C .C L