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Colombia Tops Property Market Growth Table in Latin America

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With the relative lack of growth and in some cases decline in the property markets in America and Western Europe, coupled with the economic woes of post-2007, property developers and investors have been looking for emerging markets. A lot of attention has been given to countries such as China, India and Brazil, but as these economies and real estate markets mature, the next big thing is in demand. A recent CNBC report showed that Colombia is ranked as the fifth fastest growing property market in the world and the number one market in South America, overtaking more exposed markets such as Brazil and Argentina.

Colombia On Top

According to the CNBC report states that Colombia has experienced a five year growth rate of 39.4 percent. New builds have increased by nearly 20 percent. This coupled with a GDP growth rate of about 6 percent has helped to fuel the property market in the country. It has also become easier for foreign investors, although getting local finance remains naturally challenging.

The report notes that the increasing peaceful nature of the country, with successful purging of militant groups and gangs, has made business in Colombia significantly easier. In the first quarter of 2012, foreign investment grew by around 30 percent to about $4.2 billion US dollars. In accordance with these statistics, the prices of properties have risen by an average of 3.2 percent.

Part of this has been fuelled by subsidies for low income families. The going rate for a property mortgage is 12 percent, but low income families can receive discounted rates of just 7 percent on a 15 year mortgage. The largest area of increase is from the middle classes in Colombia, who are able to use increased access to funding to put their money or loans into property investments. The third area of expansion is foreign investment, mostly from Americans looking to develop the market.

New Builds vs. Second Hand

It is estimated that the town of Pereira will build 4,000 new homes this year alone. This is quite a lot for a population of 450,000 people. This number of constructions has doubled from 2006. Professor Marja Hoek-Smit of Knowledge Today, notes that there is a building frenzy across Colombia that is helping to meet the surge in demand for new places to live. This may grow further if the President’s plans to bring expats back to Colombia is successful. In 2010, 152,000 new homes were sold in the country, which was a 30 percent increase on numbers from the previous year.

Construction permits are increasing at a rate of 80 percent.New builds usually prove to be the most attractive type of investment property for people moving into the Colombian market or moving to the country altogether. There are a number of trade magazines in Spanish, which provide listings for new properties. These include for Cali, for Cartagena and for Medellin. An alternative to this is to buy a second hand property. This is good for the high end market or as a stepping stone to getting onto the property ladder. Renting is a third alternative with the benefits of being able to build up a credit history in Colombia.

Fears of a Bubble Market

The growth in property development has led to fears of a second bubble bursting. The first occurred in the 1990s in Colombia, which was caused by a spike in interest rates fuelled by the property market itself. As the graph above shows, the property bubble in Colombia has continued to grow since the lows of the late 90s, to a growth rate of 170 percent. This is a smaller rise than other countries such as Uruguay (1,250 percent) and Argentina (1,600 percent), but is still steady and significant. The biggest question for people using Colombia as an investment is how long will it continue to provide increased value for sale at a later date.

Naturally, overseas property insurance has become a vital lifeline for investors in the Colombian real estate market. If there is to be a property boom and bust, it helps to have a cushion. One alternative, if a bubble burst looks to be taking place, is to convert to-sell properties into to-rent ones, this brings in a steady yield while waiting for prices to increase over the sale price once more. Colombia is a good place to invest in the market, but like anywhere, it has its quirks. It pays to do research. Many firms will accept wire transfers of money, but be sure the company is legitimate before handing over so much cash. This is especially true as access to credit in Colombia for foreigners takes time and the right documentation.

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