****Article original posted in spanish in October/2008
It
seems somewhat repetitive, but it’s inevitable that we continue to
discuss this issue. Journalists in Colombia criticize themselves
because the only subject they write about in their columns is President
Uribe. Likewise, as entrepreneurs, the most talked about subject is the
current financial crisis. The typical question posted on any forum is:
To what affect will the global crisis have on the Colombian economy?
Some say that there will be no affect; others say there will be a small
amount of affect and so on. I believe that it definitely does have an
affect, for the simple reason that Globalization arrived some time ago
and for better or worse our country is riding that wave. The measure of
damages, according to each sector, will depend on the way you look at
it. As for the real estate sector the question is: How will all this
global Pandemonium affect the Colombian real estate market?
A
way to analyze this is by looking at whether the prices of our
properties are high compared with those from other parts of the world.
Coldwell
Banker has published the 2008 HPCI report (Home Price Comparison Index)
which compares the value of real estate prices in the U.S. to other
markets in the world. Unlike other housing reports, this study
“provides an apples-to-apple comparison of similar 2,200 square foot
(about 200 sq meter), four-bedroom, two-and-a-half bath homes in 315
markets across the United States, in addition to Puerto Rico, Canada
and a sampling of countries/territories outside of North America where
Coldwell Banker has a presence.”1
Taking the average home
price in some US and international cities and assuming an average
exchange rate of COP $ 2.000 per US dollar in comparison with our
Colombian market the following points were noted:
Colombia
remains among the top countries in the world with the most affordable
homes. In Bogota the average price is $1,785,000/m2. In 2007 it held
the top spot as the country with the least expensive real estate in the
world. This year it came in fifth place passed by Quito, Ecuador - the
most affordable of 2008 – along with San Jose, Costa Rica; Hanoi,
Vietnam; and Panama City.
In the United States the
most expensive real estate per square meter is in La Jolla, along the
Californian coast, at $17,870.000/m2, which is nearly double the worth
per square meter of a commercial shop in the most expensive mall in
Bogota.
In comparison, the most affordable real
estate in the US is in Sioux City Iowa at $1,335.000/m2 equal to the
average price of a middle class home in a city such as Pereira or
Ibague in Colombia.
According to the Coldwell study, the
most expensive place in the world is Dubai - $ 24 million pesos per
square meter! – No comments needed.
Despite the increase in
value of properties in Cartagena in the last few years (with an annual
average above 20%), at $2,650.000/m2, it is still far below other
Caribbean destinations like Aruba at $3,340.000 and Nassau in the
Bahamas at $ 5'070.000, but higher than direct competitors like San
Jose, Costa Rica at $1,420.000 and Panama City at $1,580.000/m2. This
is an important point to keep in mind if the government wants to
compete with these destinations and encourage foreign investment
through the “Second housing” law.
With respect to other
developing countries where the real estate market has been booming in
recent years such as: Romania, Hungary and Turkey, Bogota and other
cities are about half the price of these countries becoming a very
attractive market for foreign investors.
An interesting comparison:
Barack
Obama lives in Chicago where the average price is $8,630.000/m2, while
John McCain lives in Phoenix with an average price of $ 2,880.000/m2.
It's like comparing Obama living in an exclusive Penthouse in Cartagena
and McCain in an apartment at the Chico in Bogota.
It
is easy to deduce that real estate prices in Colombia are low, not only
globally but in all of Latin America. And they have remained that way
despite the current financial crisis. Similarly, the decrease in the
dynamics of the local market have been driven more by domestic factors
than by external economic factors such as the current ones. There is
easy access to mortgage credit and builders are more cautious when
initiating new projects. Also, the market has entered a period of
adjustment that has helped to scare off any speculative behavior.
One final thought:
My
grandfather used to say, “The land does not decompose". Nor is it
toxic, using the same term the bankers on Wall Street called the papers
that ended up worth less than a goose egg. And while there continues to
be a crisis in the world's stock markets, real estate in Colombia will
remain a safe asset which will not decompose despite bad times.
1 See the complete Coldwell Banker Report at: http://hpci.coldwellbanker.com/hpci_press.aspx