We at Real Colombia believe that every property purchase requires meticulous planning and careful execution. We therefore advise our customers to evaluate objectively all relevant factors influencing the real estate market. Among most crucial information for every real estate investor are general Key Drivers of Real Estate, a country overview of Colombia, as well as an outline of the current Real Estate Market in Bogota, Colombia.
KEY DRIVERS OF REAL ESTATE MARKET
The following overview provides Key Factors which strongly influence the Real Estate Market not only in Bogota or Colombia but in any country of the world:
1. Demographics - Trends or Developments:
Population size, Population growth, Growing middle class
2. Interest rates
Low interest rates make mortgages more attractive while saving become less attractive.
3. Mortgage Availability
Do banks provide mortgages on healthy conditions or too easily?
Danger of credit bubble?
Growth of GDP over last decade how estimated for future? GDP per capita, Unemployment rate, Inflation, Trade balance, Level of debt by state and privates, Infrastructure, Heavily reliance on natural resources? Development of local currency.
5. Are House Prices Overvalued – Healthy ratio of demand and supply
Is there a healthy ratio between rent per square meter and price per square meter(yield)? Is there a balance between people renting and buying properties?
6. Government Policies/Subsidies
Boost real estate as long as they are in place.
7. How easy and secure is it for foreign capital to invest in local market
Government friendly to foreign investor? Treated equally as locals regarding buying of real estate? Limitations or threat of future expropriation?
8. Geographic Locations
Which areas have a promising appreciation and return?
Price in some areas can rise while main market is falling or stagnation.
9. Consumer Expectations
How public opinion affects consumer behavior? If people fear that prices will drop, they won’t buy.
10. Other factors that affect attractiveness of a country/region or city
Political stability, Security, Tourism, Climate change, Water supply
Colombia Market Overview
Colombia: Market Overview
Colombia is the oldest democracy in South America, bordering Peru, Ecuador, Panama, Venezuela and Brazil. The country has a population of about 48 million of which over 8 million life in its capital, Bogota. The official language is Spanish and the local currency the Colombian Peso (COP). Juan Manuel Santos Calderon was reelected as President in June 2014 for a second term.
Government & Politics
Since over 50 years, Colombia is a stable democratic republic. Albeit public opinion is still shaped by the various conflicts of the past decades, the country is shaking off its negative image. The big drug cartels in Medellin and Cali were destroyed and the demobilization process of the paramilitary groups completed. The Colombian Government and the rebel group FARC signed and ratified a peace agreement on November 2016 which brought an end to the armed conflict. The government also launched an investment project in infrastructure worth 2 Billion US$.
A highly increasing security situation combined with a long existence political stability and strong economic data makes Colombia one of the most promising markets of the future in Latin America.
Colombia is the second most populous country in South American with the second strongest economic power after Brazil. During the last ten years, Colombia experienced an economic boom. The economy increased from 2004 to 2014 on average 5% per year. The government follows a market oriented and conservative economic policy which resulted in a steadily increasing buying purchase of the middle class.
The inflation rate is relatively low, as is the budget deficit. According to the World Bank, Colombia is one of the most attractive countries in Latin America regarding legal parameters, investment protection and ownership rights. The improved economic stability was honored not only by the markets but also by the rating agencies. All three major agencies rate Colombia as investment grade with a stable outlook.
Tourism is perceived as a reliable and sensible indicator for the image of a country. In 2016, Colombia had over 2.5 million foreign visitors which reflects an increase of 250% since 2006. An improving security and a shift in public opinion will also ensure for the next few years substantial growth rates.
In general, the security situation in Colombia increased tremendously since 2002. Especially Bogota has improved its safety and public image with particular success, after being considered one of the most violent cities in the world in the 1990s. Albeit like in all other major cities in Latin America, pocket crimes are still widespread, today Bogota is considered safer than cities such as New Orleans, Detroit or Baltimore. This success is the result of an integrated security policy which was first adopted in 1995 and effectively implemented since.
Real estate investment Bogotá
Real Estate Investment – Bogotá
The following text provides a brief overview of the Real Estate market in Bogota. It aims to answer the most important questions for any real estate investor: How is the current real estate market performing and how will it develop in the near future? What return on investment is feasible? Is it safe and secure to invest in real estate in Colombia?
How is the real estate market currently performing and where is it heading to?
During the last decade, real estate prices in Colombia and especially in Bogota rose at double digits per year. The reasons therefore lay not so much on speculation but are based on fundamental data. Looking at its demographic, Bogota has a population of almost 9 million people and together with the suburbs (metropolitan area) about 13 million. Bogotá is the fastest growing major city in Latin America, and is expected to have around 25 million inhabitants by 2038.
Areas of higher economic status tend to be located to the north while poorer neighborhoods are located to the south. The middle class usually inhabits the western and northwestern parts of the city. Over the past 10 years, the middle class has nearly doubled to about 28% of total population. During the same time real estate prices rose higher than the medium income, resulting in the average middle class earner taking a loan to purchase property.
Nevertheless Colombian households have a comparable low level of dept. Banks provide mortgages on healthy conditions offering loans for 50-60% of the property value. With a relatively low inflation and fixed mortgage rates of about 9 – 12% there is no danger of a credit bubble. There are several reasons why people buy real estate in Colombia. About 80% acquire a property to live there, 17% to rent the property out and only 3% speculate prices.
What return on investment can one expect?
During the past decade, real estate prices rose at double digits all over the country. While compared to 5-10 years ago, prices are high, the healthy ratio between rent per square meter and price per square meter show that property prices are not overvalued. A return on investment of 5-10% per year is feasible and above international average.
The geographic limitation of the city expansion combined with a shortage of empty lots for further construction should have a positive impact on property prices and appreciation. While during the last few years, prices rose at about 10-20% per year more or less regardless of the location, it seems that in the future some areas in Bogota show more potential for appreciation and return on investment than others.
How secure is it to invest in Colombia?
Colombia is the oldest democracy in South America. Foreign investors were never expropriated and the protection of foreign investment is manifested in the Colombian constitution of 1991. Under the constitution and current foreign investment regulations, foreign investment in Colombia receives the same treatment as those made by Colombian nationals.
This means that it is fairly easy and secure for foreigners to invest in the Colombian real estate market, as foreign investment is protected from expropriation by constitution. The governmental legal framework provides for foreigners equal treatment as Colombians regarding investment in real estate.