A lot of people having been asking me about Colombian real estate following the election of Gustavo Petro.
I spent quite a lot of time in Colombia last year exploring real estate and immigration opportunities.
Overall my take was that Medellin was very interesting as it’s cheap, offers a great lifestyle, and the rental yields in some segments can be very high (analysis here)
Bogota on the other hand seemed to be suffering from oversupply, higher prices, and low rental yields. (analysis here)
And Cali offered amazing deals for entire buildings in prime areas that could yield very high numbers (analysis here)
I always made it clear that the single biggest risk at the time was the coming presidential elections, which took place in June.
Unfortunately for foreign investors, the Colombian people elected a hardcore socialist – Gustavo Petro.
He is a former communist guerilla fighter, former mayor of Bogota, and has now made it to the top position in the country. Some of his rhetoric during the campaign was quite alarming, such as wanting to ban all further exploration by oil companies, though Colombia is extremely dependent on the extractive industry for its current account balance, as well as its fiscal position.
Crude oil currently accounts for about 42% of total exports, while coal – which Petro has also promised to phase out – comprises 14%.
Has Colombian real estate become uninvestable because of Gustavo Petro?
Before this, all indicators were green for cities such as Cali and Medellin. The reality is that real estate prices are very low, there are barely any mortgages in the market, so the potential downside is relatively limited.
It’s important to understand that Gustavo Petro had to form a coalition with more centrist parties to obtain a majority in parliament, which could slow him down. Also, most institutions in the country are not in his favour.
This doesn’t mean he won’t manage to achieve stupid things. Socialist politicians can generally be trusted to do so.
But what I do know, is that in the next few years, his policies are unlikely to have a strong negative impact on tourism in Colombia, which is the source of such high rental yields in Cali and Medellin. Real estate is objectively cheap in absolute terms in these two cities, you can earn high single-digit rental yields and in some cases double-digit yields, which massively protects your overall downside risk.
In a world of rising interest rates across the Western world, there are worst places to invest your money than in a country with little leverage in the housing market, lots of commodities, and in a currency that recently took a hit due to this election.
Also, if you invest some amounts of money in Colombian real estate you can obtain a long term visa. It’s still a decent deal overall. So, no Colombia has not become uninvestable.
But Colombia has become less attractive than it used to be
He’ll do damage. The question is how much and how soon. In many ways he is no more of a socialist than many Western politicians. However, the overall economic and fiscal position of Colombia is weaker, so the country is less likely to withstand bad policies. I’m going to repeat the point that his single biggest mistake would be to make Colombia unattractive to the mining, oil, and coal industries.
If he were to make strong moves against these industries apart from just rhetoric, I’d stay away.
The key, as always, is position sizing
If you plan on living there for part of the year and require a long-term visa, it still makes sense. If you are a HNWI and want a high-yielding, lovely place in Medellin for $200,000, then sure, why not. You wouldn’t be too exposed.
But for people who don’t have too many other assets, I would say that this is probably too high on the risk curve.
I had a great conversation with my friend Patrick who has done dozens of deals in Colombia over the years
In this short video, he shared some of his key learnings with regards to investing in real estate in Colombia. He lives full time in Cali and helps foreign investors enter the high-yielding Cali market.
You can watch the video here.
Gustavo Petro or no Gustavo Petro, Cali real estate is dirt cheap and offers high yields
I wrote this analysis on the real estate market in Cali here.
If you want to get in touch with Patrick feel free to send him an email. It is in the description of the Youtube video and in the Cali real estate article.
To a World of Opportunities,
The Wandering Investor
Much more content…
Other articles on Colombia:
- Making a Real Estate Investment in Medellin, Colombia – unusually high yields
- Is it too early to make a Real Estate Investment in Bogota, Colombia?
- $100,000 investment house in Medellin, Colombia
- Making a Real Estate Investment in Cali, Colombia – the next frontier?
Other services in Colombia:
- Real Estate Lawyer in Colombia
- How to obtain residency in Colombia
- My favourite real estate agent in Medellin
If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.
If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.