(1) Skyrocketing Rental Prices Leading to Fears of Gentrification
Visitors accustomed to finding Airbnb rentals at prices far inferior to their home countries in years past may be surprised to find out that prices for those same rentals have gone up significantly in 2023.
With the end of the pandemic, travel has increased considerably in the western world and Medellín continues to be a very trendy international hotspot for people of all ages to visit. This increase in demand for rental properties, coupled with a limit on supply caused partly due to Airbnb requiring a Registro Nacional de Turismo for an active Airbnb listing, has caused prices to go way up.
And while the furnished rental market is principally geared towards foreigners, there has been much made in the local media about the long term unfurnished rental market going up as well.
Inflation has seen many goods and services rise in price, but the price of accommodation, it appears, is outstripping everything else, with reports of rent as much as 60% higher than last year in certain sectors of the city. This had led to intense fears of gentrificacion amongst the local population and even a backlash against digital nomads. Don’t believe us? See this article, this article, and this podcast… all from April 2023 and all expressing the same fears – that an increase in foreign arrivals, among other factors, is causing rent prices to increase and locals to be displaced.
This phenomenon, by no means unique to Medellin, seems unlikely to abate any time soon. With more and more tourists and expats arriving every week, and with them tending to want to live or stay in certain parts of the city (primarily Poblado and Laureles), it seems increasingly likely that these comunas will become more and more overrun by foreigners in the months and years to come while only the wealthiest Colombian families will remain behind to live amongst them.
(2) Strengthening Colombian Peso
By any measure 2022 was a tough year for the Colombian Peso. On January 1, 2022 the exchange rate was 1 USD = COP 3,981 and it closed the year at COP 4810 which is a decline of almost 21% (it even devaluated further than that, reaching an all-time low of COP 5107 on November 7th, 2022). Astute investors that brought money into the country in October or November of 2022 got the most bang for their USD possible. Since then, however, and much to the dismay of those holding out for an even better rate, the COP has strengthened considerably. As of April 2023, it is one of the best performing currencies in the world relative to the USD dollar, having recovered more than 10% since the start of the year.
(3) New Notary Expense – Impuesto De Timbre
Along with the price of a lawyer and the price of real estate commission (if applicable), the most significant closing costs involved in a Medellin Real Estate purchase are called gastos notariales. We wrote this article in early 2022 which gives a detailed breakdown of each of them – in short, 1 is only for the buyer, 1 is only for the seller, and 2 others are to be divided evenly. However, as part of Gustavo Petro’s tax reform which is being implemented, the Notarias are required to now collect a 5th gasto notarial in order to effectuate a deed transfer and pass the property into the name of a new owner. This tax is called “Impuesto de Timbre” and it is a progressive tax that is only paid when the value of the deed to be transferred is more than COP 842,000,000 (for the year 2023). This amount will increase in 2024 based on the increase in the UVT – which is a base value for calculating taxes in Colombia. The Impuesto de Timbre will be charged as 1.5% of any amount more than COP 842,000,000. The formula to estimate this would be as follows: (Deed Price – 842,000,000)*1.5% = Impuesto de Timbre.
Unless the purchase agreement stipulates otherwise, this expense is shared equally between between buyer and seller. Here are a few examples of what the Impuesto de Timbre would be based on different deed amounts.
The table above shows how much the new Impuesto de Timbre will cost a buyer and seller in 2023. Keep in mind that the minimum value for the impuesto kick in (COP 842,000,000) is indexed annually and will rise in 2024 and subsequent years.
Remember that the Impuesto de Timbre is calculated based on the price of the deed, which is not necessarily the same as the sale price. The parties can agree to a sale price but then put a lower value on the deed in the notary. This practice, which was widespread in Colombian real estate for decades, was made illegal based via Estatuto Tributario (Ley 1943 de 2018). Despite the fact that it is illegal, there are a couple legal loopholes wherein the parties can put a lower amount in the notary (thereby reducing all closing costs and annual property taxes) – any prospective buyer should consult with a competent real estate attorney before proceeding through the deed transfer process.
(4) Increase in Long Term Capital Gain Tax (Ganancia Ocasional)
The aforementioned Impuesto de Timbre wasn’t the only way that Gustavo Petro’s tax reform made an impact on the real estate market. Although it wasn’t directly only at real estate, his tax reform also increased from 10% to 15% the tax on “ganacias ocasionales”. This includes profit from the sale of real estate held for two years or more, as well other miscellaneous income such as lottery winnings, inheritances, money earned from the dissolution of a business, etc.
In the table above you can see the result of these changes. Each case contemplates a hypothetical sale – with the original deed price listed and the deed price of the sale listed. The ganancia ocasional in each case represents the difference between the sale deed price and the original deed price. As mentioned in #3 above, this doesn’t always reflect the exact sale price as the parties often strike a deal to keep the deed price lower. This is an important consideration in any Medellin Real Estate purchase and can often reflect a difficult point of negotiating as Paisa sellers will almost always try to maintain an artificially lower deed price.
When Gustavo Petro was elected President in the summer of 2022, many started to predict the downfall of the Colombian peso, economy and the demise of the Medellin Real Estate market. While the worst of those fears have not materialized, critics of the Petro Administration can point to these real-world examples highlighted in #3 and #4 of these article as direct impacts from his election. Contrarily, some could argue that these changes are necessary and, being progressive in nature, only have a sizeable impact on those dealing in the most expensive properties.
(5) New Seller Document (Certificado REDAM) Required for Deed Transfer
If you’ve ever sold a property in Medellin, you’ll know that the notary requires certain documents to be provided in order to go through with a deed transfer into the buyer’s name. These documents, called “Paz y Salvos” – help to demonstrate that you are up to date with payments related to the property – such as property taxes and administration (HOA). (If you are a seller and need help obtaining any of these document, please contact us).
As of April 2023, a new document is to be provided by the seller to the notary in order for a deed to be transferred. The document is called Certificado REDAM.
What it shows is that the seller of the property does not have any outstanding child support payments. Unfortunately, the Colombian congress felt a need to pass this law after discovering that many delinquent child support payors, upon nearly having their properties confiscated for outstanding debts, were simply selling the properties, keeping the proceeds, and continuing with their outstanding unpaid obligations. Here, the term Deuda Alimentario is synonymous with child support payment.
Law 2097 of 2021 seeks to put an end to this process by requiring the seller of real estate to demonstrate, before a deed transfer, that they don’t have any outstanding child support obligations.
To download the Certificado REDAM, one can access the website: https://carpetaciudadana.and.gov.co
On that page you must create a username and password, fill in your personal data and follow the steps indicated by the platform. You will receive an email with instructions to confirm your registration and then be able to download the certificate after that.
Summary: Trends and Changes in Medellin Real Estate in 2023
1)Rental prices increasing stoking fears of gentrification amongst locals
2) COP recovering against the USD in the first few months of the year
3) Impuesto de Timbre – new closing cost upon purchasing property
4) Long term capital gains tax raised from 10% to 15%.
5) New document proving non-delinquency on child support payments required by law to sell property.
Questions about these taxes, other closing costs, or the property acquisition process in general?
Send me an email – firstname.lastname@example.org or a Whatsapp message (+57) 317 5233469 and we can chat about it further.