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Real estate in Colombia and the market crash

In as much as the market crash is real estate driven and that Colombia has some of the poor real estate practices in common with the US, are prices falling?

ts

By lpdiver on Sep 16, 2008, 10:34 in Friendly Talkzone.

Ctg Bound says on Sep 16, 2008, 10:49:

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RealEstateCOL says on Sep 16, 2008, 10:53:

No, it won't have any effect at all because the real estate market in Colombia is different. Why do you say that there are poor real estate practices in Colombia? give some examples.

The US Real Estate crisis is basically due to irresponsible lending practices, something that you don't find in Colombia, just try getting a loan from a bank, one of these days they'll start asking for blood samples.

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lpdiver says on Sep 16, 2008, 10:55:

The market is booming in Colombia from looser lending practices. This has lead to housing explosion. When I was dating my now wife in 2002 houses in Poblado were one tenth of what they are currently running.

ts

"cook some rice!"

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RealEstateCOL says on Sep 16, 2008, 11:00:

No, you're wrong about that.

The El Poblado RE market is atypical, there's a lot of money coming from you know what being invested there and also wealthy legal colombians who want to invest in high end markets and they usually pay cash, so, no, that's not an indicator of lending patterns, if you want to look at that you have to focus on the middle class markets, say Loma Los Bernal, Conquistadores, Laureles and other areas.

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gimmedub says on Sep 16, 2008, 11:00:

the colombian economy will experience a slowdown in the next 6-12 months - factors include a credit bubble, less foreign investment, lower commodity export prices, and less sales to their largest consumer. I paid 80 million pesos for a house in valledupar for estrata 3 - why should one in Bogota be 4x the cost for something similar?

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Poorbutsnappy says on Sep 16, 2008, 11:01:

lpdiver.... you are right in the money.... A friend of mine was talking to a few of the major real estate investors in Medellin, Colombians and Americans, and they seem to be seriously concerned about a "burst in the bubble" in the next year or two similar to what happened in the real estate market in the US... especially in El Poblado, Laureles and Envigado....

Any more insider info?

Colombia tierra querida, himno de fe y armonía!...

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lpdiver says on Sep 16, 2008, 11:02:

I also am wondering if with the government (Uribe?) getting a grip on the guerilla thing if there might me an impending unban flight. Of course that would not be the upper strata houses.

ts

"cook some rice!"

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tomass says on Sep 16, 2008, 11:04:

I suppose Col real estate prices will start to fall (id be surprised if they havent been falling already) as recession bites in first world economies and third world economies catch their inevitable cold. Commodities will fall (v bad for col. which gets 60% of its export revenues from petroleum annd minerals) and on top there wont be funds available for projects (inward investment) as the banks halt 'risky' loans.
Could be a good time to buy Col real estate as and when (1-2 years from now?) this settles.

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Ctg Bound says on Sep 16, 2008, 11:08:

gimmedub,

There will be a slow down in Colombia, its already here, but commodity prices I can't see being much lower, remember the highs were only briefly there for a few months, then went back down, to more or less where we started the year, plus the investment already on going will increase the volume of the commodities being exported.

I can't see there being much of a drop in foreign investment, as most of it went to commodity linked businesses, which are presently cash rich and will invest where they can and Colombia is one of the few options open to them in the developing world.

As to a credit bubble in Colombia, there was a slight opening up of the credit market here, but few people could access it, so I can't see that being a real problem.

Your property reference I can't comment on, but its quite normal to have wide variations for the same type of property anywhere.

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lpdiver says on Sep 16, 2008, 11:10:

That my thinking tomass...of course as they say in Hollywood...time will tell.

So the other side of the coin is that now is probably a bad time to buy real estate. Especially if you wouldn't be occupying the property as your principal residence.

I look at homes last visit, but it is hard to judge looking in the internet. I get the impression that the prices are EXTREMELY negociable or EXTREMELY firm with no inbetween and no real reason as to the supposed valuation of the house other than the owner WANTS to get this much.

ts

ts

"cook some rice!"

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bickerss says on Sep 16, 2008, 11:11:

Last time I was in Poblado many of the same apartments still had the same for sale signs they had on my previous visit (up to 3 months before) and there seemed to be a hell of a lot in comparison to a year or 2 before. Back in 2 weeks so it will be interesting to see what its like. Would be nice if they retreat along with the peso!!

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RealEstateCOL says on Sep 16, 2008, 11:11:

Prices won't dive like in the US but a general consensus among Realtors in Medellin is that prices will either remain flat the rest of the year or will go down slightly.

Foreigners interested in investing should start to look for available properties, the dollar is going up and prices will stay flat for a while. Recently I got a 5% discount on a new penthouse for a client, that's not typical here, developers aren't used to that especially in high end markets but some are getting nervous because their new condos are not selling as fast as they should.

If someone's interested I have a list of available properties for sale in El Poblado and Laureles, PM for more info.

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Ctg Bound says on Sep 16, 2008, 11:12:

Poorbutsnappy,

Some areas in the Country are being over built, wether there is a pull back or just stagnation in those areas we shall have to wait and see.

The safer bet is generally to avoid those areas unless you have some specific knowledge in one of those areas.

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bickerss says on Sep 16, 2008, 11:19:

realestate - interested to see what you have if you can send; will post you. Do you have any info on Rodadero or only Med?

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tomass says on Sep 16, 2008, 11:24:

Ctg - your commodities points well taken.
Though of course while commodity prices have indeed come down to year ago levels they remain today at historically very very high levels.

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Ctg Bound says on Sep 16, 2008, 11:37:

tomass,

They remain at high levels due to demand and lack of supply, China isn't going away I expect to see GDP growth there this year of 8-10%, probably no change next year at the moment.

As they were the main driver behind the commodities rise, I can't see prices dropping away, although I think the main run up in commodities prices for this cycle is over.

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gringoloid says on Sep 16, 2008, 12:15:

it's busy in the stock market today so i can't write much...........but i'm going to open the other contest later......the one on the effect of the usa problems on colombia.

i want to leave you with this tidbit from the past where raaay talks about colombian real estate:
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.
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RAAAY says on Feb 28, 2008, 10:28: flag
Colombian real estate is still cheap..............yes, it is more expensive by far, than it was 2 years ago......one year ago..........hell........six months ago.............the feeling of having missed the boat will be strong among a lot of people...............

But this boat has only pulled away from the dock a little................there is still time to jump on..................it's got a long way to go..........

For example........An $80,000 apartment six months ago is now selling rapidly at $110,000 plus........................that same apartment will eventually change hands at $350,000 plus.....and by eventually I suggest within 5 years.

There was a recent article in El Colombiana talking about the huge spike in land and house prices in Llana Grande....outside Medellin......................Despite the rises, this stuff is being gobbled up...............it's got a long way to go..................get in now with your dollars before it is 1500..............and better. Booms typically last for seven years...........Colombia might very well buck that trend because it is starting from such a low base..............

I personally know three guys that have sold property in the last two weeks........all three are Americans..........and all three sold for various personal reasons........one moved to a different part of the country.........the other two bought bigger places.

One guy had his place sold within one week of putting it on the market........the other had it with an agent for two weeks..........the third had it with an agent for three months and had to reduce his asking price.........he had been asking way too much............however the people he sold it to...........gave him a deposit and actually flipped the place to someone else making themselves 30 mil in the process...................

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Cheers Terry says on Sep 16, 2008, 12:22:

I'm no tycoon like many of you guys, but I look at the prices in the high-end Medellin neighborhoods, and look at the construction practices, then consider the state Colombia is still in and I come away thinking it's the most overpriced crap I've ever seen in my life.

I'm likely completely wrong though.

Cheers,
Terry

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gringoloid says on Sep 16, 2008, 12:23:

you're not wrong at all terry.

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Waterdawg says on Sep 16, 2008, 12:24:

Opinion on Bogota only .. In the north ; Prices way to high to buy at this time .. There are for sale and rent signs ever where ... There are going to be just a ton of new units hit the market at the same time ( spring 2009 ) ..

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Loggi says on Sep 16, 2008, 12:31:

The apartment I am renting in the north was vacant for 8 months before I moved in. The owner is already begging me to renew my lease which is only up in 5 months.The other vacant apartments in the complex are still empty after 7 months, and this development was only phase 1 of 10. In the mean time there are hundreds of new units in every city block becoming available. One does not need to be an economist to see the picture.

“Travel is fatal to prejudice, bigotry, and narrow-mindedness.” - Mark Twain

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clonesspam says on Sep 16, 2008, 12:37:

Prices will crash or at least will remain flat for the next 2 or 3 years.

Every single block or apartents or houses have at least one place for sale and none is selling. It will become even more dramatic once the new projects come up finish and people start moving to those places and put their own for sale.

I have talked to a few RE agents recently and they have hundreds of places for sale, one of them have over 300 apartments for sale just in El Poblado area and over 130 houses for sale. How many he have sold in the last 6 months? = 10 properties.

He said that the problem is price, Medellin does not have enough people to buy a property that is over 300 millions and the ones that actually have or can borrow that money have already bought something.

Interesting times are coming....

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nbenjamin says on Sep 16, 2008, 12:38:

Realestate Colombia states, when discussing the impact of the U.S. economies nose dive on colombian realestate:

"No, it won't have any effect at all because the real estate market in Colombia is different."T

To believe this would require a willful suspension of disbelief. Colombia's number one trading partner is the U.S., if the U.S. tanks it obviously would and will impact Colombia - and subsequently the ability to purchase property in Colombia.

The biggest mystery of the Real Estate market in Colombia - is who the hell is buying 200k to 500k apartments and houses in Medellin, Bogota and Cartagena -specially considering there is no financing in that country.

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Cheers Terry says on Sep 16, 2008, 12:40:

Perhaps in a year or two when all these new units have hit the market and the hype calms down I can imagine there will be some excellent buys on smaller and medium sized houses in decent neighborhoods - something that would be a perfectly solid, inexpensive buy for someone without a lot of money.

I saw some modest houses in Medellin that weren't embarrassingly over priced - the condos were silly though.

Cheers,
Terry

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miamimike says on Sep 16, 2008, 13:01:

MEXICO -- Mexico's peso fell to a six-month low after Lehman Brothers filed for bankruptcy, reducing demand for higher-yielding, emerging-market assets.

The peso was the second-biggest loser against the dollar after Brazil's real and is among the six most-traded currencies in Latin America. Lehman, once the fourth-largest U.S. investment bank, listed more than $613 billion of debt after failing to find a buyer, and Merrill Lynch agreed to be sold to Bank of America for $50 billion.

''There's a lot of angst because of the U.S. financial market situation,'' said Sergio Gutierrez, who oversees 18 billion pesos ($1.7 billion) in assets at Investrust SA in Mexico City.

Colombia will feel some of the Shockwaves of this meltdown as did the Mexican Peso,,,

On Sept 17, 2008: Senator John McCain said, as he had many times before, that he believed the fundamentals of the economy were "strong."Hours later he backpedaled, explaining that he had meant that American workers were Strong.

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tomass says on Sep 16, 2008, 13:02:

Keep a watchful eye on unemployment rates / statistics (if you can believe them) but consensus is theyve jumped up the last few months in Med.

As many % of Colombians just manage to get by from day to day then losing your job will quickly translate to a flood of properties coming available.

In Med i think its 54% 'own' their own properties and 36% rent.
And then a goodly % are stuck paying exhorbitant interest on their mortgages -
any typical stats on this

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Cheers Terry says on Sep 16, 2008, 13:03:

''... There's a lot of angst because of the U.S. financial market situation...''

No sh*t, Sherlock...

Cheers,
Terry

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clonesspam says on Sep 16, 2008, 13:10:

And... everytime you ask a RE agent how long the property has been on the market, they say..."2 weeks", and the you check on Internet and the property was listed 3 or 4 months ago.

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nbenjamin says on Sep 16, 2008, 13:16:

Property just sits their in Medellin - forever.

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miamimike says on Sep 16, 2008, 13:27:

Colombian Stock Market closes down by 3.78%,,,but dollar was up at 2100
El Colombiano.com:
http://www.elcolombiano.com/BancoConocimiento/E/ec_cae_bolsa_colombia_...

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nbenjamin says on Sep 16, 2008, 13:39:

3.78 percent? Yeah, but that has no relation to the problems in the U.S. economy.

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miamimike says on Sep 16, 2008, 14:17:

My point, FYI, was/is with our US market down around 4%, the Colombian market closing down 3.78 was a ripple effect felt by all of Latin America,,,

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Noelito40 says on Sep 16, 2008, 14:48:

On the original point about the housing market, what I can't understand is who here (in Bogota) is buying the apartments? I went for a mortgage recently and despite the fact that I am debt free and have interests in a number of other properties, they would only loan me a maximum of 30% of my monthly salary, which (over 10 years) is a paltry COP 30-40m, now you wouldn't buy a parking space in Bogota for 30-40m. Now of course some of the cash purchases in the market have interesting "origin of funds!!??" but for the normal Colombian in an average job in Bogota there is no way they can come up with the 30% capital needed nor get a mortgage for the other 70%, so...I think there must be a very strong rental market in Bogota...but I'm not so sure about the selling market.

Also, it is common practice in many big cities worldwide for people to come from the country to the city and they either can't or don't want to buy in the city (they probably expect to stay there only a few years) and this factor also contributes to a strong rental market...

On a side note, banks in Colombia are a red rag to a bull to me but credit where credit is due, with them financing only 50 to 70% of a property, it should keep a lid on prices. Now if they would just reduce the mortgage rates, this might also stimulate the market.

Just my 2 cents worth...

Noelito

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bufalo says on Sep 16, 2008, 14:56:

"...irresponsible lending practices, something that you don't find in Colombia, just try getting a loan from a bank,"

You don't find that in Colombia? Sure about that? I'm not a pro in the least bit, but know loooooooots of Colombians that have lost their houses. Banks in Colombia want you to lose your house. Why? They auction it off for 80% of it's value regardless of what you owe, so if after many years you still only owe 10%, they make money. I believe that after the 80% auction it goes to like 60%, then stays at 50%.

And as far as loans are concerned, many people don't borrow from banks rather gota a gota (OK, not for houses so this may be way off base) - and that takes near forever to pay off.

Getting back, my brother in law was lent 10 million for his house 10 years ago on a (I believe 30 year). He's paid his bill every month (so he says so maybe I'm wrong about this, but don't believe so. He wouldn't lie about something like that) and now he owes...... about 12 million.

Maybe there's more to it, but he is by far the only person (lower stratas) that I know in this situation.

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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nbenjamin says on Sep 16, 2008, 15:01:

MM - obviously the 3.78 drop was a direct result of the U.S. Market drop. I was being sarcastic. My apologies.

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bufalo says on Sep 16, 2008, 15:03:

Colombians also tend not to lower their prices. Someone posted above that 3 months went by with the for sale signs still up. That's nothing I've seen plenty that have been for sale for years due to asking to much.

Case in point. We used to rent a furnished place for 400.000 in Armenia, then left. A guy from Spain came and paid 1 million for the same apartment because that's what his company would pay. When he left, the old bag that owned the place would then not come down from 1 million. The place stayed empty for 2 years straight, she finally had to move in the place as well as move her business there since she was losing so much money. Last I knew she left in the middle of the night (woke me up arguing with the administration) because she hadn't paid 8 months of fees. It hasn't been rented since.

Forgot to mention that after the Spanish guy left she also wanted to rent it for that 1 million, but without furniture.

We rented the apartment next door to said old hag for 350.000 a month when we returned. Our new landlord was a sweet ol'lady.

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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lpdiver says on Sep 16, 2008, 16:47:

Bufalo...I too have noticed apartments for sale for over three years in the internet with the price never going down?

ts

"cook some rice!"

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gringoloid says on Sep 16, 2008, 16:55:

lpdiver........i also have seen that and with some the prices are still going up..........but i'm betting that 12 months from now we should see a change. i had to leave bogota because of that problem.

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Gator says on Sep 16, 2008, 17:45:

In our area, Los Rosales, Chapinero district, north Bogotá, no drop BUT not increasing at this point. This in the area from roughly Calle 68-98 (North-South) and Carrera Septima (7th Ave), to , La Circunvalar

"Credidi pretio parvo emere et magno vendere tibi in animo fuisse!" .

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wendell13 says on Sep 16, 2008, 18:29:

Good comments by all

In Cali things seem to be slowing down. Chipichape mall has many vacant locales. A new apartment complex by Carrefour was built in two stages. One building and then the second. The second has been completed for several months and no one is in there. The first building also has several vacancies.

Driving around town I see many, many apartments for sale and rent in the higher estratos

If I was buying here I would wait a year. I think you will see lower prices here

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bufalo says on Sep 16, 2008, 20:12:

I know I am not the gringo who has spent the longest time in Colombia, but I have to admit that for the 16 years or so that I have been going, it has constantly been like this. I knew people in Santa Marta with 4 apartments or so and they were actually going hungry (OK, not dying from hunger but defintely going without).

I've seen bad times in Colombia economically speaking and zero price drops. But again, I'm just a more-than-casual observer and not a pro.

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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aztec says on Sep 17, 2008, 06:29:

Real estate market in Bogotá doesn't follow same patterns we normally see in the USA. We have revisited apartments in North Bogotá we saw four years ago. Nothing has changed with the apartment except the price is about twice as much as before.

Amazing they can't sell it but instead raise the price. Market is crazy and doesn't "yet" respond to supply and demand.

I believe there are other "forces" perhaps unique to Colombia working here. Regardless, sooner or later the dynamics of the free market will have an impact in Colombia.

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bufalo says on Sep 17, 2008, 08:21:

Yup, Colombia, or any other country for that matter, do not function exactly the way US markets do.

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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miamimike says on Sep 17, 2008, 11:47:

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nbenjamin says on Sep 17, 2008, 12:44:

There is no question it is a mystery. Drug money explains some of it. But a great income out there is 5,000 dollars a month - and that is like the top 95% of colombia - whereas here it is probably closer to the median income. And the GDP per person is 5,000. Our GDP per person is about 9 times that. Yet housing prices in Medellin are hire than many parts of the USA - like say texas or nevada or arizona.

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gringoloid says on Sep 17, 2008, 12:47:

good point there ben..............no one is talking about deflation...........only inflation.
..........the jury is still out.

there are some higher prices in the usa with food and energy..........but suv's, real estate and practically everything else is down.

anybody covered for deflation.............i sure am.

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bufalo says on Sep 17, 2008, 19:58:

If I had a different scenario, I'd buy real estate in the states now. Gotta fix that scenario!

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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bufalo says on Sep 17, 2008, 19:59:

Gringoloid - any good places to start for beginners as far as real estate, investing, etc..... I'm a bit more than a beginner, but would like to learn more.

"If you don't like it - lump it, take it down the road and dump it." - Archie Bunker played by Carroll O'Connor

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gringoloid says on Sep 17, 2008, 20:36:

i would say do what i'm doing and wait until these global economic problems hit colombia and then you may find a little real estate deflation.

i figure if i wait until the latter half of 2009, i will find some good deals.

if i'm wrong and real estate continues to go up and up without ever correcting.......forever......than i made a mistake.

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harvardexec says on Sep 17, 2008, 22:04:

I think there will be some good buys in Colombia in 2010 and 2011. US and foreign investors are still investing in Colombia. When the residential real estate market bottoms out in a year or two in the US, US and foreign investors are going to be investing heavily in the US. Many of these investors will look to cash in on capital gains made in Colombia, and use these investments dollars in the US where they can realize better returns.

"I'm going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated."-John McCain

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SamGompers says on Sep 19, 2008, 09:12:

Obviously, global markets are in a serious cool down - - the real estate woes have hit Europe, stock values deflating in Asia, etc. Probably the only places that will weather this storm are those with fireproof export markets: read oil and gas. (However, even Brazil, with its new found oil reserves, is taking a hit.) The source of Colombia's relatively brief run at prosperity has been its integration into world financial and commodity markets - - i.e. it's pretty difficult to imagine that the Colombian economy won't be affected by liquidity et al crises wracking the rest of the world.

I've been busy elsewhere for the past 6 months or so - - but I know the Colombian housing market is ripe for a fall, mainly because there is just too much overdevelopment, and too much capital sunk into real estate. That plus a really skewed internal labor market (where average income is way out of sync with real estate markets) spells contraction to me. (One source of the current housing "crisis" in the U.S. that has been less remarked on in the media is the widening disparity between wages and housing - - i.e. wages have been trailing productivity for years and mortgages - - the bloody crossroads of Wall Street and Main Street - - have been sucked up into the financial sector . . . when income/productivity is detached from finance, you can always expect an eventual burp - - cf. 1929.)

Folks here are talking about deals emerging in 2010/2011 - - fasten your seat belts because the tsunamis raging through the global financial markets will hit Colombia a lot sooner than that. I predict within the next 6 months. No way Uribe et al can ride out the storm - - even the U.S. gov's proposed "New Deal" for mortgage securities will probably not put the brakes on the current recession.

Who is buying all those expensive apartments and houses? No one. Because until recently they weren't necessarily built to be bought and lived in - - they were built because there was a lot of excess capital flooding into Colombia and elsewhere and that capital needed a place to temporarily "park." (My guess: one reason construction practices are so shoddy in Colombia on expensive condos/villas/houses is not because of some "Colombian" or "Latin" trait - -but because construction is about offloading capital much more than it is about selling or buyers.)

U.S. and international investors are now rapidly, chaotically shifting their money to super safe instruments and away from the markets, and obviously real estate. I'm not convinced that the housing boom in much of Colombia is fdi (foreign direct investment) - - I suspect it's more local. But could be wrong . . .

Finally, export prices alone won't support the current building boom - - except in the case of oil and natural gas, where the demand is inelastic, exports are always volatile over the long run, more so given the type of exports Colombia is pushing.

I'm expecting the worst - - as the U.S. political system (after decades of neoliberal consensus) now seems totally incapable of addressing the ongoing crisis - - neither Obama nor McCain, for instance, is ready to address the fundamental issues. "Cleaning up Wall Street" (McCain) may play well to hockey moms in Ohio - -but as a solution to the current crisis it's laughable. And, Obaman's "more, better regulation," while a bit more responsible, misses the more powerful factors involved.

Oh well . . . too many words . .

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