Colombia sees strong house price rises

COLOMBIA (Photo credit: ho visto nina volare)

House prices in Colombia rose strongly in 2010, boosted by a peaceful transition to a new president, and generally bright economic prospects. House prices market are expected to continue rising in 2011, aided by Colombia’s investment rating upgrade in March to investment grade. In 2010, average house prices rose 9.25% (6.38% in real terms).Colombian house prices are on a rising upswing – the y-o-y price rise to Q3 2010 was 8.30%, after a 6.60% y-o-y price rise to Q2, and 5.45% price rises in 2009.

• Prices of new apartments rose 9.57% (6.69% in real terms) over the year 2010, according to Departamento Administrativo&Nacional de Estadística (DANE).
• Prices of new houses rose 5.69% (3.17% in real terms).

 

Colombia’s economy grew by 4.3% in 2010, up from 2009’s 1.5% GDP growth.  The latest quarter’s GDP growth, at 5.1% annually, was particularly strong.

As a result of Colombia’s surging economy, there was a 3.2% rise in CPI in Q1 2011, but this was still within the central bank’s 2% to 4% target.

In August 2010 Juan Manuel Santos succeeded former President Álvaro Uribe. Santos, previously minister of defense, defeated his close competitor Antanas Mockus, after a second electoral round in June 2010. High unemployment and mending Colombia’s relations with Venezuela and Ecuador are main concerns for Santos’ government.

Analysis of colombia Residential Property Market »

RENTAL YIELDS

Last Updated: Dec 26, 2012

No strong house price movement in Colombia

There has been little movement of residential prices in Columbia that we can detect. In some places prices have moved up, on others down, but there has been no strong systematic trend – though on balance, overall, there has been a slight upward movement. Rents, similarly, have not moved strongly, but there has been some slight downward pressure on rents, in some locations.

Across the Bogota districts that we cover, gross rental yields range from 6.5% to 9.6%, with most yields being around 7% to 8%.

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TAXES AND COSTS

Last Updated: Feb 20, 2012

Taxes are generally high at 33%

Rental Income: Rental income earned by nonresidents is taxed at a flat rate of 33%. Income-generating expenses are deductible when computing taxable income.

Capital Gains: The capital gains tax for nonresidents is at a flat rate of 33%.

Inheritance: Inheritance is taxed at 33% for non-residents.

Residents: Residents are taxed on their worldwide income at progressive rates, from 19% to 33%.

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BUYING GUIDE

Last Updated: Jun 27, 2007

Total transaction costs are low in Colombia

Total roundtrip costs are relatively low at around 8.08% to 9.24% of the property’s value, inclusive of the 3% to 4% estate agents’ fee (subject to 16% VAT), which is paid for by the seller. The total cost of registering the property is around 4.45% of the property value. The registration process involves seven procedures, which can be completed in about 23 days.

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LANDLORD AND TENANT

Last Updated: May 31, 2006

Rental system is neutral to pro-landlord

Colombia’s rental market legislation is neutral between landlord and tenant. Some aspects are pro-landlord, while others are pro-tenant.

Rent Control: The most pro-tenant aspect of the law is that monthly rents cannot exceed 1% of the property value, giving the landlord a 12% maximum yield. But in reality, if the tenant does not complain, the landlord can get more.

Tenant Security: The rules for renewal and termination tend to favor landlords. If the tenant owes rent, the landlord can seize his properties. And even if eviction proceedings are long, the tenant is required to pay the rent for the duration of the proceeding.

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ECONOMIC GROWTH

Last Updated: Apr 26, 2011

Growing economy, new leadership

GDP grew by an annualized 11.2% in the fourth quarter of 2010. The main contributors to Colombia’s economic growth are:

• 11.1% contribution from the mining sector,
• 6% contribution from restaurants, hotels and trade sector
• 4.9% increase in manufacturing sector
• 4.8% increase in the transport, storage and communication sector
• Increase in consumption
• Low interest rates

Yet unemployment remains high in January 2011 at 13.2%, down only 0.2 percentage points on the previous year. According to Fabio Sanchez, an analyst from the Universidad de los Andes, Colombia’s high unemployment is neither due to economic deceleration nor the financial crisis.

“The fact of having Latin America’s highest minimum wage relative to its GDP per capita, and the fact that labor costs are also the highest in Latin America, result in a situation where it is impossible to create formal employment,” says Sanchez.

So despite Uribe’s and Santos’ efforts, much remains to be done.

Colombia’s central bank, the Banco de la Republica Colombia, raised its key rate by 25 basis points to 3.5% in March this year, to keep up with inflation. The first increase was in February, when the rate rose to 3.25%, from the 3% which had prevailed since April 2010.

Colombia’s prime lending rate also rose in February to 10.26%, up from the previous month’s 10.02%.

Both increases were responses to rising Inflation, which rose to 3.17% y-o-y in February 2011, still within the central bank’s 2% to 4% inflation target.