Obstacles and Opportunities in the Colombian Real Estate Market: What the Smart City Expo Taught Us
During the celebration of the Smart City Expo 2023 in Bogota, Colombia, we were presented with valuable opportunities to learn and have a better understanding of the country’s real estate market. This outstanding event brought together experts, professionals and leaders in the real estate sector, who shared their knowledge and experiences regarding current trends and challenges.
Note from Spencer and Michael: This is another post in a growing series that we call ‘International CRE’. Written by CRE professionals based outside of the United States, this series is a collection of deep dives into various CRE topics relevant to real estate professionals all over the world. One of the reasons we love the International CRE series is that things are not done the same in one country to the next, and this series highlights those differing perspectives.
This particular post is written by our financial analyst Emilio Tovar. Emilio is based in Bogotá, Colombia. He is an Accelerator Graduate, and among multiple other projects, continues to develop our Spanish CRE content.
Colombia’s real estate market offers numerous opportunities for investors and entrepreneurs who wish to venture into this growing sector. However, there are several hurdles that must be overcome to make the most of these opportunities. In this article, we will explore some of the key lessons learned from our attendance at the Smart City Expo 2023 in the city of Bogota to overcome these obstacles, which will hopefully help smaller players in the real estate market to make more informed and strategic decisions.
Obtaining Reliable Data in the Colombian Real Estate Market
One of the fundamental challenges for participants wishing to enter the Colombian real estate market is the lack of reliable and up-to-date data. Accurate and detailed information on property prices, trends, demand and supply is crucial for making informed decisions and minimizing the risks associated with real estate investments.
However, in Colombia, the collection and availability of real estate data is still deficient, meaning that, to our responsibilities we must add these kind of tasks. To illustrate, let’s use our case; during our visit to the exhibition, we were able to consult directly with representatives of the Special Administrative Unit of District Cadastre (UAECD), which guided us through the steps to obtain the real estate census for the year 2023 of the city of Bogota, a document that is full of updated data to understand and begin to study the real estate market in the city, in which we can see that 73% of the new properties built in the city were developed in strata 3 and 4, but in strata 1 there was a variation of 43% in the development of properties with respect to the previous year. This indicates that strata 3 and 4 continue to represent the bulk of developed constructions, but in the lower income areas many more projects were developed with respect to last year. What is the reason behind this significant increase? Following in this line of thought, the same report indicates that the localities where there were more constructions were Chapinero, Usaquén and Suba. How can this information can support my personal projects? And so it happens with much other available data, value of housing, level of development, localities, and strata’s, among others. The key here is to understand what we want to achieve and what means are available to support our process.
Of course, to overcome this obstacle, it is necessary to promote transparency in the real estate market. This implies greater collaboration between public and private institutions to collect and share relevant data. In addition, the implementation of digital technologies and the use of data analysis tools can improve the quality and accessibility of real estate information, enabling more informed decision making for all market actors.
Access to Financing
Access to financing is another key challenge facing aspiring real estate investors in Colombia. Although there are different financing options available, such as mortgage loans and lines of credit, obtaining capital for real estate investments can be a complicated and demanding process.
One of the common obstacles is the requirement of solid collateral and proof of stable income from financial institutions. This can make it difficult to obtain financing for those who are just starting out or do not have a solid track record in the market. In addition, lack of credit history and lack of confidence in the real estate industry can lead to higher interest rates and less favorable terms.
To overcome this challenge, and here I want to lean on the teachings of Carlos Devis, a Colombian real estate professional with many years of experience, in his book: Un Inmueble al Año no Hace Daño, Carlos explains how fundamental it is to establish solid relationships with financial entities and demonstrate a solid financial planning. But you do not necessarily have to invest all your effort in getting financing in this way. Investors can look for alternatives such as association with strategic partners. Also, if you are a person who has built a good credit profile with your bank, which is demonstrable on your side, directly financing investment projects with property owners can be a perfectly feasible option. When it comes to real estate business you may be underestimating your potential and ability to achieve significant results.
Limited Infrastructure
One of the significant challenges for Colombia’s real estate market is the limited infrastructure in some areas. The development of real estate projects requires adequate infrastructure in terms of road connectivity, utilities and access to basic services, which is why more than 90% of real estate development projects are carried out in urban areas, and only between 2% and 3% of development in rural zones. The problem is that there are regions where infrastructure has not yet been sufficiently developed, which can hinder investment and the development of real estate projects in those areas.
Overcoming this challenge implies close collaboration between the private sector and the public sector to improve and expand existing infrastructure, a subject greatly addressed by panels of experts in the talks discussions offered at Smart City, investments in road infrastructure, public transportation and basic services are fundamental to stimulate real estate development in less developed areas. In addition, it is important to evaluate the viability and growth potential of a location before making a real estate investment, a fascinating fact that should be further explored is that in Bogota (and we know that this may be the case for other cities in Latin America) a city with developed infrastructure and a huge relevance for trade there are surrounding areas less than 40 minutes away from the metropolis where people live and do not have access to basic services. What is happening? And what can we do? It is everyone’s job to promote more initiatives.
Competition in the Colombian Real Estate Market
Colombia’s real estate market has become increasingly competitive, presenting a challenge to new candidates seeking to expand their presence. Competition has intensified due to increased demand and the growth of real estate companies and agents. To stand out in this competitive market, it is necessary to have a solid strategy and differentiate yourself from the competition.
Building a strong brand and developing strong client relationships are critical to stand out in a competitive marketplace, which is why it is valuable to be involved yourself in these circles, attend events, seminars, lectures, research educational initiatives, and support projects with reliable data and unique value propositions. This can help us position ourselves as a performer with a deep understanding of the market and able to identify specific market niches that can offer competitive advantages.
Legal and Regulatory Challenges
Colombia’s real estate market is subject to a wide range of legal and regulatory aspects that can be complex and difficult to navigate. Bureaucratic red tape, construction permits, environmental regulations and property laws are just a few examples of the legal and regulatory issues that investors and developers must consider.
To overcome this challenge, it is essential to have specialized legal advice in the real estate sector. Legal professionals can provide guidance and ensure that all activities are conducted in accordance with applicable laws and regulations. In addition, keeping up to date on legal changes and being prepared to adapt to new regulations is essential to operate optimally.
Uncertainty in the Colombian Real Estate Market
Finally, for no one is it unprecedented the political situations and external pressures that the real estate business in Colombia can suffer (and once again, the case is repeated across Latin America), the uncertainty in Colombia’s real estate market can present a significant challenge for those seeking to enter this sector. Macroeconomic, political and social factors can significantly affect aspects such as demand and property prices, leading to increased volatility in the market, and political uncertainty, such as changes in government policies related to real estate or political instability, which can create an unsafe environment for investors.
An opportunity for creative and determined CRE professionals
In summary, entering the real estate market in Colombia presents several challenges that require a strategic approach and adequate preparation. From bureaucracy to lack of financing, the obstacles are numerous and demand careful planning and perseverance. However, despite these barriers, those willing to meet the challenges with determination and creativity can find lucrative opportunities in this thriving sector. By developing a thorough understanding of the market, establishing strategic alliances, and taking advantage of available tools and technologies, it is possible to overcome obstacles and make your way to success in the Colombian real estate market. With dedication, knowledge and an entrepreneurial mindset, entrepreneurs and professionals in the sector can achieve their goals and contribute to the sustainable growth of this constantly evolving industry. Thanks to Smart City Expo Bogota 2023 for their contribution in highlighting these challenges and opportunities. At A.CRE, we are excited to learn about and help shape the growth of CRE in Latin America.
