Fragment from "Real Estate Investment: Latinamerica 2010, countries covered Colombia, Brasil, Peru, Argentina, Mexico, Panama"
Investment in Colombia report by Alternative Latin Investor online magazine
As it emerges from a volatile and violent past, Colombia has become another interesting destination for real estate opportunities. Like Peru, it managed to avoid most of the recession, and the sector is benefiting from falling interest rates and stable inflation. There is also a certain degree of catching up to do after so many years dogged by an image of drug cartels, guerrillas and kidnappings.
COLOMBIA: A Country Reborn
Real GDP growth is expected to fall in the 4-5% range for 2010 and remain solid going forward, as the middle class continues to swell in the coming years. In addition, years of pro-market reforms have made it relatively straightforward for foreigners to invest in the country. A recent report by the University of Rosario y Colombia and Chilean firm Inteligencia de Negocios ranked Bogotá as the sixth most attractive city in Latin America for investment.
Billionaire investor Sam Zell recently declared Colombia the "next best" Latin American market, as new President Juan Manuel Santos continues to support economic development and change the country's image for the better. Some of the most exciting prospects in the near future lie in the burgeoning tourism sector, especially along some of the less developed stretches of Caribbean coastline.
CommercialColombia's robust economic growth is attracting international companies to the capital Bogotá, where demand for commercial real estate is strongest. Businesses that locate here face few obstacles to entry compared to other Latin American countries,and gain access to a low-cost, well-educated workforce just a three-hour flight from Miami. Despite this strong demand, a glut of supply could depress prices in the short term. According to the national statistics office (DANE), half of the commercial buildings under construction in Bogota in 2009 were offices. A report on Bogota office real estate by Jones Lang LaSalle suggested that the city could face an oversupply of top-grade office space in the near future, as several major projects began years before the crisis hit come to near completion. Vacancy rates spiked from 1% in 2008 to almost 10% by the end of 2009, and are expected to remain elevated until the economic recovery matures.
The upmarket Santa Barbara neighbourhood, in the North of the city, accounts for around a third of all office space in the capital, and is where most international firms are currently based. With room for expansion in this area limited, other areas such as El Salitre are attracting new development of class A office towers. The retail sector is also vibrant, with sales up 15% year-on-year in June according to data from DANE. Local media estimate that there are up to 60 malls currently under planning or construction throughout the country, and it is international chains that are driving the sector forward.
ResidentialColombia's favourable country-specific dynamics meant that the housing market was barely affected by the global credit crisis. According to data from the National Bank, used house prices rose over 10% in 2009. New housing starts were delayed by the downturn, but there were barely any cases of developments being abandoned. Mauricio Jaimes says developers learned a lot after a major housing crisis hit the country in 1999. New projects are typically part-financed by income from pre-sales, and sometimes construction doesn't even begin until enough units have been sold to break even. After the crisis hit it took longer to reach this break-even point, but there was very little debt or need to liquidate assets.
Leisure/TourismTourism is taking off in Colombia, with arrivals up over 10% in 2009, a terrible year for the industry worldwide. The government hopes the number of foreign tourists will hit 5 million by 2014, although this is a highly ambitious target considering the figure stood at less than 2 million in 2009. This influx of foreigners means that the Caribbean coast is primed for real estate development according to Mauricio Jaimes of buycolombiarealty.com.
Internal tourism has always been strong, and so the basic infrastructure and accommodation facilities exist, but Colombia's improved international image has drawn major hotel brands to the country in recent years. However, he warns of overheating in Cartagena, the most famous tourist destination, and now one of the most expensive places for real estate in South America. Mauricio says: "It was one of the first cities that started to have a high demand in terms of foreigners, so that impacts prices, and right now I would say the market [in Cartagena] is overvalued." Other areas, however, are only just being discovered by international travellers, who are arriving in their droves as Colombia sheds its reputation for kidnappings and guerrilla groups.
And there are other new locations that could see strong growth in the future: the coffee producing region, for example, is developing into a popular tourist attraction, following the successful example of wine tourism in other countries. The Chicamocha Canyon in the North East was shortlisted as a natural wonder of the world in 2009. Also, that vast Llanos Orientales grasslands in the country's East is ideal for the increasingly popular ecotourism industry.
The increased number of tourism arrivals could also open up a relatively new real estate target market: foreigners retiring in Colombia. Javier Eduardo Rojas Ruiz says people visiting the country are often seduced by its beauty and affordability and are now considering settling there permanently when they leave work. He sees potential in both tourist centres such as coastal resorts and the up and coming coffee-producing region, as well as the capital Bogotá. The supply of specialist properties such a retirement communities is very limited at the moment, and therefore represents an interesting opportunity for investors looking to find a niche in the Colombian market.
About Alternative Latin Investor:Alternative Latin Investor (ALI) is the first and only online news source to provide information on alternative investments in Latin America. They publish a bimonthly digital magazine as well as special reports with the aim of creating new synergies both within the region and beyond. ALI believes in the future of the Latin American alternative investment industry, but feels there is a lack of information regarding this sector which does not allow for growth or global exposure. By hosting a platform for industry professionals to submit articles concerning their areas of expertise, investors can benefit from the experience of alternative investment insiders.
For free access to the full content of both ALI website and publications: http://www.alternativelatininvestor.com
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