EVERYTHING YOU NEED TO KNOW ABOUT BUYING A PROPERTY IN COLOMBIA
Over the past decade, buying property in Colombia has become an increasingly popular option among real estate investors worldwide.
After all, the country’s real estate market has seen impressive growth and relative stability—it was one of the first in the region to resume activity during the pandemic lockdowns and has experienced a significant surge ever since.
But why buy property in Colombia?
In 2023, the booming construction sector contributed significantly to the Colombian economy, representing 17.6% of the Colombian GDP with a sales volume of $101 billion pesos and creating 1.61 million jobs by August.
The country also boasts favorable conditions: a steadily increasing population, a stable middle class, and a marked rise in urbanization, particularly in major cities such as Bogotá, Medellín, and Cartagena. Naturally, this urban expansion is accompanied by a consistent rise in property prices.
Moreover, the Colombian government has implemented policies to encourage foreign investment in real estate, further adding to the favorable investment conditions.
Let’s explore why the Colombian real estate market is an attractive prospect in 2024, covering everything from investment visas to insights for foreign buyers. Here’s your ultimate guide to buying property in Colombia.
An overview of Colombia’s real estate market
Due to increasing urbanization, a surge in foreign investment, and overall economic development, Colombia’s real estate market has significantly transformed. It’s these factors that have reshaped the country into a desirable tourism, business, and retirement destination.
It’s now well known, for example, that investing in cities like Medellin can provide solid returns, with rental yields ranging from 6.33% to 10.32%.
But this growth hasn’t come without its challenges. The market has witnessed speculative buying, fluctuating property prices, and unsustainable growth. In response, and drawing lessons from past market trends, the Colombian government has undertaken reforms in the real estate sector.
One of the key areas has been enhancing the regulatory framework for real estate transactions. These changes are designed to reduce risks and provide better protection for buyers. For instance, the government has tightened property registration processes to increase market transparency and combat fraud.
Measures like these have played a key role in boosting investor confidence and minimizing the risks associated with market volatility. Naturally, staying informed about these rules allows investors to navigate the market more confidently and securely.
Buying property as a foreigner in Colombia
When asking yourself: Can a foreigner buy a property in Colombia? The answer is absolutely yes!
In fact, investing in the Colombian real estate market can offer various benefits, especially if you’re a foreigner. Foreigners are fully permitted to purchase property in Colombia with no restrictions on the number of properties.
Your investment decision, whether buying a house in Colombia, acquiring land, or exploring commercial properties, should align with your goals and budget.
Colombia’s rise in popularity in recent years owes much to its inviting climate, cultural diversity, vibrant nightlife, and culinary experiences, coupled with its ongoing innovation and development. For some, these advantages come with a relatively low budget, particularly when considering the favorable exchange rate between the Colombian peso and the US dollar.
At the current exchange rate of 1 US dollar to 4,177 COP, investing in Colombia with dollars can be particularly advantageous, potentially enhancing financial returns for investors.
Another advantage of investing in Colombia’s real estate market is the annual appreciation of property values. Investing early in development projects can be substantially more economical than purchasing upon completion. As the value of these properties, priced in Colombian pesos, rises over time, investors stand to gain significant profits.
The Colombian government is also proactively boosting property investments with migratory and fiscal incentives. These include tax benefits, eased residency requirements, and other financial advantages for foreign investors.
Such policies lower the entry barriers for investment in the real estate sector and align with broader economic strategies aimed at stimulating market growth and attracting international capital.
What is the investor visa in Colombia?
One of the perks is the potential eligibility for a Colombian investor visa. It is particularly beneficial when considering a long-term investment or looking to establish a more permanent presence in the country.
To apply for an investor visa in Colombia, there are certain requirements you need to meet:
- You must not be a tax resident in the country. You can easily determine if you qualify as a tax resident here.
- You must have purchased a property equivalent to 350 minimum wages (read more about the investor visa on our VISA page).
The Colombian investor visa, valid for up to three years, paves the way to residency after five consecutive years. Meeting the minimum wage requirement, which typically rises annually, is essential each time you renew the visa.
Working with an exchange market intermediary when applying for the visa is essential. Entities like stocks and securities companies insist on accurately filling out the exchange declaration form, and it’s recommended to seek a lawyer’s help with this. After all, mistakes on this form can lead to hefty penalties, potentially as much as the entire amount you’re transferring.
Do you pay property taxes in Colombia?
Both locals and foreigners have to pay property tax in Colombia. Its calculation is based on the value of your property and is paid annually. The tax rate ranges from 0.1% to 0.6%, depending on the location and type of property.
The government also offers an incentive specific to the malls, hotels, offices, and warehouses sector. For projects in this category built in municipalities with a population of 200,000 or more, there’s eligibility for a fixed income tax rate of 9% for the first ten years. If these projects are located in municipalities with fewer than 200,000 inhabitants, the benefit extends to 20 years.
Projects such as theme parks, ecotourism, agrotourism, and marinas, when built in municipalities with a population of 200,000 or less, are also eligible for the 9% fixed income tax rate.
Types of properties to invest in Colombia
There are diverse investment opportunities in Colombia. You can evaluate each depending on your specific needs, preferences, and budget. Here are some options to consider:
- Investing in REITs: For those who prefer not to purchase and manage properties directly, Real Estate Investment Trusts (REITs) offer an appealing alternative. In Colombia, these trusts, also known as Fondos de Inversión Colectiva (FICs), provide the added benefit of being tradable on the local stock exchange. This feature allows for more flexible and accessible investment opportunities in the real estate sector.
- Real estate crowdfunding: Crowdfunding is becoming an increasingly popular way to invest in real estate. Several platforms currently available in Colombia, such as Bricksave, allow investors to pool their money and invest in property.
- Joint ventures: As a foreigner in Colombia, you can also partner with local developers or investors for real estate projects. This collaborative approach distributes both risks and rewards, making it a less intimidating option for first-timers. Additionally, having a local partner can mean a more seamless process when navigating the Colombian market.
- Vacation rental properties: With Colombia’s status as a sought-after tourist destination, investing in vacation rentals can be highly profitable. Always conduct thorough market research and understand the relevant regulations before committing to this investment avenue. Also, consider hiring a property management service. These services streamline the rental process, handling everything from marketing your property to managing bookings and addressing guest inquiries.
Rentals are undeniably among the most popular real estate investments in Colombia. Let’s take a closer look at the various types of rental properties the market offers:
- Short-Term Rentals: Also known as vacation rentals or Airbnb rentals, these properties are usually rented on a daily or weekly basis. They enjoy high popularity and profitability in tourist areas. In Medellín, neighborhoods like El Poblado and Laureles are in demand, while in Cartagena, Getsemaní and Bocagrande are favorites. In Santa Marta, El Rodadero is a top choice for short-term rentals.
When investing in short-term rental properties, selecting buildings that explicitly permit such rentals is critical. In Colombia, many properties enforce a minimum rental period of 30 days. Always verify that the building legally allows short-term rentals, as failure to do so could technically result in illegal activity.
- Long-term rentals: These are properties leased on a monthly or yearly basis, commonly to local residents or expats, including those seeking retirement options in Colombia. For foreign renters, a local identification document known as cédula de extranjería is commonly required. Long-term rentals can encompass both residential and commercial properties, with lease durations ranging from six months to several years.
- Commercial rentals: These properties are leased for business activities, including office and retail spaces. Typically situated in sought-after commercial zones, the lease terms for these properties can differ based on the business type and the landlord’s specific requirements.
- Shared rentals: Also known as co-living spaces, these properties are shared by multiple tenants and can serve residential or commercial purposes. They’ve gained popularity among students looking to reduce living costs and among young professionals, offering a chance to experience life in a new city, build community, and meet new people.
Step-by-step process of buying property in Colombia
Navigating the Colombian real estate market can be uniquely challenging compared to other countries. This includes the absence of licensed realtors and multiple service listings (MLS), often leading to the same property being listed by multiple agents, adding further complexity.
That’s why we recommend seeking guidance from a law firm or attorney. Here’s an overview of the property purchasing process in Colombia:
- Opening a Financial Account: For foreign investors in Colombia, the initial step involves opening a personal financial account. The purpose is to channel funds through an exchange market intermediary, like Bancolombia or Davivienda, to ensure proper legalization. However, due to anti-money laundering policies, many institutions restrict new accounts from receiving international transfers for the first six months. A practical solution is to open an account with organizations such as Alianza Valores or Acciones y Valores, permitting international transfers immediately. A valid passport is required, along with documentation to verify the funds’ origins. These measures are essential for the institutions to authorize account opening and facilitate the subsequent money transfer.
- Title Investigation: Without title insurance and escrow in Colombia, conducting a title investigation with your real estate attorney is fundamental. They will perform an in-depth background check on the property and seller to avoid legal issues, such as the “extinction of domain”, where the state may reclaim properties involved in illegal activities.
- Negotiating Purchase Terms: Work with your attorney to negotiate and finalize the purchase contract. This includes setting the price, payment schedule, and other key terms. Be aware of potential language barriers if you’re not fluent in Spanish, as negotiations often involve direct communication with the seller or their attorney.
- Drafting the Purchase Contract: Your attorney, skilled in foreign investment regulation, will draft and review the contract to ensure it aligns with Colombian law and your interests.
- Attending the Property Closing: This takes place at a notary office, where you’ll make the final payment and complete necessary document verifications for the final title, or escritura. You’ll also cover remaining costs like notary fees, government charges, and property-related expenses.
- Registering the Deed: The last step is registering the deed at the Office of Public Instruments, ensuring the “Certificado de Libertad y Tradición” is accurately filled out.
Be aware of the administrative fees involved, typically split between the buyer and seller. At Nexo Legal, we ensure you understand each aspect of these fees:
- Notary Services Expenses: Approximately 0.29% of the property’s value.
- Registration Fees: Around 0.98% of the property’s value.
- Charity Tax: Approximately 0.6% of the property’s value.
- Document Authentication Expenses: Promise contracts, powers of attorney, certificates, etc. (about $200,000 COP).
- Other Expenses: Anything related to family asset cancellations, mortgage liens, and special cases.
The legal aspects of property purchase in Colombia
Understanding and navigating the process of buying property in Colombia can be complex, particularly for foreigners. At Nexo Legal, we’re here to guide you through each step, ensuring a straightforward and error-free process.
Why should you choose Nexo Legal for your real estate journey?
Our deep understanding of the local legal system and real estate regulations means we can provide a secure and seamless investment experience. We recognize the complexities of investing in a foreign country and offer comprehensive support:
- Commercial and Negotiation Support: Through our subsidiary, Loyalty Advisors, we assist in property search and negotiation.
- Comprehensive Legal Assistance: From start to finish, we handle all legal aspects of your property purchase.
- Fund Transfer Guidance: We aid in transferring funds and completing all the relevant documentation.
Specifically, we can assist you with:
- Risk Assessment and Ownership Verification: We identify property stakeholders and evaluate associated risks and conditions.
- Property Evaluation: We review assessments, limitations, and registrations that could impact the acquisition process.
- Title and Owner Examination: This includes checks for SARLAFT listings and any criminal or disciplinary records to ensure a clean history and prevent potential asset forfeiture issues.
- Contractual Guidance: We assist in negotiating and drafting contracts, including the promise contract and clauses for the public deed, safeguarding your legal and financial interests.
- Transaction Facilitation: Our team supports you in notarization and registration processes, ensuring compliance and accuracy.
- Final Handover Assistance: We guide you through the final steps of receiving your property.
Colombia offers many exciting real estate opportunities for both foreigners and locals. If you’re interested in exploring these, Nexo Legal is here to help. You can request a free consultation and take the first step in your Colombian property investment journey.