Medellín Real Estate – Índice de Valoración Predial - Medellin Advisors

Medellín Real Estate – Índice de Valoración Predial

Real estate value grows in medellin

One important component to a property acquisition decision is the ongoing costs associated with property ownership. Generally, when considering buying an apartment in Colombia, you’ll have to pay ‘la administracion’ (a monthly HOA fee) and ‘Predial’  which is the local term for property tax. While typically predial is paid quarterly (trimestral) it can also be paid annually to receive a discount. These costs can vary significantly from apartment to apartment, and are an important consideration for when searching for the ideal place to buy. 

But how is Predial calculated, and how have property prices and property taxes changed over the years? This article seeks to explore these answers in-depth by looking at the Indice de Valoración Predial

 

 

Valoracion predial amp real estate medell n
Beautiful panoramic view of the city of Medellín

The Índice de Valoración Predial (IVP) is an indicator that, since it was established in 2001, tracks the different ‘valor catastral’ of various samplings of the 22 largest cities in the country, excluding Bogota (whose calculation is based on a different methodology entirely). This is a relevant issue for both investors and owners, as it has a direct impact on the purchase price and obviously on the payment of property tax to the municipalities.

Before we get into this concept, it is important to highlight how properties in Colombia have two different values: 

Valor catastral: This is the registered value of the property and the basis for which taxes are calculated
Valor commercial: This is a value, often much higher than the valor catastral, which is determined by the market – and the price you will actually pay for a property. 

Real estate value grows in Medellin
Property revaluation remains positive in Medellín over the last 20 years

 

The task of determining the value of properties of the major cities in the country is carried out by specialized professionals of the Instituto Geografico Agustin Codazzi. They use very rigorous technical and statistical parameters. This report is presented every year by the National Administrative Department of Statistics (DANE). During a period of two and a half months, the DANE takes a random sample of 5,000 urban properties and compares their values over time. In Medellín, the result is highly positive and shows a continuously rising real estate market. 

 

Valuation medell n
Property valuation in Medellin is an incentive for investors


Analysis of Medellín's Índice de Valorización Predial

 

When reviewing the indicators of the Índice de Valorización Predial for the period 2002-2021 for the city of Medellín, we observe an annual average positive valuation of 5.33% and an accumulated valuation of 106.57%. In 2021 alone, Medellín’s property valuation increase was 4.85%, which was 1.35% lower than the previous year, which was 6.20%.

 

Índice de Valoración Predial Medellín VS other cities
This graph shows the variation in IPV amongst major Colombia cities since 2001

 

We’ve written before that, according to the DANE, property prices in Medellin have risen by an average of 9.36% per year for the past 15 years.

What this chart reflects, rather than an indicator of how much the commercial value of properties has increased, is the amount that the the aforementioned institute thinks the market has increased and the basis upon which local governments can charge property taxes. 

Beautiful night view of the wonderful Medellin
Medellín is an attractive city for real estate investments


Property Taxes in Medellín

It should be noted that during the height of the coronavirus pandemic in 2020 and into 2021 the government granted financial relief to the population. This included property tax relief – the Mayor’s Office of Medellín made the payment of taxes more flexible for property owners.

As the economy rebounded, these measures were rolled back and property tax payment was normalized. 

 

Tax predial medellin
Real estate revaluation also generates property tax increase
Pib colombia
This graph shows GDP in Colombia (abbreviated PIB in Spanish)


Limits To The Collection of Property Taxes in Colombia

In 2020, President Ivan Duque sanctioned Law 1995 of 2019, which establishes five-year caps on the increase of real estate property taxes. Previously this type of property tax could be increased by municipalities without specific guidelines, generating complaints and annoyance from owners of real estate in Colombia. Now, the national government regulates these changes, limiting increases to the increase of the consumer price index (CPI) + 8% in some cases and with different rules in other cases. Let’s see some examples:

Example predial
The national government has limited the excessive collection of property taxes in Colombia

In case # 1, let’s consider a property with a valor catastral at COP 800,000,000. The law establishes that the maximum property tax increase allowed is the sum of the Consumer Price Index announced by the Bank of the Republic in Colombia each year. Therefore, in the example, we see that it is 5.62% plus a percentage of 8% that serves as a ceiling. Thus the total, maximum authorized increase in property tax is 13.62%.

In case #2 let’s look at an inexpensive property – one that could be found in Estrato 1 o 2 neighborhoods.  For properties that are up to a maximum of 135x the monthly minimum wage (for 2022 the minimum wage is COP 1,000,000 so properties to a maximum value of COP 135 millones.) Here the property tax increase may never exceed 100% of the consumer price index. For this lower priced property, the property tax increase could only be 5.62%.

Example #3 from the graph considers the case of a property that has not had a valor catastral assigned to it in the previous five years. This might happen in the case of a new lote, or a new house, for example. In these cases, the property taxes may not increase by more than 50% compared to previous years. There is substantially more room for a municipality to increase property tax in these situations which is something that prospective buyers should have in mind. 

 

Is Now the Time to Buy in Antioquia?

Anyone living or spending time in the Valle de Aburrá will realize there is new construction all over the place. From Bello to La Estrella and everywhere in between, new construction projects are popping up. New developments are gaining momentum in areas beyond the metropolitan area of the Aburrá Valley and Eastern Antioquia.

Construction Projects in Medellin
Housing construction has spread to areas in eastern Antioquia

The growth of real estate transactions has increased substantially in recent years, surpassing even the most optimistic of forecasts. In 2021 alone, more than 239,000 units were sold throughout the country. Thousands of Colombians fulfilled their dream of owning a home for the first time, thanks to the incentives granted by the government for this sector with credit facilities, preferential interest rates and subsidies.

 

Lodging in Medellín. Long-term (typically unfurnished) rentals require a Fiador.
2021 was a record year for property sales in Colombia, every 2 minutes a sale took place

It is taken for granted that real estate investment is generally an asset that produces favorable returns in most countries. Despite the volatility of the international financial markets, land and bricks rarely lose value. On the contrary, they tend to be worth more every year, which is why it is necessary to adjust the registered value of properties and update property tax amounts. 

Direct Foreign Investment an Additional Driver of Local Market

There is an interesting phenomenon and it is the arrival of foreign investors to Colombia, which has allowed the real estate sector in Medellín to become even more dynamic. This has been gaining significant strength in recent years. Thus, thousands of expats come every year and find Medellín an ideal place to rest and have a golden retirement or simply to invest and allocate the property to a rental market that continues to experience very strong demand. 

Retiree in medellin
Retirees come to Medellin looking for a better quality of life and to save money

Expats that come to invest in Medellín, in general, have a medium or high socio-economic profile. The majority are professionals, millennials, digital nomads, retirees or simply astute investors. Generally they come from countries with a stronger currency than Colombia, which provides for a beneficial position in terms of purchasing power. 

This can allow them to negotiate with the necessary liquidity to make attractive cash offers to Colombian sellers, rather than depending on the slow and unreliable credit process here or paying for a property with a lesser valued apartment (something extremely common amongst locals here). 

Real estate agent in Medellin
Having a real estate team that specializes in foreign investment can be very beneficial
Business to medellin
Buying property in Medellin can be quite affordable for expats

Is life really that cheap for expats in Colombia? We previously took an in-depth look at grocery shopping in this article.

For a simpler analysis, simply consider that during the year 2021, according to the Banco de La Republica, the Colombia Peso devalued 15.98% compared to United States Dollar. Leaving inflation aside, anyone holding or earning dollars, life became almost 16% less expensive with the passing of a single year. And while COP doesn’t always devalue at that rate, the general trend is in that direction. Most expats can live comfortably in Medellín with an average income of 2500 USD per month.

Low cost of living for expatriates in Medellin
If your income is in a currency other than COP you may find it cheaper to live in Colombia
Medellin grow
Medellin has a mix of modern and traditional builds

Average Cost Per Square Meter in Medellín

There are average prices that help to determine the fair value of a property and also understand why prices may vary in each neighborhood. These are just general guidelines, and the characteristics of the property (year built, estrato, amenities of the building, view, etc) also have a significant influence on value. Here’s a look at price per square meter in some of the most popular neighborhoods of the Medellín Metropolitan Area. 

Price for m barrios
The price per square meter varies according to the neighborhood, estrato (1-6) and amenities

The cost of housing will regularly be higher in the wealthier areas of the city. Thus, El Poblado and Laureles lead the ranking as a general rule. But even sectors of Belen, Envigado and Sabaneta have begun to appreciate quite a bit. The impressive progress of Medellín now covers the entire Aburra Valley and even towns of the Oriente (Eastern Antioquia) The trend is clear – that every year properties are worth more and this has encouraged more investors to invest with confidence in this sector. 

Medellin's good time
The real estate market has performed well in recent years in Medellin

Índice de Valoración Predial - Conclusions

The real estate market in Medellín is in high demand. Many new buyers are entering the market and previous investors are doubling down due to past successes.

While this is driving up the commercial value of properties, the actual registered value (catastral) is an artificially deflated value that, despite demonstrating positive growth every year since 2001, does not increase at the same rate of the actual market (9.3% vs 5.3%). 

We have also seen how the Índice de Valorización Predial has doubled in the past twenty years. For example, a person who bought a property in 2002 for a figure of COP 400,000,000 should see today how it is worth at least COP 800,000,000 – or more. 

This is great news for people who took advantage of the right moment to invest a long time ago but can also provide comfort to current investors as they evaluate whether or not to take the plunge. 

Medellin digital nomads
Medellín is the second most important city in the Colombian real estate market

Questions, comments? Get in touch with me today and I’d be  more than happy to discuss these topics with you further.

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