Colombia: The increase of Colombia's real estate sector

The increase of Colombia's real estate sector is having a strong impact on secondary housing markets. Following the rising price of new housing, used home (existing home sales) prices in Colombia have continued to increase and have now reached an historical high. According to a statement by Portafolio, since the end of 2004 used housing prices have jumped 74%.

Housing request in Colombia will likely remain strong given the current pace of the country's economic increase and the general availability of financing. The Colombian economy is estimate to grow approximately 4.5% in 2012 and should grow extra than at a healthy rate of 4% in 2013, particularly if the Central Bank does not raise the reference interest rate. Colombia could as well see a significant jump in foreign investment, adding to housing request, if the nearly 50 year conflict between the Colombian government and the FARC rebels comes to end. The rebels agreed to a two month cease fire as a new round of peace negotiations is set to begin.

The jump in used housing prices has been accompanied by a drop in the issuance of residential construction permits, which should constrain supply and keep upward pressure on prices. In a statement prepared by Colombia's National Administrative Department of Statistics, the amount of residential space approved in September of this year dropped 1.1% compared with September of 2011. In the first nine months of the year, nevertheless, the fall was significantly better at 24.1%. Over a 12 month period, the drop amounted to 19.1%. One of the key reasons for the drop has been the declining amount of space available in largest urban areas for new home construction.

The construction approval data indicates a clear decline in approvals for the construction of public interest housing, which has been a significant priority of the Santos Government. Construction approvals for public interest housing fell from 357,313 square meters in September of 2011 to 328,551 square meters in September of this year, a drop of 8%. Over the course of 2012 and the last 12 month period, the fall in construction approvals for public interest housing space was extra dramatic at 31.9% and 30.1%, respectively.

As may be expected, the increasing price of used homes is pushing people to rent rather than buy which should in turn drive up rental prices. This is a particularly significant issue in Colombia due to the large size of the rental market. According to a study prepared by the United Countries, 38% of persons in Colombia are renters, a higher percentage than 16 other countries in Latin America. A study by CENAC indicated that in Bogota an even higher percentage of 41% of persons rent rather than own their homes. Given new and used housing price trends, it is likely that the size of the rental market will grow.