Colombia: Overview

RENTAL YIELDS

Yields are spectacular at 12% in Bogota

Yields are relatively high in Colombia, because of the stagnant residential property prices combined with (nominally) rising rents. House prices were generally flat from 2000 to 2004, while rents grew by 12.74% over the same period. Over a longer period of time, when house prices fell by 37% from 1995 to 2000, rents rose by 106% over the same period.

Although the law limits the monthly rent to 1% of the property value (or 12% annually), in reality a 150 sq. m. apartment in Bogotá¡can yield up to 12.6%. Other sized apartments can expect yields between 8% and 12%.

Houses in Bogotá have yields of about 8% to 11%. Apartments in Medellin tend to have higher yields, from 9% to 18%. However, yields for houses are around 6% to 8%.

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TAXES AND COSTS

Taxes are generally high at 34%

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	28.6%	28.6%	28.6%
Click here to see a worked example
Source: Disclaimer

Rental Income: A nonresident is subject to income tax on Colombia-sourced income. Net rental income is subject to 34% tax for 2007.

Capital Gains: The capital gains tax for nonresidents is at a flat rate of 34%.

Inheritance: The inheritance tax for nonresidents is also at a flat rate of 34%.

Residents: Residents are taxed on their worldwide income. Income earned by individual residents in Colombia is taxed at progressive rates.

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BUYING GUIDE

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

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

Political conflicts and a beautiful country

There are pluses and minuses to Colombia, whose population of 46 million makes it Latin America’s second most populous country after Brazil. It is a spectacular country with significant natural resources including a mix of sea, having both Atlantic and Pacific coastlines; the Andes mountains and some of the most dramatic rainforests.

Colombia also has a stable economy, despite not having one of the highest GDP per capita growth rates in the region. It registered a GDP per capita increase of only 2.38% in the last five years.

The country also has a turbulent history, and the fickle political situation continues to the present. It has been ravaged by a decades-long violent conflict, involving guerrilla insurgencies, drug cartels, and gross violations of human rights.

If Colombia has a future, it will depend on its politics. A hard-line right-leaning politician, President Alvaro Uribe has pursued a tough line against left-wing guerrillas and right-wing paramilitaries alike since he took office in 2002. Nevertheless, recent investigations uncovering links between the paramilitary Autodefensas Unidas de Colombia (AUC) and Colombian legislators are hurting the government.