Colombia’s property market is slowing

Colombia’s property market is losing steam, after many years of vigorous price rises. In Bogotá, the country’s capital city, the new house price index fell by 7.15% in February 2023 as compared to the same period last year, following a slight decline of 0.59% in February 2022 and a modest increase of 3.89% two years ago, based on figures from the Banco de la República Colombia (Banrep).

Colombia’s house price annual change

When adjusted for inflation, the price decline is even more pronounced, with the capital’s new house price index plunging by a huge 18.03% y-o-y in February 2023.

Colombia’s other major cities follow a similar trend:

  • In Cali, nominal new house prices fell by 7.71% y-o-y in February 2023. When adjusted for inflation, house prices were down by 18.53%.
  • In Medellin, new house prices dropped 7.51% (-18.35% inflation-adjusted) in February 2023 from a year earlier.
  • In the surrounding areas of Bogota, new house prices fell by 9.39% y-o-y (-20.01% inflation-adjusted) over the same period.

 Nationwide, the new house price index declined by 7.65% (-18.47% inflation-adjusted) in February 2023 as compared to the same period last year.

Colombia House Price Indices graph

Demand is now falling sharply, amidst rapidly rising interest rates, high inflation, exchange rate volatility, and the increase in the price of raw materials. During 2022, the total number of new homes sold fell by 7.5% y-o-y to 238,584 units, in contrast to annual increases of 24.8% in 2021 and 8.6% in 2020, based on figures the according to the Coordenada Urbana from the Colombian Chamber of Construction (Camacol). The weakness of the housing market continued this year, with housing sales plunging by another 53% y-o-y to 23,105 units in the first two months of 2023.

“The outlook for housing in Colombia, as of February 2023, shows strong signs of deceleration, and there are warning signs that must be addressed in a timely manner,” said Camacol President Guillermo Herrera.

Colombia’s property market has experienced strong house price growth over the last fifteen years. From 2005 to 2020, nationwide existing house prices skyrocketed by 262% (101% inflation-adjusted). So it is not surprising to see a slowdown now.

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 6.27 -5.46
Source: Banco de la Republica Colombia (Banrep)

During 2022, Colombia’s economy grew strongly by 7.5% from a year earlier, buoyed by strong entertainment, commerce, transport, and manufacturing sectors, according to figures from DANE, following an expansion of 11% in 2021 and a contraction of 7.3% in 2020. 

Though, the economy is expected to slow sharply in 2023, with the International Monetary Fund (IMF) projecting a real GDP growth of just 1%. Colombia’s central bank is even more pessimistic, expecting a minuscule economic growth of 0.2% this year, amidst high interest rates and persistent inflation.

 “In 2022, the Colombian economy maintained outstanding levels of activity. Not only when measured through GDP, which completed two remarkable years, growing 11% in 2021 and 7.5% in 2022, but also in labor, external and financial variables,” said BBVA Research. “However, since the end of 2022, some signs of a slowdown began to be noticed, most evident in household spending on durable goods and the housing market.”

Home sales falling

During 2022, the total number of new homes sold fell by 7.5% y-o-y to 238,584 units, in contrast to annual increases of 24.8% in 2021 and 8.6% in 2020, based on figures from the according to the Coordenada Urbana from the Colombian Chamber of Construction (Camacol).

By major city:

  • In Bogotá and Cundinamarca, new home sales dropped 4% y-o-y to 84,848 units in 2022, after strong increases of 17.8% in 2021 and 12.6% in 2020.
  • In Valle, housing sales fell by 11.9% to 32,876 units in 2022 from a year earlier, in sharp contrast to y-o-y increases of 35.8% in 2021 and 41.3% in 2020.
  • In Antioquia, new home sales fell by 12.9% to 27,367 units in 2022, following strong growth of 32.7% in 2021 and a slight decline of 3.2% in 2020.
  • In Atlántico, the total number of housing sold rose slightly by 0.2% to 24,985 units last year, following y-o-y increases of 33.9% in 2021 and 6.5% in 2020.
  • In Bolívar, home sales rose by a modest 2.9% y-o-y to 11,733 units, a sharp deceleration from annual growth of 29% in 2021 and 19% in 2020.

 Then in the first two months of 2023, nationwide housing sales plunged further by 53% y-o-y to 23,105 units.

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,” said BBVA Research.

Colombia Home Sales graph

Top investment locations

The city of Cartagena (pop: 972,000), one of the country’s oldest colonial cities, is the city of most interest to many foreign buyers. Founded in 1533 by Spaniards, Cartagena was a trading port and a slave port where Africans were sold and shipped to other Latin American countries.

Cartagena is a large and intact colonial town of great beauty. The city has a port, fortresses, and monuments on the UNESCO World Heritage List. The revival of Cartagena’s historic center occurred in the early 2000s when wealthy expatriate Colombians began to buy and restore run-down colonial buildings. This eventually drove prices up by as much as 300% to 600% (in some cases) from 2004 to 2009, according to Patrick Enste, general manager of the real estate company La Heroica.

Cartagena’s property market started to heat up around 20 years ago, as colonial houses and mansions were restored, or transformed into luxury hotels or boutiques, according to Paul Juan, owner of the brokerage Paul Juan Realty.

“Nowadays, there are as many foreign buyers and investors looking for already-renovated properties as for properties to renovate,” said VerónicaDávila, director of Julio Corredor Christie’s International Real Estate Colombia. According to Davila, Colonial, and Republican-style properties are priced between US$1 million to US$10 million.

Bocagrande is also becoming popular among investors, because of its long beaches, shopping malls, high-rise hotels, and upscale apartment complexes. In Bocagrande, one-bedroom apartments without water views but located near the beach could cost around US$200,000, while three- to four-bedroom bayside apartments are priced at around US$1 million to US$2 million.

Colombia’s capital and its largest city, Bogotá, have also been attracting foreign buyers mostly from Canada, the United States, Spain, and Latin American countries. “The expat community has been growing steadily in Colombia for the past few years, and a number of them choose to buy local properties, as they see this as a strong investment option,” according to Santiago Rico Calderón, the managing director of the Bogotá office of Engel &Völkers.

Bogotá’s housing market became more appealing to international buyers after the Colombian peso devaluated against the US dollar by around 40% since 2015, according to Rico Calderón. The city would be an even more suitable area for housing investment in the near future, buoyed by rapid transit projects in Bogotá. As of 2022, 12 lines totaling 114.4 km run throughout the city, as part of Bogotá’s Integrated Public Transport System.

House prices in upper-middle-class neighborhoods in Bogota range from around COP 5 million (US$1,132) to COP 8 million (US$1,811) per sq. m. Included in Bogota’s most popular neighborhoods among foreign buyers are the economic and cultural hub Chapinero, and Santa Barbara, which is known for its casino and public par.

Foreigners can freely buy property in Colombia.

Colombia has huge ecotourism potential because of its unique biodiversity and variety of natural scenery such as the deserts in La Guajira, the Amazon and Andean regions, and Caribbean and Pacific coasts.

Rental yields are moderate to 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 Bogota, gross rental yields range from 4.76% to 8.15%, according to research conducted by the Global Property Guide in December 2022. 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 rental yields of 6.33% to 10.32%;
  • In Cali, you can expect yields of 3.88% to 8.62%;
  • Santa Marta can earn between 4.06% to 5.44%;
  • In Barranquilla, you can expect yields of 4.86% to 7.04%;
  • Cartagena yields fall between 3.83% and 7.23%;
  • Pereira produces strong yields of 6.67% to 8.67%; and,
  • In Bello, the yields are between 6.75% and 7.83%.

Round-trip transaction costs are low in Colombia (i.e., the total costs of buying and selling a property). 

Interest rates rising rapidly, mortgage market is still underdeveloped

During its March 2023 meeting, Colombia’s central bank, Banco de la República Colombia (Banrep), raised its key policy rate further by 25 basis points to 13%, its tenth consecutive rate hike since January 2022, in an effort to curb inflation. The policy rate increased by a cumulative 1,000 basis points in the past 14 months.

“With the decision made at today’s session, monetary policy maintains its goal of driving inflation toward the 3.0% target. Future decisions by the Board will depend on the new information available,” said Banrep.

Nationwide inflation increased for the tenth straight month in March 2023 to reach 13.34% - its highest level since 1999 and far above the central bank’s target of 3%.

As a result, the average lending rate surged to 22.1% in March 2023, sharply up from 12.2% in March 2022 and 8.9% two years ago.

Colombia Prime Lending Interest Rate graph

Mortgage borrowing in Colombia remains underdeveloped. Only 3% of the adult population have mortgages and outstanding mortgages amount to only less than 10% of the country’s GDP. Overall, mortgage loan growth remains modest and concentrated in the subsidized housing loan segment.

Construction activity showed mixed results

During 2022, the total area of residential construction permits in Colombia increased strongly by 32.6% y-o-y to 27.14 million square meters (sq. m), following a 36.3% growth in 2021 and a 27.4% decline in 2020, according to the National Administrative Department of Statistics (DANE). Yet, the number of residential permits fell by 2.9% y-o-y to 49,239 last year, after surging by 43.5% in 2021 and decreasing by 26.2% in 2020.

Colombia Residential Construction Permits graph

However, the total number of housing units approved for construction soared by 44.9% y-o-y to 319,583 units in 2022.

By property type:

  • For houses, the total approved units rose by a minuscule 0.1% y-o-y to 49,269 in 2022 while the total area declined slightly by 0.3% to 6.77 million sq. m.
  • For apartments, the total number and area of units approved for construction surged by 31.6% and 31% to 93,768 units and 9.4 million sq. m, respectively.
  • For socialized housing, better known as VIS houses (Vivienda de Interés Social), the number of approved units fell by 5.7% y-o-y to 19,608 last year and the construction area dropped 11.5% to 1.2 million sq. m.
  • For VIS apartments, both the number and area of approved units for construction almost doubled to 156,938 units and 9.76 million sq. m., respectively.

In the first two months of 2023, the total number of housing units approved fell by 4.8% y-o-y to 34,927 while the total area approved dropped 9.1% to 3 million sq. m., based on figures released by DANE.

Overall, about 250,000 new homes are expected to enter the market this year, of which 177,000 will be social housing (VIS), according to projections released by Camacol.

Colombia Housing Units Approved graph

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.

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
Source: 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$18,038) to COP 198 million (US$44,644).

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 this 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.

Robust economic growth in 2022, but headwinds ahead

During 2022, Colombia’s economy grew strongly by 7.5% from a year earlier, buoyed by strong entertainment, commerce, transport, and manufacturing sectors, according to figures from DANE, following an expansion of 11% in 2021 and a contraction of 7.3% in 2020.

“A good portion of growth was the reflection of soaring domestic demand which was sustained in large part by credit and which only began to diminish at the end of the year when the contractive monetary policy of the bank began to take effect,” said economic think tank ANIF.

Before the Covid-19 pandemic, the Colombian economy has been expanding modestly, registering an annual average growth of 3.5% from 2009 to 2019.

Though, a sharp economic slowdown is expected in 2023, with the International Monetary Fund (IMF) projecting a real GDP growth of just 1%. Colombia’s central bank is even more pessimistic, expecting a minuscule economic growth of 0.2% this year, amidst high interest rates and persistent inflation.

Colombia GDP Growth and Inflation graph

Consumer prices are surging. In March 2023, nationwide inflation soared for the tenth consecutive month to 13.34% - the highest level since March 1999, amidst escalating commodity prices. It is 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 last year.

Unemployment in Colombia stood at 11.4% in February 2023, down from the previous year’s 12.9%, according to DANE. Nearly 70% of the total workforce in the country is located in large cities.

The Colombian peso (COP) remains weak, losing about 20% of its value against the US dollar last year, making it one of the most devalued currencies in the world. This was mainly due to investors’ reaction to recent statements from the Petro administration about oil exploration and capital outflows. In March 2023, the domestic currency reached an average monthly exchange rate of COP4,760.7 = USD 1, a sharp depreciation from an exchange rate of COP 3,793.3 = USD 1 in the previous year.