This year many will have Colombia in their minds for the Disney film Encanto, which will be released in November 2021. The South American country is known for its biodiversity, forests that are not found anywhere in the world, the warmth of its people, being one of the few places where any type of plant can grow from anywhere on the globe, etc.
The figures recorded by the country during the pandemic have been especially worrying: it ranks tenth among the countries in the world with the most infections, vaccination has not advanced at the expected pace, etc. While it is true that the fall in GDP during 2020 was equal to the average for the region, the country had never experienced such a strong recession, not even in 1,999.
As in almost all countries in the region, the Colombian real estate market is very dynamic. One of the ideals that is most instilled is to be an owner, not a tenant. Despite the economic crisis, the sector has had a boom during 2020. For more than two years the government created subsidies for those who wish to acquire their own home for the first time, as a stimulus to encourage not only the sector, but consumption in general.
And the results are obvious. The sector grew by 1.9% with 194,802 properties sold, of which around 132,000 were of social interest. For about five years there has been a clear preference for this type of construction. Another positive effect of the pandemic was the digitalization of the sector: there are already 100% virtual mortgages, the advance of the multipurpose cadastre is unstoppable (database of the country’s properties), and the emergence of Proptech that allows to visualize the constructions in a totally digital way.
Despite the growth of the sector, a deficit of 1.3 million households persists. According to figures published by the Financial Superintendence from May 2002 to December 2020, there is a clear downward trend in interest on loans for homes that are not of social interest, going from 16.02% to 9.48% effective annually. Opposite case with projects of social interest: in May 2002 the annual effective interest was 10.62% and in December 2020 at 11.34%
That report also indicated that 1,328 housing loans were disbursed nationwide last year. The number of active mortgage loans is around one million, and the Bank of the Republic reduced interest rates from 4.25% to 1.75% in February 2021. At the same time, the interest rate for fixed-term deposits went from 4.52% per year in 2.019 to 2.05% effective annually in August 2.021.
That is, if you are going to buy your first home this is the time. But if your intention is to invest, there are factors you need to consider. Like many countries in the region, Colombia has also been affected by waves of protest, in this case, since 2018. Although so far there have not been changes as profound as in other nations, the discontent of the population with the institutions is palpable.
The Colombian economy was characterized throughout the twentieth century by being very stable. While in the region the eighties were the lost decade, for Colombia it was not so. And there has never been an inflation higher than 30%, when neighboring countries reached rates that were around 1000%.
But things could change. The recent movements of the board of directors of the Bank of the Republic of Colombia have opened the door to a possible loss of independence from the executive. Whether due to resignations or the end of the term of its Co-directors, in February Iván Duque changed three of the seven members of the board and in August he appointed Alberto Carrasquilla, former Minister of Finance and protagonist of the 2021 strike.
The common denominator of the appointments is the personal closeness with the president: the new co-directors have been former subordinates, children of subordinates or are united by a close personal friendship. Currently, the executive has direct influence over six of the seven members and there are many voices that warn about the dangerous influence. Argentines and Venezuelans know this very well.
This does not mean that Colombia will become a bad option or its economy will collapse. Investing in real estate is still the safest choice where to put your wealth, but not the best if you want to increase it. During the last years the valuation of Colombian properties does not exceed 7% in almost any region, something very poor compared to Miami where the annual capital gain is on average at 15%.
The continuing advantages of the sun capital continue. Bank rates do not exceed 5% effective annually and the superiority of the US banking system is well known. The Colombian rental fee does not exceed 0.5% of the total value of the property, and it is necessary to add maintenance expenses, commissions, taxes and insurance. On the other hand, in Miami the properties can be paid for alone with the value of the rent.
Finally, it is important to highlight the cultural differences of each country. There are many tenants in Colombia who deliberately decide not to comply with their obligations taking advantage of the lax laws in this regard. Miamians, on the other hand, are respectful of the law and responsible with their obligations, added to the fact of having a little permissive legislation with delinquent tenants.
In PFS Realty Group given our real estate activity we are focused on advising those people and families who are interested in making investments of this type in Miami, Orlando and South Florida, we have been working for more than twenty (20) years and for this, twenty (20) years that give us a specialty in what we do, If you want to explore real estate investment opportunities, we can schedule a meeting, face-to-face or virtual, to expand this information. Write to us at info@pfsrealty.kinsta.cloud and also visit our website www.pfsblog.kinsta.cloud to learn more about us
