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Coronavirus and Medellín Real Estate

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Coronavirus and the Medellín Real Estate Market

The coronavirus pandemic has distressed economies around the world. Experts, politicians and ordinary citizens are concerned not about if a recession is coming, but how deep and long it will be. The extent of the concern varies from sector to sector – with things like airlines, tourism, oil and team sports having particularly grim outlooks. But what about real estate? This article will take an in-depth look at how the fallout from the coronavirus pandemic will affect the real estate market in Medellín, Colombia.

Many foreign investors and property owners may find themselves wondering how the lengthy quarantine will affect property prices in the city.

For the real estate sector more generally, prognostications have ranged from cautiously optimistic to extremely dire.

Brad Hunter, writing in Forbes, maintains that real estate “is being clobbered by the coronavirus, and it’s going to get worse before it gets better”. Hunter concludes that “the effects on real estate will vary by sector and market, and the extent of the effects will depend upon the duration of the economic shutdown”. According to his article, there are sectors of the real estate that have hit hardest than others, such as hotels, restaurants, bars and other entertainment retail, followed closely by retail and housing. However, despite the situation, there are opportunities and possibilities of recuperation at the long-term.

Striking a more optimistic tone is nationally syndicated radio host Dave Ramsey, who frequently speaks about real estate issues on his show. He concludes that, while sales are extremely likely to slow down in the short term, actual prices aren’t as likely to drop as much as they did in 2008 because that particular crisis was directly related to real estate (and the sub-prime mortgage bubble) whereas the core of this crisis isn’t real estate related.

According to some, the extent to which prices drop in a certain market could depend on how long the quarantine lasts


Keeping these general principles in mind, and looking to the local market, we can say with a fair degree of confidence that some distressed properties are going to come onto the market in the coming months. As the nationwide lockdown enters its third month, there are undoubtedly some homeowners who are really feeling the pinch.

While savvy investors will be able to snap up those properties for steep discounts as they become available, I don’t anticipate a substantial drop in prices across the entire market. I base this prediction on 3 factors:

(1) Paisas are proud and stubborn.
(2) An under-leveraged market makes economic desperation less likely. 
(3) The weakening of the COP in comparison to the USD has foreigners less motivated to sell.

Each of these factors will be discussed in detail below, but first, let’s look at the current situation in terms of health and politics.

President Duque's popularity, which was extremely low in the latter half of 2019, has risen steadily during the pandemic

A Nation In Lockdown

Colombia entered a nationwide lockdown on March 19th and, almost three months later, is still gradually returning to normal.. The Colombian Government declared a national health emergency, which has been extended to August 31. Although currently international flights are only suspended until June 30, it is widely speculated that that extension will be extended to August 31. The Minister of Transport has said “What is clear is that the restriction on international air transport goes hand in hand with the health emergency, that is, until August 31. Until that date, the restoration of international air transport or the opening of land borders is not expected.” This is in line with other countries in the region such as Argentina, where international flights are suspended until at least September. For more detailed information on the Colombian Government’s response to the coronavirus pandemic, check out this article.

Antioquia as Colombia's Poster Child In Covid-19 Response

I’ve written extensively about why I think Medellín is a great place to live. Or why it’s a great place to be an expat. We need to add another reason to the list: the best response to the current pandemic. Earning international acclaim from the NY Times.  In his Presidential Address on May 18th, President Duque highlighted that major cities such as Bogotá, Cali, Cartagena and Barranquilla (and Leticia) would all need to remain in a state of lockdown during June 2020 to try to halt the spread of cases locally, but as of this writing, the situation in Medellín has remained stable. The numbers change rapidly, but just as an example that has been typical throughout the pandemic: On May 1st, Antioquia had registered 475 positive COVID-19 cases, while Atlantico, which is home to Cartagena, had 363. Two weeks later, Antioquia’s total had grown 7% to 509 cases, while Atlantico’s had grown 411% to 1,493 cases. Simply put, of the major cities in the country (at least so far) the Paisas are handling the outbreak the best. Lessons from France, South Korea and Singapore show that a premature opening can cause a spike in cases, so only time will tell if vigilance remains high as economic activity returns to Medellín.

Temperature checks at the entrance of malls is one way Medellin hopes to continue to battle the spread of the coronavirus

Real Economic Pain a Foregone Conclusion

The quarantine means that the city will experience a decrease in foreign investment, tourism and migration. In addition, most of the economic activity has been diminished or simply interrupted. Many citizens will have to rely on whatever savings they may have. The national government has created measures such as subsidies or credits in order to help vulnerable groups and businesses. The Banco de la República, in turn, has adopted economic policies such as the purchase of debt, so as to inject liquidity to the economy. The World Bank has provided substantial funding to help the Colombian Government respond to this crisis. These measures are welcome, but the citizens and the markets are facing a clearly adverse economic situation.

What could really cause a downturn in property values in Medellín is if the security situation deteriorates significantly. In 2019, there were already some concerning upticks in crime levels in the city. Many expats may be concerned how this current health and economic crisis is going to affect the security situation. In an effort to stem the negative consequences of this crisis, the Government has adopted some measures to alleviate suffering, such as a moratorium on evictions and rental price increases, and the return of taxes paid. Where possible, people are being instructed to work from their houses. However, given that 47% of the economy is informal labor in the streets (49% women, 45% men), this is simply impossible for hundreds of thousands of people.

Visitors Currently Not Welcome

Along with the tough economic situation facing many, another important factor for the future of real estate prices is the reduction of tourists. According to Forbes, “the tourism industry will be hit in two different ways: (1) a direct impact from contagion concerns and (2) an indirect impact from declines in stock values and reduced income, which will translate into people feeling less wealthy and put a damper on travel”. Both realities are occurring in Medellín. The following chart shows both domestic and international arrivals to Antioquia. The first row is arrivals on international flights, the second row is arrivals via domestic flights, and the third row is foreign tourists. Before the pandemic, all figures were trending up: 

The data confirms something many expats know to be true. More and more foreigners were arriving pre-pandemic. Source: Departamento Administrativo Nacional de Estadística (DANE)

Obviously these numbers will drop dramatically in 2020, but I was curious about how much. Anecdotally, I had a number of close friends decide to leave Colombia at the onset of the pandemic and I was curious to see if a great expat exodus had truly occurred. I wrote to Migración Colombia, and, to my surprise, they responded with a detailed message in less than a week. For the statistically inclined, you can see data about the flow of migrants on this website – it is very interactive. I took the following charts from the data provided by Migración Colombia. 

The second chart shows how the flow of international visitors, both arrivals (light blue) and departures (dark blue), has ground to a halt during the pandemic. Nothing surprising there. If anything, it reinforces to me that the Migración Colombia data is likely accurate. The monthly average for all of 2019 was 47,582. I would have assumed that January and February 2020 had a big spike in international departures, but as the dark blue graphs in the second chart illustrate, that was not the case. At least according to official government figures, the great coronavirus expat exodus didn’t actually take place. The # of foreigners leaving Antioquia during February 2020 was well under the monthly average for 2019 (and January was only slightly over). Many expats now consider Medellín a permanent home and I think this speaks volumes for its post-pandemic potential. 

Foreigners Leaving Antioquia: January 2019 - May 2020

Foreigners leaving Antioquia in 2019. Monthly average: 47,582 / Source: Migracion Colombia
Light blue: foreigners arriving to Antioquia / dark blue: foreigners leaving Antioquia / Source: Migracion Colombia

But the real question for those considering a real estate purchase is, what will 2021 and beyond look like? Personally, I think some normalcy will return to the tourism sector by the end of the year. The industry is simply too important to the Colombian economy for the Government to forbid international arrivals long term. In a sign that his administration has the sector in mind, President Duque recently announced the creation of a sello de bioseguridad (biosecurity seal) to be awarded to companies that can demonstrate that they take the proper protective measures. The seal will be valid for two years, and can be sought by restaraunts, tour operators, hotels, and any other company involved in tourism. The idea behind the seal is to make consumers feel safe about the places they go and the activities they take part in. This is a small token of support for an industry devastated by the crisis and highlights that the Government hopes to have a strong tourism sector as the crisis subsides.

In spite of the foregoing, which illustrates some serious economic challenges that Colombian society faces, I personally do not think the real estate market will see a sharp decrease in prices. Here are three important reasons why:

#1 Paisas are Proud and Stubborn

I’ve spent considerable time as a real estate investor in both Europe and here in Colombia, and I am always amazed at the ways Paisas can be especially terco. They are willing to let a property sit on the market for years, rather than accept even a slightly reduced rate. I have reached out to a bunch of sellers recently, trying to gauge if they might accept a reduced rate for their property given the current economic turmoil – and time and again the answer is a steadfast “no”. They have a bottom price in mind for what they want for their property and, unless economic desperation hits them personally (see point #2), they won’t budge. Call it being savvy business people or call it stubborn, either way – it is not likely that there will be an abundance of panic sellers of real estate here – especially high end places.

A combination of pride and stubborness prevents many sellers from budging on prices

#2 An Under-leveraged Market Makes Economic Desperation Less Likely

I saw a statistic once that amazed me so much, I had to double-check that I read it correctly. Of adults in Colombia, only 2.82% have a mortgage. Put differently, there are around 1.1 million mortgages in the entire country.  High borrowing rates simply make a large mortgage unattractive. There are many other paths to home-ownership in the country, but the most common is buying sobre-planes (pre-construction) and making payments directly to a builder for a few years while the building is constructed. Another common way is simply inheriting property. Either way, the risk of a substantial number of properties being “under-water” (which led to a big dip in prices in USA in 2008) is essentially non-existent here. Also, and critically, the ongoing costs associated with home-ownership (typically property taxes and administration fees) are not so onerous as to necessitate the loss of the property. 

Few Colombian adults have mortgages, which are known locally as hipotecas

Let’s consider two different price points: At an average price point, lets say COP 300 millones, there will be some desperate sellers. This is a price point where many young couples enter the real estate market, where many laborers and middle class families were able to buy in previous years and who may be adversely affected by the prolonged national quarantine and subsequent economic slowdown.

However, when we think about the more luxurious properties, say, those at COP 700 millones or more – the people that typically own these properties are wealthy families that have had them for decades. They are much less likely to experience the pinch. Colombia has one of the highest rates of income inequality in the world – there are many extraordinarily wealthy families here that are not going to be adversely affected economically to the point where they sell in a state of desperation.

Colombia has a very high Palma Ratio, which measures income inequality by comparing the top 10% of incomes to GDP and the bottom 40% of incomes to GDP. Other income inequality measurements yield similar results for Colombia.

Like All Things Medellín, Owning Property is Cheap

I recently wrote about how cheap groceries can be in Medellin – but the costs of home-ownership are similarly affordable. The typical expenses a homeowner can expect to pay here are monthly building administration fees and quarterly property taxes (known as Pre-Dial). Other expenses, like EPM bills and internet, can be reduced to nominal amounts if the place is unoccupied. And while admin fees and property taxes vary from place to place, they aren’t nearly as expensive as HOA fees or property taxes in much of the developed world. For example, a typical property worth COP 700 millones might have quarterly property tax payments of just 660,000 COP – that’s around $700 USD per year for a premium property. Just half a decade ago in Sweden I was paying almost 10x that in property tax for a fairly ordinary place. 

Administration costs vary more widely depending on the amenities provided (and perhaps how well managed the building is), but being in arrears on these payments doesn’t lead to foreclosure of the property. This process is called embargo, and was exceedingly uncommon before the pandemic and now currently halted. That is, no buildings can legally chase property owners for non-payment of administration fees currently. Thus, when we consider ‘what does economic desperation look like in a homeowner?’ –  a homeowner who has lost their income due to the pandemic may fall months behind on their administration payments, however this wouldn’t necessarily make them desperate to sell. 

That’s not to say that an economic downturn won’t affect the market. Those who have lost their jobs or had businesses devastated by cash flow problems could very well sell their place to deal with other debts, to downsize, or to take care of their families in other ways. But the conditions aren’t right locally for a dramatic dip in prices due to defaults simply because the market is under-leveraged and home ownership isn’t unbearably expensive. 

Costs related to home ownership are not usually unbearable expensive here, especially compared to what is typical in many other countries

#3: Foreign Investors May Realize Sharp Currency Losses if They Sell Now

Imagine you fell in love with Medellin before the rest of us. You first visited in 2010, quickly became enamored with the city and aspired to purchase property here. It took you a few years to get the capital together but then by July 2014 you pulled the trigger. You bought a gorgeous penthouse in El Poblado for COP 500 millones and have lived in it part time and received impressive rent payments since. If you were an American, at the time that COP 500 millones cost you $270,000 USD, because the COP was 1850:1. At the start of this year, you were considering selling the place, and an honest appraisal might have it at 1,000 millones. It is fair to say that between 2014 and 2019, the price for a high-end penthouse in El Poblado might have doubled. However, as of May 2020, that 1,000 millones valuation is only worth $263,000 USD – which represents a decline in value in USD despite your property price doubling.

This illustration shows why so many foreign buyers who bought in 2015 or earlier are reluctant to sell now – because all of the impressive gains they have made locally in the real estate market are effectively wiped out by erosions in the local currency. Therefore, while the rental income outlook for the rest of 2020 is dismal, it is unlikely that there will be a flood of these properties onto the market as property owners don’t want to realize these currencies losses – particularly the added spike from 3300:1 to 3900:1 in March 2020 alone. 

Another thing – permission for Daily Rentals, while undoubtedly beneficial, does lose a little bit of its importance in a world where 14 day quarantines are mandatory for international arrivals. As of June 2020, the policy on arrivals for September remains unclear. However, even if the Government does institute the requirement for quarantining upon arrival, flights coming into Colombia for September and the rest of the year are going to be packed with people wanting to stay longer term here. With the positive coronavirus response coverage added to the litany of other great reasons to live here, the size of the expat community might grow. It’s desirable to be here 12 months a year, many digital nomads around the world might eye up Medellin as a more longer term home-base. Thinking of relocating to Medellín? Get in touch, ask anything. 

The start of the coronavirus pandemic saw 1 USD worth as much as 4,170 COP - a record high that has since come down

What to Expect Long-Term?

I hate to admit that I’m not above spending long hours reading social media comments, and I’ve seen a lot of despair and apocalyptic reasoning. I don’t count myself among those who believe the Colombian economy is headed for a prolonged depression. As time goes on, the pandemic will run its course and economic normality will return to the country. While Sao Paulo’s health care system is on the brink of collapse due in part to severe mismanagement from its leader, who continues to attend large rallies, the situation in Colombia at present is very different.

In a fantastic article about the Colombian health care system’s capacity to deal with the coronavirus, Jeff Paschke, the Medellin Guru, highlights how well prepared the country is to deal with this crisis from a health standpoint. And while things will not truly return to normal until a vaccine is discovered and successfully administered, those still living in the City of Eternal Spring have noticed a shift towards normalcy as the economic reactivation begins. And if anyone doubts the ingenuity of Colombians during these unsettling times, check out this Colombian entrepreneurial spirit.  

Although the Colombian Government responded aggressively to stop the spread of the virus, it has not been spending aggressively to combat economic effects

Printing $$? Don't Bank On It

The economic recovery depends as well upon correct macroeconomic policies and measures, but Colombia has a long tradition of economic monetary stability and it seems improbable that the government will apply populist measures such as increasing the supply of money. In fact, despite all the measures taken by the Colombian Government to reduce the harmful effects of the coronavirus, the amount of money pledged by the Duque Administration, in relation to GDP, is among the lowest in the world. Those concerned about Governments across the world simply printing alarming amounts of money can take comfort in the fact that it is happening to a much smaller extent here. For example, the government spending from the Trump Administration on coronavirus related aid represents around 12% of US GDP, in Japan that figure is over 20%, but Colombian bailouts and relief payments represent just 1.5% of national GDP. This conservative government spending should allow Colombia to completely avoid a situation like Argentina, where growing government debts have severely devalued the Argentinian Peso.

Colombia was listed by the BBC as one of the countries best poised to handle the coronavirus pandemic due to low public debt levels

WHAT'S THE TAKEAWAY? WHAT SHOULD I DO AS A POTENTIAL INVESTOR?

Don’t be afraid to sit on the sidelines for awhile and wait, and see how the pandemic plays out on a national and international level. Anyone pressuring you into a purchase with this amount of economic uncertainty in the world doesn’t have your best interests in mind. 

– Don’t bank on a solid ROI for the rest of 2020 as rental demand and prices (especially for short term stays) are likely to remain suppressed. Also, be wary of realtors or homeowners offering a high ROI for a particular property based on past prices, as it is currently impossible to prognosticate how much tourism will bounce back. 

– Look at investing in something pre-construction, but that is already at least 30-50% completed, that is slated to be delivered in Q1 or Q2 of 2021. Contact me if you’d like some examples. Currently I would not recommend pre-construction projects that haven’t broken ground yet, unless la constructora is very reputable. 

-Look at buying something older with a great price per square meter and then spending the next few months renovating it while construction is cheap and before tourists are allowed to return.

-Don’t expect huge discounts on top end properties. They might be found, but the general profile of people who own those properties are not people who are desperate to sell. Of course, I will be keeping my eye out for them and do imagine some to become available, but I do not expect the market to become flooded with premium properties with big discounts.

-Keep an eye out for distressed sales of middle or low end properties and if the right opportunity presents itself, snap them up.

Real estate is my passion, and I’d love to discuss this more with anyone. Like the article? Hate the article? Leave a comment below or message me on Whatsapp (+57) 317-523-3469 to talk more about the future of Medellín Real Estate. 



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David Eliasson

David Eliasson

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