Financing a purchase on an apartment

pointofview says on Aug 2, 2004, 18:09:

Daver If you are a foreign person you will not be able to qualify for credit with any bank in Colombia to finance a home or apartment. If your credit history is outside Colombia it is valueless in Colombia.

There are fiducaries (at least one that I know) that finance apartments and homes in US dollar loans at about 8-9% to USA citizens or USA alien residents.

If you only require short term financing you may find that through the seller in certain cases. Common real estate commission is 6% and the real estate sales operation is much like USA. Forget everything you every know about title insurance, escrow companies and USA closing procedures because it's much different (and strange) in Colombia but it all seems to work. Many more things are done on trust and personal relationships. Better to find a good (honest) real estate attorney. Never had to use one myself but I always had knowledgable people advising me.

Compared to the USA everything in Colombia in a real estate transaction moves in slow motion. Negoiating the purchase is like courting a woman as the process may go on for weeks and weeks or months with the seller honoring his moral (not legal) obligation to sell you the property first just because you have verbally expressed an interest of purchasing.

I would rather deal with a Colombian seller of property than a USA seller who breaks their word before it's out of their mouth. Be careful in negoiating that things don't misunderstood in the translation. If you are not fluent in spanish you need documents prepared in english as well as spanish. If you negoiate some special commission with a real estate agent get it in writing or it won't happen.

Buying the property is one thing but figuring out how to make the monthly utility and administration payments or paying the quarterly real estate taxes are another adventure. In reality they are easier in Colombia than the USA but getting to a point (as a foreign person) of having the right bank accounts and debit instructions for everything in place will test your patience. Just obtaining some form of residency and a cedula so you can open the bank account will take a long, long, long time. I am glad I did it but if I knew then what I know now I would be in another country like Chile, Panama or Ecuador where things like bank accounts and currency exchange are more foreign friendly and welcome.

"Hunter" is very knowledgable in this subject so you probably will hear from him.

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Hunter says on Aug 3, 2004, 09:49:

pointofview You have already answered most of his questions.

One correction is that if you are a foreigner here you can apply for a mortgage if you can prove a income source in Colombia.

If you can get a mortgage it will the interest rate will be between 20-24% a year.

To be paid over 6 years, is the norm.

I will carry on with information if you are still interested and think that you can get the mortgage here, if you really want to pay those extortionate interest rates.

Hunter

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daver says on Aug 3, 2004, 09:56:

24% interest. No thanks! I am from a frugal (well, cheap) Scottish family, and they would dis-own me for that kind of thing! I'd be better off getting a line-of-credit here in Canada and paying 7% interest. Hell, I could put it on my credit card and do better than 24%.

Thanks for your help. Basically, its too complicated, and too expensive (for me). I'll either rent or come up with the cash. So, you have saved me a lot of hassle and research.

Thanks again,

Dave

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Hunter says on Aug 3, 2004, 10:31:

Daver I agree its the only way to go, by bringing the money in from outside the Country, wether from savings or borrowed money.

Hunter

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pointofview says on Aug 3, 2004, 16:41:

Currency Risk I beleive that the peso strength is coming more from substanially increased US dollar and other foreign currency inflows into Colombia because of improved economic outlook and the progress by this new administration with the FARC and ELN elements. There is a sharp increase in foreign currency inflows the past few years and I think that the primary reason for the strength in the peso rather than a weaker US dollar. These heavy inflows are the major reason that the peso has had so much recent strength (last eight months).

You can bet that the Colombian government doesn't want a stronger peso and will put some form of pressure to move the peso to somewhere in the 3100 range against the US dollar over the next 6-8 month to make exports more competitive.

If that senario is correct you are better off purchasing Colombian assets with peso loans at rates of interest not to exceed the range of 8% to 10% if you can find it than US dollars.

All I am saying is that in my opinion the peso is going to start weakening against the dollar soon moving retracing the rally back to the forcasted 3000-3100 range. If peso prices of properties don't change much over the longer term you can buy the properties cheaper (in US dollar terms) in the future.

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junior says on Aug 3, 2004, 17:29:

property in giron... you can buy a three bedroom two bath townhouse for about 5,500 dollar, no need to finance anything, just buy it...

i love colombia...junior

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Dan says on Aug 3, 2004, 17:38:

good subject I think this is a good subject here. I remember seeing posts before about Americans buying houses in Colombia:

http://www.poorbuthappy.com/colombia/node/view/3175

I have been thinking of buying something in Colombia someday. I havn't heard anything about the peso going to 3000 range but that does sound pretty good. I would be a little weary of the interest rates myself. I just bought a house in North Carolina a couple years ago with an interest rate of 6%, so seeing anything higher doesn't sound too good. I guess it all depends on what you're looking for and how much/badly you want it. Since I am getting married soon to a Colombiana, I know someday I will go through with buying property. Even though I'm not directly asking the questions here, I just want to thank you guys for the wealth of information. It's good for the research and knowledge and what to look out for when the day comes.

Take care,Daniel

God Bless America!

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pointofview says on Aug 3, 2004, 17:58:

Three Bedroom Two Bath Townhouse US$5,500 Dear Junior:

You better buy as many of those as you can because they don't exist in any major city in Colombia (in a form that you would want to live in). That would be CP$14.300.000 which won't buy too much in Medellin other than a downpayment on a a three bedroom two bath townhouse or two extra parking spaces in a new apartment building.

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pointofview says on Aug 3, 2004, 18:11:

Dan - Peso Dear Dan:

The peso hit 2907 or maybe a little higher in Novemeber of 2003. I remember it was flirting with 3000 back in late 2003 but rallied back to it's current level of about 2620 plus or minus a little

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vicshere says on Aug 3, 2004, 18:12:

US$ lately try if your lucky 2500 at the exchange houses

listo
"con mucho gusto"
Vic

listo

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daver says on Aug 3, 2004, 19:46:

pointofview,

I would have to disagree with the reasons for the strength of the peso. It is really determined by the US dollar, which is the benchmark of all curreny. For instance, here in Canada, our dollar soared from $.61 to $.75US in six months. However, so did almost all other currencies, especially the Euro. Now, if the US dollar is alway = to 1.00 and its value drops, basically other world currencies go up, and the USD still equals 1.00. Trust me, the Canadian dollar went up for no other reason than the economic woes in the USA. Like Colombia, we have the ability to affect the worth of our own currency, but not even close to the influence that America has on our curreny.

The US dropped its interest rates to help stimulate the economy, which didn't work, so the dollar is weak, and will likely remain so until the American economy is back on track, and until uncle George and his method of keeping Americans affraid of everything subsides.

Well, I am talking a bit above my head here, so feel free to disagree! (I'm not American, so I hope the USD stays low anyway).

Dave

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Dan says on Aug 4, 2004, 05:29:

USD Dave, I would agree with you on how the US affects so much of the worlds currency. It's kind of interesting to me in how the US affects so much in the world and the country is just more than a couple hundred years old. Even though I am american, I hope the USD stays lower so that I can get better exchanges when I travel abroad.. but that's just me.

God Bless America!

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pointofview says on Aug 4, 2004, 05:45:

Valid Point Dear Dave:

You bring forward a valid point for consideration and it's certainly a factor in the equation. The net inflows in Colombia as converted to pesos effect the supply and demand equation of the prevailing exchange rates. The US dollar, so far, is the benchmark currency for the world but in time that may change.

We all watched Ecuadors currency collapse from 12.5 sucre per US dollar to over 30,000 sucre per US dollar until replaced with the US dollar as a currency. Small countries like Panama and Ecuador can use the US dollar as a currency because the requirement (in US dollars) to monetize their system is small. But a country like Colombia or other large country would be difficult. Think about it this way, when a country prints it's own currency it doesn't pay interest but to acquire US dollars as currency has a cost of funds associated with it.

The major currency corrections you see in other Latin American countries (or throughout the world) are more the product of supply, demand, and more importantly confidence in the country, it's political leaders and government. After all a paper bill of any countries currency has no asset value (the paper is worthless) but the value is determined solely by the person/company that accepts it for payment for goods/services whatever. Whether the USA dollar is weak or strong is not a factor when another countries government or economy is unraveling and people are trying to escape it's currency.

If things continue down the current path we should all learn the chinese language as they may own everything. The president of Phelps Dodge (major USA copper producer) recently said that the average USA citizen uses 22 lbs. of copper per year and a chinese citizen uses 1/2 lb. per year. If the usage of copper ever reached USA levels in China (standard of living) all of the known deposits of copper (in the world) would be consumed and gone in a year. Yes, the USA was once an large industrial giant but it's becoming much less so depending upon other countries to supply the products it consumes more cheaply. US companies are more rapidly moving their production offshore to countries with cheaper cost labor and less regulation. In the end the companies themselves will probably move just to survive. The USA is killing it's industrial base through excess taxation, excess regulation and ever increasing costs of labor. All of these factors may put further pressure on the USA dollar in future years.

Dear Dan:

With a weaker USA dollar your currency exchanges are generally worse so pray for a stronger dollar. A weaker USA dollar helps the USA with it's exports by making them more attractive (pricewise). Travel to europe now, put your USA dollars on the table and you will find how little the USA dollar is worth against the Euro.

I remember well the last years of President Carter's administration with inflation at 12%, prime interest rates of 18%, AAA 30 year US treasuries selling at 12.5%. For people that think 5%-6% mortgages and low interest rates are forever in the future they need to look in their rear view mirror and view the roller coaster of past twenty to twenty-five years. I still remember people spending their paychecks for any material things as quickly as they good because of the declining value of the currency. Is the USA immune to the problems of other countries thoughout the world (to numerous to name)?? NOT

De-basing currency (reducing value) is but another form of taxation. Politicans in every country throughout recorded history have done it and the USA included. This form of taxation seems painless as it just creeps into your pocketbook quietly and unannounced. When the Colombian peso raises from 900 to 3000 against the US dollar who pays the price. Interest rates in Colombia are a factor of two components one is the rate of interest and the other is devaluation. So the interest rate that seem a little high in Colombia carry both these factors for good reason. Inceased asset values resulting from inflation creat even more tax revenue for the Politians and we all know what they do with the money (spend it).

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Hunter says on Aug 4, 2004, 07:14:

Peso strength The dollar has been weak against most major currencies for the last couple of years, which will also add to the peso strength.

But the main reason the pesos is strenghening is the change of the policitcal enviroment here, this on its own would do nothing in the long term, but it is bringing foreign currency into the Country which is strenghening the peso.

I am not sure where I see the dollar going over the next few years, with the huge goverment deficits and trade deficits on one hand, but an economy better that most other Countries, so people want to buy into it, by buying US assests especially bonds.

Regarding pointofview saying he believes that the Colombian goverment will try and weaken the pesos, they have tried this several times this year and apart from a few days of weakness against the dollar, it reverts back. I can't see the peso weakening against the dollar sustainably because of Colombian goverment direct actions.

Hunter

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pointofview says on Aug 4, 2004, 07:34:

Hunter - Question Dear Hunter:

I know you have looked at properties in Medellin from previous posts. If you were buying a new property (under construction) and your source of funds was US dollars, wouldn't you elect the developers plan of paying pesos in quotas over the life of construction as opposed to accepting their discount for a cash payment up front if you thought the peso would further devalue during this time period ???? Most of the discounts I have seen offered imply a 10-12% interest rate which is good but only if the currency remains stable during the period of time the quotas would otherwise be paid.

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beto el feo says on Aug 4, 2004, 13:56:

Hey Junior Did you forget a zero on the $5,500 for a townhouse? My wife's from B/Manga and she nearly doubled over with laughter when I told her.

Giron is a beautiful place for sure. Next time you go down there you should try to make it to San Gil....a beautiful 2 hour drive from B/Manga and another great town to visit. Judging by the pic of your girlfriend you should be ready to head back in about a weeks time.

Did someone really make you a padrino to their kid after only knowing you for a week? Is this common in Colombia? My wife tells me her grandfather is padrino to about 200 kids in Savana Larga because he has money and people think it may rub off on them.

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junior says on Aug 4, 2004, 16:24:

padrino... i have been speaking with my fiancee and her family for about 9 months...got to know everyone really well on the camara using the msn messenger...but also had hours of telephone conversations with her family which includes father, mother, two sisters and two brothers...exchanges many letters and so on...i spoke many times with her brother cesar, who asked me to be the padrino...

there's more to me than what you read on this site...i have over 800 relatives in california, some who work for the united states government in intelligence...and more...this family in colombia also has many relatives who are police officers who spent the time to look into my family's background and also speak with my sisters, brothers my mother and both of my sons...

to be honest with you, you could be a little more respectful in you question, and i don't like being laughed at...maybe your wife doesn't know everything...why don't you go to giron yourself and see if the people i know in giron are a bunch of liars...this is what townhouses start at in giron some are more expensive...

i find you inference that because some colombian think i'm rich they hope that it will rub off on them...i think you and your wife are arrogant people...good example how someone can live in a country and know so little about their neighbors or the communities they live in...

you are a tiny man in a big world...

i love colombia...junior

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junior says on Aug 4, 2004, 16:26:

san gil... as a matter of fact i have a standing invitation to a finca in san gil...

i love colombia...junior

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Hunter says on Aug 4, 2004, 16:34:

pointofview I am not really interested in brand new property, because of personnel tax reasons unrelated to Colombia, but I have looked into it.

If I was going to buy a new apt/casa (under construction) with a foreign currency, I would opt to pay over the life of the project, the discount is then spread over the life of the project, which helps to cancel some of the potential currency risk of putting all the money down up front, how much discount you get per month is down to your negotiating skills, also how much discount you end up with depends on when you enter the project, they normally have the plans laid out a year before the project is finished, an exapmle below which is if you entered at the 6 month point, before the construction is due to be finished:

1st months payment 5.4% discount
2nd months payment 4.5% discount
3rd months payment 3.6% discount
4th months payment 2.7% discount
5th months payment 1.8% discount
Last payment minus the total of the above discounts.

pointofview are probably aware of the above info, but I will post it here for other people to see.

Hunter

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pointofview says on Aug 4, 2004, 17:17:

Hunter I appreciate your input as I have seen so many varations of the discounts offered for cash payment vs. the life of project construction that I needed someones elses observation. I see offers of 10% discount without considering whether there are 14 or 24 months required for buildout. A few are attractive to make the upfront payment but most are not considering the low rate of earned interest and the currency risk.

I agree too with your analysis about the Transversal Superior area between Envigado and Poblado. It will be a quality area much the same as Poblado for both apartments and commercial space without the traffic congestion of Ave. Poblado.

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