Mercado de la casa de Medellín

Since 2008, it seems that everyone is a bubble watcher. I think it’s a good thing because it keeps the markets in check and forces us to wonder if our investments in real estate are justified by the prices we pay. At Casacol we receive the question almost every day, “Do you think there is a risk of a bubble in the Medellin house market?” And every time they ask me the question, I have to stop and ask myself the following:

1) Are banks recklessly lending in Colombia at low interest rates or unskilled buyers?

2) People panic buying for fear of “getting lost” (speculation) or due to market contagion?

3) Is the intrinsic value of real estate in Medellín eclipsed by current prices? (Low or negative ROI)

4) Is there a market imbalance between supply and demand?

These conditions are more or less what led to the US housing bubble and housing bubbles in general. So let’s review and debate each of the three points above to detect if there may in fact be a real estate bubble that is brewing here in Medellín. Visit houses for sale in Medellin.

Colombian Banks / Credit Practices

One of the most frustrating experiences any foreigner can have in Colombia is at a local bank. Can I have a bank account? No. Can I transfer some money? No. Can I have a mortgage? No. The reality is that the banks here are hyper-conservative and most of this comes from the Colombian economic crisis of 98-99 that affected many emerging markets at the time.

Before the crisis, Colombian banks acted in much the same way as US banks in 2000-2008. Little documentation, little proof of ability to bear requested debt load, down payments as low as 5%. Then came an economic / banking crisis and the subsequent residential housing law of 1999 (here in Spanish). What did the law establish?

• Minimum initial payment of 30% (social housing, 20%) of the purchase price
• Maximum monthly debt service of 30% of declared and verified income
• Maximum repayment period of 30 years.
• No prepayment penalties of any kind at any time

Combine this with the typical mortgage interest rates of the central bank rate (currently 4.5%) + 6.0% -7.5% = 10.5-12.0% for GOOD credit and you can see that it is not that easy or cheap for Colombians to obtain mortgages. on your own. country, much less a foreigner.

Here is an article and a recent graph from the WSJ that ranks Colombia as one of the lowest debt / GDP countries in the world.

Hype / Panic / Speculative Buying

While I am generally optimistic about the market here, I am not thrilled with the amount of development taking place in the outer areas of Medellín. The fact is that middle-class Colombians are buying a huge amount of new real estate. It is probably largely justified and necessary due to the nature of an emerging market – young people need new homes.

But if speculative buyers wanting to pass their contracts on to future buyers start to outnumber genuine residents, then we could start to run into some trouble. Either way, there is no good data to know how high the% of speculative buyers really is in middle-class housing developments before construction. But at the moment, this segment is making a large percentage of volume in the overall Medellín real estate market and attracts many first-time home buyers and investors / speculators along with them.

Are prices getting ahead in general?

Each real estate market is unique in the sense that many factors can determine the true value of the asset. Real estate in Manhattan, London, or Vancouver can cost 10-20 times (or more) compared to comparable high-end square footage in Poblado, Medellín, yet there are still large and sophisticated local and foreign investors out there who do not blink. at current price levels. Those are markets where it is difficult to get a 1-2% return on your cash and much less than double digits, which is quite common here in Medellin.

That said, given that the market here in Medellín continues to appreciate by 8-10% in 2017 compared to 2016, core rents are only appreciating by about half of that (closely related to inflation). This will reduce the returns for newcomers to the market and if the trend continues for 5-10 years, we could start to see that Medellín prices and rental yields look much more like a developed country.

Offer and demand

See the graph below where the blue box represents all the projects under construction in Poblado and various stages of development for the next few years, totaling 36 projects. And compare that to the rest of the local market of 389 projects in other areas of the city. I wish I had the Real Estate Report magazine from 2008 when I started shopping here, I’ve been trying to find an old copy for a long time.

Read More A List of Amenities to Consider When Investing in a House.