Colombia Residential Real Estate Market Analysis 2024
Colombia's property market is faltering, amidst falling demand and weakening residential construction activity, coupled with a slowing economy. Surprisingly, house prices continue to increase.
Table of Contents
- Housing Market Snapshot
- Demand Highlights
- Supply Highlights
- Rental Market
- Mortgage Market
- Socio-Economic Context
Housing Market Snapshot
In May 2024, the nationwide new house price index rose by 7.07% from a year earlier, following year-on-year increases of 6.05% in May 2023 and 9.87% in May 2022, based on figures from the Banco de la República Colombia (Banrep).
However, when adjusted for inflation, nationwide house prices actually declined slightly by 0.1% year-on-year in May 2024.
Colombia's house price annual change
Colombia's major cities follow a similar trend:
- In Bogotá, the country's capital city, new house prices were up by 6.06% in May 2024 from the same period last year but actually fell by 1.03% when adjusted for inflation.
- In Cali, nominal new house prices rose by 8.85% y-o-y in May 2024. When adjusted for inflation, house price growth was more muted at 1.58%.
- In Medellin, new house prices rose by 7.07% (but fell slightly by 0.1% in real terms) in May 2024 from a year earlier.
- In the surrounding areas of Bogota, new house prices increased by a modest 4.59% y-o-y (and fell by 2.4% in real terms) over the same period.
Demand is plunging. In 2023, the total number of new homes sold fell sharply by 40.2% y-o-y to 142,617 units, worse than the previous year's 7.5% decline and in stark contrast with the annual growth of 24.8% in 2021, based on figures from the Coordenada Urbana from the Colombian Chamber of Construction (Camacol). The weakness of the housing market continued this year, with housing sales falling by another 8.8% y-o-y to 66,620 units in the first half of 2024.
Colombia's property market has experienced strong house price growth over the last fifteen years. From 2005 to 2023, nationwide existing house prices grew by a whopping 347% (91% inflation-adjusted).
| EXISTING HOUSE PRICES IN COLOMBIA, ANNUAL CHANGE (%) | ||
| Year | Nominal | Inflation-adjusted |
| 2005 | 5.34 | 0.22 |
| 2006 | 14.84 | 10.16 |
| 2007 | 16.06 | 10.02 |
| 2008 | 14.84 | 6.52 |
| 2009 | 8.58 | 6.02 |
| 2010 | 9.05 | 6.13 |
| 2011 | 7.45 | 3.41 |
| 2012 | 11.05 | 8.03 |
| 2013 | 7.78 | 5.71 |
| 2014 | 7.39 | 3.70 |
| 2015 | 9.07 | 2.60 |
| 2016 | 9.86 | 3.52 |
| 2017 | 7.37 | 3.03 |
| 2018 | 3.67 | 0.38 |
| 2019 | 6.44 | 2.47 |
| 2020 | 1.93 | 0.28 |
| 2021 | 7.20 | 2.08 |
| 2022 | 5.91 | -5.77 |
| 2023 | 9.26 | -0.68 |
| Source: Banco de la Republica Colombia (Banrep) | ||
The country is experiencing a sharp economic slowdown. During 2023, Colombia's economic growth slowed to 0.6%, a sharp deceleration from annual expansions of 7.3% in 2022 and 10.8% in 2021, amidst a slowdown in domestic demand due to high interest rates and persistent inflation.
Overall, the country is projected to post an economic growth of just 1.1% this year, before gradually picking up to 2.5% in 2025, according to the International Monetary Fund (IMF).
Demand Highlights
Property demand plummeting
During 2023, the total number of new homes sold fell sharply by 40.2% y-o-y to 142,617 units, worse than the previous year's 7.5% decline and in stark contrast with the annual growth of 24.8% in 2021, based on figures from the Camacol.
By major city:
- In Bogotá and Cundinamarca, new home sales dropped 31.6% y-o-y to 58,041 units in 2023, after a decline of 4% in 2022 and strong increases of 17.8% in 2021 and 12.6% in 2020.
- In Valle, housing sales plummeted by 64.3% to 11,733 units in 2023 from a year earlier, following a decrease of 11.9% in 2022 and y-o-y increases of 35.8% in 2021 and 41.3% in 2020.
- In Antioquia, new home sales were down by 34.4% to 17,950 units in 2023, following a decline of 12.9% in 2022, strong growth of 32.7% in 2021, and a slight drop of 3.2% in 2020.
- In Atlántico, the total number of housing sold plunged by 58.7% to 10,320 units last year, following y-o-y increases of 0.2% in 2022, 33.9% in 2021, and 6.5% in 2020.
- In Bolívar, home sales dropped by 35.9% y-o-y to 7,521 units in 2023, following annual growth of 2.9% in 2022, 29% in 2021, and 19% in 2020.
Then in the first half of 2024, nationwide housing sales fell further by 8.8% y-o-y to 66,620 units, based on Camacol figures.
"The housing sector is in a deceleration phase: low sales, high cancellations, and increased finished inventories. Certainty about VIS subsidies, reduced interest rates, and improved household financial balances will aid recovery, expected to be slow, gradual, and solidified by 2025," said BBVA in its Colombia Real Estate Outlook February 2024 report.
Social housing accounts for about 70% of new home sales in Colombia annually.
"The residential sector is concentrated in social housing, which is where most structural demand exists and is supported by public subsidies," noted BBVA Research.
Supply Highlights
Construction activity falling sharply
During 2023, the total area of residential construction permits in Colombia plunged by 28.4% y-o-y to 19.59 million square meters (sqm), in sharp contrast to annual growth of 33.6% in 2022 and 36.3% in 2021, according to the National Administrative Department of Statistics (DANE). Likewise, the number of residential permits fell by 10.5% y-o-y to 44,060 last year, after declining by 2.9% in 2022 and surging by 43.5% in 2021.
Similarly, the total number of housing units approved for construction plummeted by 32.6% y-o-y to 217,553 units in 2023, following annual increases of 46.2% in 2022 and 27.7% in 2021. The total area also declined by 28.4% to 19.59 million sqm last year, in contrast to more than 30% annual growth in the prior two years.
By property type:
- For houses, the total approved units fell by 18.3% y-o-y to 40,302 in 2023 while the total area declined by 15% to 5.77 million sq. m.
- For apartments, the total number and area of units approved for construction plunged by 25.3% and 25.1% to 70,347 units and 7.07 million sqm, respectively.
- For socialized housing, better known as VIS houses (Vivienda de Interés Social), the number of approved units fell by 15.4% y-o-y to 16,593 last year and the construction area dropped 11.1% to 1.07 million sqm.
- For VIS apartments, the number of approved units for construction plummeted by 43.3% y-o-y to 90,311 units in 2023 and the total area dropped by 42.7% to 5.69 million sqm.
In the first four months of 2024, the total number of housing units approved fell further by 23.1% y-o-y to 47,766 while the total area approved dropped 20.7% to 4.4 million sq. m., based on figures released by DANE.
Based on the latest estimates, there were over 16 million housing units in Colombia. Of these, about 40% were located in the five major cities of Barranquilla, Bogotá, Cali, Cartagena, and Medellín.
| EXISTING HOUSING STOCK | |
| Major Cities | Housing Units |
| Barranquilla | 559,049 |
| Bogotá | 3,138,369 |
| Cali | 924,259 |
| Cartagena | 392,718 |
| Medellín | 1,393,745 |
| Colombia | 16,070,893 |
| Sources: DANE, Massachusetts Institute of Technology | |
Government programs to address the affordable housing shortage
Like many 3rd world countries, Colombia measures its "housing deficit", i.e., the proportion of households either poorly housed or not housed at all. Colombia's housing deficit has fallen to only around 1,647,093 units in 2012, or around 27% of households, according to research by the Banco Bilbao Vizcaya Argentaria (BBVA). In 2005, the housing deficit had been 2.4 million housing units.
"Colombia needs to provide affordable housing to a diverse population: youth, the elderly, displaced persons and migrants, the homeless, female heads of family, and Afro and Indigenous populations. Households with low and/or informal incomes have to be particularly targeted," said the Organisation for Economic Cooperation and Development (OECD) in its National Housing Policy Review of Colombia.
During former President Juan Manuel Santos' 1st term, several housing initiatives were launched, aiming to build 1 million houses from 2010 to 2014. Much was achieved through subsidizing low-income families' home purchases.
The two main programs were:
- Priority Interest Housing (Vivienda de InterésPrioritario, VIP), introduced in 2012, which provided 100,000 free homes to the poorest.
- Social Interest Housing (Vivienda de Interés Social, VIS), which offers subsidies to low-income families. To qualify for VIS, families' monthly incomes must not exceed four times the minimum wage (or around US$1,360). Houses for the VIS program are built by private developers.
Other government housing programs included:
- Vivienda para Ahorradores (Homes for Savers) wherein buyers get subsidies for down payments as well as interest payments (the government decides which residential developments are eligible);
- National Savings Fund (Fondo Nacional del Ahorro, FNA), which provided access to loans; and,
- Stimulus Plan for Production and Employment (Plan de Impulso a la Productividad y el Empleo, PIPE), which subsidizes mortgaged properties priced from COP 80 million (US$20,186) to COP 198 million (US$49,961).
Aside from these, two other programs that provide housing subsidies were launched in 2018. The Programasemillero de propietarios (Seedbed of Owners), launched in August 2018, supports the rental of VIP and VIS-type homes and at the same time gives beneficiaries an option to purchase. Meanwhile, Casa Digna Vida Digna (Decent House Decent Life), another program launched in November 2018, aims to reduce the country's qualitative housing deficit by implementing a series of interventions needed to improve one's home or neighborhood.
Earlier in December 2014, another program called "Mi Casa Ya" (My House Now), was launched to help low-income households and to provide a monetary subsidy for purchasing new homes, priced between 130 and 150 times the legal monthly minimum wage. Mi Casa Ya also offers homebuyers a hedge on credit interest rates. Thousands of families benefitted from this program in the previous years, according to Colombia's Ministry of Housing, City and Territory.
Then just last year, the government of newly-elected Colombian President Gustavo Petro announced changes to Mi Casa Ya. Effective in 2023:
- Colombians interested in purchasing a new house in urban and rural areas may avail of the program, provided that the beneficiary has not previously received a housing subsidy or interest rate coverage;
- Individuals who already own a property within the country are ineligible to apply for the said program; and,
- The house to be purchased must be registered with the Identification System for the Potential Beneficiaries of Social Programs (Sisben IV) and has the D11 qualification for houses with the urban area of D20 for the rural area.
"Our goal is that the subsidies benefit the poorest and most vulnerable households and that they reach all the municipalities of the country," said the minister of housing, city, and territory, Catalina Velasco.
Currently, there is a move to repeal the points system to simplify the application process for the Mi Casa Ya program. Initially implemented in 2023 through resolution 1227, the said system assigned a maximum of 100 points based on certain criteria, including classification in Sisben IV from A1 to D20, in order to prioritize applicants in the acquisition of Priority Social Interest Housing (VIP).
Rental Market
Rental yields are good
Gross rental yields in Bogota, Colombia - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - are quite attractive. Smaller properties tend to have higher rental yields than bigger properties. In Q1 2024, the average gross rental yield in Colombia stood at 7.24%, according to research conducted by the Global Property Guide in March 2024.
In Bogota, gross rental yields ranged from 6.03% to 9.88% in Q1 2024, with a city average of 8.05%. Given that the cost of managing a property can typically be estimated to be around 2% of the yield, this still means that property in Bogota is reasonably valued, and will yield a reasonable to good return to the investor.
Rental yields for other cities in Colombia are similar to Bogota:
- Medellín produces strong rental yields of 6.51% to 9.75% in Q1 2024, with a city average of 9.15%;
- In Cali, you can expect rental yields ranging from 4.53% to 6.95%, with a city average of 6.01%;
- Santa Marta can earn yields between 6.16% and 8.08% in Q1 2024, with a city average of 7.12%;
- In Barranquilla, you can expect yields of 6.41% to 7.84%, with an average of 7.02%;
- Cartagena yields fall between 5.88% and 6.82%, with an average of 6.52%;
- Pereira produces rental yields ranging from 6.81% to 7.2%, with a city average of 7.05%; and,
- In Bello, the rental yields of apartments are between 6.15% and 7.68%, with a city average of 6.97%.
Round-trip transaction costs are low in Colombia (i.e., the total costs of buying and selling a property).
Mortgage Market
Interest rates falling, mortgage market is still underdeveloped
During its June 2024 meeting, Colombia's central bank, Banco de la República Colombia (Banrep), slashed its key policy rate by 50 basis points to 11.25%, making its fifth consecutive rate cut since December 2023 in an effort to stimulate economic activity while reaching its inflation target. This resulted to a cumulative 200 basis points rate cut in the past six months, bringing borrowing costs to their lowest level since November 2022.
"Inflation continues to fall, but it is above the 3% target, and it is projected to continue falling until it reaches it in 2025. Economic growth is low, but it would recover, and by 2025, economic activity would reach a path that can be sustained over time without causing unwanted changes in inflation, employment, or the external balance," said Banrep. "The current monetary policy interest rate is compatible with the convergence of inflation to the target in 2025 and with the recovery of economic growth in the next two years."
In June 2024, nationwide inflation was at 7.18%, almost unchanged in the past three months but far lower as compared to 12.13% in the same period last year.
As a result, the average lending rate fell to 16.36% in June 2024, down from 17.07% in the previous month and 20.34% a year earlier.
Mortgage borrowing in Colombia remains underdeveloped. Only 3% of the adult population have mortgages and outstanding mortgages amounted to only 12.6% of the country's GDP in 2023, according to BBVA Research. There are about 1.5 million credits totaling US$124 trillion in the financial system and most are for new homes, though the average credit value for used homes is higher.
Overall, mortgage loan growth remains modest and concentrated in the subsidized housing loan segment.
Socio-Economic Contex
Sharp economic slowdown
During 2023, Colombia's economic growth slowed to 0.6%, a sharp deceleration from annual expansions of 7.3% in 2022 and 10.8% in 2021, amidst a slowdown in domestic demand due to high interest rates and persistent inflation.
Economic growth remains sluggish this year. In Q1 2024, the economy grew by a meager 0.7% year-on-year, following annual growth of 0.3% in Q4 2023 and a contraction of 0.7% in Q3 2023.
Overall, the country is projected to post an economic growth of just 1.1% this year, before gradually picking up to 2.5% in 2025, according to the International Monetary Fund (IMF).
"Private consumption, currently above pre-pandemic levels, is expected to moderate this year as households deleverage and labor market conditions soften, while private investment is expected to gradually recover, albeit remaining below pre-pandemic levels," said the IMF.
The Colombian economy had been expanding by a modest annual growth of 3.5% from 2009 to 2019 before registering a huge decline of 7.2% due to the adverse impact of the Covid-19 pandemic.
Consumer prices are stabilizing. In June 2024, nationwide inflation was at 7.18%, almost unchanged in the past three months but far lower as compared to 12.13% in the same period last year. Yet it remains far above the central bank's target range of 2% to 4%.
The country's inflation rate averaged just 3.7% from 2011 to 2021, before increasing to double-digit figures of 10.2% in 2022 and 11.7% in 2023, due to escalating commodity prices.
Unemployment in Colombia stood at 10.3% in May 2024, slightly down from the previous year's 10.5%, according to DANE. The country's jobless rate averaged 10.4% from 2003 to 2023. Nearly 70% of the total workforce in the country is located in large cities.