The Covid-19 pandemic has had a global impact on all economies. Colombia is not an exception and is experiencing its first recession since 1999. According to the IMF the Colombian economy contracted 8.1% in 2020. The most affected industries were construction, mining and trading with an annualised rate of contraction of 26.2%, 19.1%, and 20.01% respectively. This is due to the strict lockdowns imposed around the country.
The only sectors that are showing growth are agriculture (1.5%), Finance and Insurance (1.5%) and Real Estate activity (1.8%)
In-spite-of the above, several experts consider this an opportunity for foreigners to invest in Colombian property.
Below are the reasons why:
Exchange Rate: Exchange rates have increased significantly over the past year. Last year, the Australian dollar was exchanged for 2,200 pesos. Today the same dollar is exchanges for 2,732.21 pesos which plays in favour of Australian Investors.
Property Prices: Investment property prices range from forty thousand Australian dollars to four hundred thousand or more. This depends on the city, the size of property and as well as the “Stratum”, which is the way Colombians rank properties based on socioeconomic scale. The lowest class is ranked at 1 and the highest at 6. This is relevant as it impacts the property’s value and the way in which the municipality charges utility rates and subsidies for properties ranked in stratums 1 to 3. This model does not consider the household income and focuses on the house building materials, the neighbourhood infrastructure, proximity to job hubs, education and health services.
Cost of loans In Colombia.
According to property expert, Wendy Howarter, the Colombian property market has suffered little turbulence during COVID-19 because of the little bargaining power that Colombian society has over financial institutions. “Most homeowners do not have mortgages on their homes because Colombian banks require a 60% to 70% down payment and only loan 30% to 40% of the value—usually with double-digit interest rates”.
Where to invest?
Carlos Devis, an experienced Property investor across Latin American markets, recommends the following:
- Invest in residential properties in Stratum 1 to 3. This is because most Colombians live in Stratum 1 to 3 and this represents 80% of the market. So the possibilities to rent and sell are significantly higher.
- Stratum 6 properties earn the highest rental, but pay the highest in utility bills and taxes, and represents only 4% of the market. The possibilities to find a Colombian buyer are significantly lower.
- A property investment is considered a good one when it gives you at least a 10 percent return on your initial investment.
- In prior years, buying off the plan was an excellent option, but in current conditions it is recommended to invest in second-hand houses and flats. This is because of the high risks associated with project completion, either because of delay or inability to complete the project and because you are not able to start receiving a return from this type of investment straight away.