The crisis caused by the New Coronavirus has had devastating economic effects in Colombia, as in other parts of the world. Construction in Colombia has been one of the hardest hit sectors. The construction of around 2,000 large housing projects was suspended due to the mandatory preventative isolation still in effect. Construction companies, their employees, suppliers and, above all, the investors are concerned. Despite the above, there is a series of arguments, from the point of view of foreign investors, that continue to defend (maybe now more than ever) investment in new housing in Colombia.
At CM Legal, we view the ten most important reasons to be:
The real estate sector is critical for the Colombian economy, and a prolonged suspension of operations would result in a massive collective unemployment. Accordingly, the Colombian Government has clearly indicated that the construction sector will be one of the economic sectors allowed to continue operational activities, with restrictions, as of April 27, 2020. The Ministry of Health released a 24-page circular (Circular Conjunta 001 of April 11, 2020), which establishes detailed preventive measures for construction companies to follow in order to minimize the propagation of COVID-19 as effectively as possible. As a result, a prolonged and widespread suspension of ongoing construction projects is unlikely during the COVID-19 crisis.
The value of the Colombian Peso (COP) is currently at historically low levels compared to the US Dollar (USD) and the Euro (EUR). Those who currently possess USD or EUR can invest at a lower price – converting from USD or EUR – than the last three or four years, despite a significant increase in local prices in COP.
In principle, anyone can invest in Colombian real estate, regardless of their nationality or residence. Neither a residence permit, nor a visa are required. It is enough to simply show a valid passport or, if the investment will be made on behalf of a foreign company, an apostilled extract from the Company Register translated by an official translator.
The contract by which the investor is linked to the construction project can be sent to the construction company initially by email, then physically by international mail. A foreign investor should open a bank account in Colombia for financial procedures. At some financial institutions, this is achieved via email, followed by mailing the original documents. A notary appointment in Colombia is only necessary once the construction is finished, shortly before the home is turned over to the investor. If necessary, a local attorney can be engaged for this notary appointment.
Precisely in the context of the Corona crisis in Europe and the United States, it may appeal to some investors to have a base in another country. With a real estate investment of COP $ 571 million (currently about EUR 135,000), the investor can apply for a resident visa. An investment of COP $308 million (currently about 73,000 euros) allows the investor to apply for a migrant visa, on a temporary and renewable basis. It is entirely possible that Colombia will increase the investment threshold values in the future.
When selecting a real estate project that interests you, the important thing is to ensure that the construction company in question is reliable. As a general rule, it can be said that the larger the construction company and the better its reputation and references in the market, the lower the probability of problems during or after construction (for example, significant delays, serious building defects, etc.). Construction projects are divided into various phases, such that, especially in the initial phase, the down payments from the investors are generally administered by an independent trust company. This trust company supervises the management of the funds by the construction company and may do so in later phases as well, depending on the structuring of the project, to guarantee that the funds are used exclusively for the project. This trust model has worked well since the real estate crisis in Colombia in the late 90’s and is one of the reasons for the construction boom that Colombia has experienced in recent years.
The down payment requirement for the investor varies depending on the construction project. In the case of projects that have not yet reached the construction stage ("purchase based on plans”), it is often possible to participate in the project by paying a relatively low amount of only a few thousand Dollars or Euros. Subsequently, monthly installments are paid, and before the final delivery of the property, the remaining amount of the purchase price is paid in full. Among other considerations, substantial advance payments, along with a discount negotiated with the construction company, can also make sense in order to take advantage of the current historical exchange rate. Additionally, it can be reasonable to invest in a project with some level of construction completed and a sufficient number of other investors, given that due to the COVID-19 crisis and its untold consequences, completely new projects might not attract enough investors. This would result in a return (with interest) of the down payment received by the trust companies in favor of the investors.
In general, the purchase of a new home in Colombia does not involve paying a brokerage commission, since it is directly negotiated with the construction company. The notary appointment for the official transfer of the house to the investor/purchaser involves transaction costs upon completion. Specifically, there is notary fees, a fee for the Office of Registry of Public Instruments and a registration tax owed to the Department in which the property is located. The aggregate of these expenses for buyer only represents approximately 2% of the purchase price.
It is all but expected that, once the COVID-19 crisis is over, the global economic fabric will be different than it was before. There will also be drastic legal and social changes within different states. In Germany, political voices calling for a social redistribution of wealth are already being raised, similar to the burden sharing after the Second World War in the 50’s. There are currently no restrictions in Germany and in the EU for the transfer of assets abroad, but such restrictions may potentially be implemented in the future.
At some point, the COVID-19 crisis will end. Properties in Colombia, however, will last for decades to come. These homes can be rented or used rent-free for personal use at any time in the future. Precisely in light of the difficult situation faced in Europe, this may serve as an attractive contribution for a personal supplementary pension plan.