Why Invest in Real Estate in Colombia

The real estate market has long been a secure haven for investments, and in Colombia, it’s currently poised to offer attractive opportunities due to economic uncertainty in other sectors. Amidst significant inflation and high-interest rates, cash purchases of properties in Colombia present a unique prospect for foreign investors.

Simultaneously, this economic backdrop is motivating Colombian investors to explore foreign markets. Presently, capital from Colombia is flowing into the United States, Panama, and even Portugal.

The Bank of the Republic, Colombia’s central bank, projected a growth rate of a mere 0.2% for 2023. It also estimates that inflation will gradually subside due to its monetary policies, settling at approximately 9.5%. 2023 was marked by economic deceleration, with limited growth prospects and persistently high inflation.

Economic uncertainty and inflation

Property sales, both new and used, were expected to decline by over 50% compared to the previous year’s transaction volume. Up until August 2023, these commercial operations had already plummeted by 52%, with a significant drop in the availability of new housing developments.

Furthermore, the launch of new projects fell by 23%, and sales of social interest housing (Vivienda de Interés Social – VIS), which receive public subsidies, decreased by 56%. Against this backdrop, property values are also on the decline, partly due to high inflation. For instance, in Bogotá, property prices have dipped by approximately 7% in a year.

Moreover, the difficulty many consumers face in accessing credit due to the high interest rates in Colombia is complicating a traditionally lucrative market.

The political uncertainty initially associated with the government of Gustavo Petro has waned after their first year in office. The challenges of implementing the announced far-reaching social reforms, coupled with the left-wing coalition’s poor results in the regional elections supporting the government, have helped stabilize markets after the initial months of political uncertainty.

Opportunities for cash purchases

Given this landscape, the current moment presents an opportunity for investors seeking to make cash purchases without the need for a mortgage. The best option remains buying a home, surpassing the commercial sector, which is also facing challenges. According to data from the National Administrative Department of Statistics (DANE), the annual profitability of property stands at approximately 4%. When purchasing a home, “the most important factor is its appreciation over time, exceeding inflation,” as per Home Capital Outlet, a digital real estate investment platform.

The option of depositing capital in a fixed-term deposit, known as a CDT in Colombia, does not offer a better return. Currently, many banks continue to offer interest rates between 12% and 15% for 1-year deposits. While this seems like a good investment, high inflation diminishes the real return. Real estate investment, on the other hand, not only provides immediate and ongoing income through renting, both occasional and long-term, but it also appreciates over time.

Used homes: the preferred choice

Given the significant surge in the prices of construction materials, leading to a substantial increase in the final cost of new housing developments, acquiring used homes emerges as the better choice. Many sellers need to make a quick sale, and this can make it easier for cash investors to reduce the purchase price – they only need to identify a favorable opportunity.

Additionally, the possibility of making improvements and renovations within a used home significantly enhances the property’s value for future sales. Laura Camargo, a real estate expert and CEO and co-founder of the real estate portal Brikss, emphasizes that real estate remains a refuge asset, generating returns through long-term capital appreciation and stable profitability.

“Before investing in real estate, it’s essential to consider key factors such as location, proximity to points of interest, attractive features, and suitability for various purposes based on people’s needs. Presently, the market trend is to buy a property and rent it out to generate income and recover the investment over time. However, individuals must remain flexible and mindful when setting a price for their property, as properties are renting out quickly these days. If not, it’s likely because the price is high or there are features about the property that don’t attract prospective tenants,” according to Brikss CEO.

Real estate investment options

According to Laura Camargo, these are the best real estate investment options in 2024:

Buying an apartment, office, or commercial space for renting, which can yield monthly returns ranging from 0.4% to 0.5% for residential properties and slightly more for commercial properties.

Investing in properties that are under construction and selling them when the project is completed to benefit from the property’s appreciation during the construction phase.

Acquiring a used or older apartment with great potential for remodeling and improving its infrastructure, which can substantially increase its appreciation and selling price.

Real Estate Crowdfunding, a financing method where a group of people invest their capital to finance the purchase of a property and earn returns based on their percentage of participation.