By Ana Vera*
After the coronavirus crisis, it was usual to read headlines about historic housing sales in Colombia.
Both social interest housing units (VIS) and non-VIS had a good sales pace, but that ‘boom’ effect of years ago seems to have vanished.
Several factors drove historic housing sales in recent years.
The government’s bet on housing subsidies as a policy to help the construction sector reactivate the economy and employment was important.
In 2020 and 2021, interest rates and inflation remained low, a very different scenario than today.
DID THE HOUSING BOOM IN COLOMBIA FIZZLE OUT?
“There is no ‘boom’ in housing sales (neither new nor used) at the moment. On the contrary, both the new and used housing segments have been affected by high inflation, by the increase in interest rates and, in general, by lower consumption expectations for 2023″, explained Karina Reyes, president of the Colombian Federation of Real Estate Lonjas (Fedelonjas).
Reiterating the above, Juan Sokoloff, vice president of data and analytics of the proptech Habi, said that “we cannot speak of a ‘boom’ in the last year because it was a year that began with a positive dynamic and then slowed down due to the macroeconomic conditions of the world and the country.”
“We expect that in 2023 we will experience the opposite dynamics, relatively low levels of transactionality in the first half of the year, growing during the second half”.
However, the fact that the dynamics of the construction sector or home sales have slowed down is not all bad.
Sokoloff said that “it is healthy for the market to react. It would be highly alarming if the market continued to grow despite the difficult macroeconomic conditions, indicating a possible overheating. It is good that there is no ‘boom’ because a ‘boom’ usually leads to a ‘shock’.”
According to CBRE, a real estate multinational, and after consulting with several important players in the sector, “construction companies are facing what is possibly one of the biggest battles they have had to live through in recent times, putting their operations and the sustainability of their businesses in ‘check’.”
The multinational’s experts believe that the changes in Colombia’s subsidy policy will substantially impact sales dynamics, as Colombians who meet specific targeting criteria in Sisbén will have priority.
“For 2023, the delivery of 50,000 subsidies was announced, which represents a decrease of 30% compared to 2022 and 47% compared to 2021. Such adjustments resulted in a significant drop in the VIS segment, which has historically represented more than 70% of the housing market in Colombia.”
In addition, in the last semester, there was a drop in the sale of new housing and an increase in the number of abandonments.
According to the Real Estate Gallery, these rates have been above 12% and are expected to increase between 2 and 3 percentage points by 2023, according to CBRE.
DO YOU WANT TO BUY A HOME? USED HOMES ARE MORE EXPENSIVE
Although one would tend to think that the increase in production costs and new projects due to more expensive inputs in dollars, coupled with changes in the policy of housing subsidies in Colombia, has created a greater appetite or ‘boom’ in the sale of used homes, Fedelonjas says that this is not necessarily the case.
Complementing the above, the Federation stated that last year, “the selling price of used housing has grown faster than the selling price of new housing”.
According to data from the DANE and the Bank of the Republic, “during 2022, the growth rate in the sale price of used housing was higher than that of new housing”.
However, “this growth was not accompanied by an increase in disbursements; that is, there was no growth in demand. Thus, the growth in sales prices of used housing can be explained by a reduction in the supply stock and by the increase in inflation,” explained Fedelonjas.
CHARACTERISTICS OF THE MOST SOLD USED-HOMES
According to the information published by the Dane for the statistical operation Housing Financing, cited by Fedelonjas, during 2022, the departments with the highest number of disbursements for acquiring used housing were: Bogota with 15,565, Antioquia with 7,182 and Valle del Cauca with 3,162.
In addition, during 2022, the average value of disbursements for acquiring used housing was $179,644,839.
“During the fourth quarter of 2022, disbursements for the acquisition of used housing are concentrated in non-VIS with 8,638 disbursements while for VIS they reached 2,103″, highlighted Fedelonjas.
For its part, Habi shared that the most demanded housing in Colombia is the VIS, located near the largest employment centers in the country.
That is, the housing of less than 150 SMMLV (Minimum Legal Monthly Wages in Force) in Bogota, Medellin, Cali, Barranquilla, and Bucaramanga metropolitan areas.
“As for the characteristics of the homes, the most frequent that one finds in this segment are homes with 2 to 3 bedrooms, 1 to 2 bathrooms and usually with common condominium parking lots,” highlighted the proptech.
IS IT A GOOD TIME TO BUY A HOME?
If you have the necessary resources to afford a purchase with low financing levels, you can take advantage of a large market supply with lower demand, says the Habi expert.
Additionally, he indicates that “this is relevant because in a context of inflation and stable-increasing housing prices, being able to put the money in material goods will ensure that the liquidity the buyer has does not “vanish” due to inflation and remains secure in real estate within a solid market”.
However, for homebuyers needing high financing levels, it is important to remember that interest rates are at historically high levels.
Buying now can be a good idea as long as the financing level is not that high or there is a refinancing strategy in the future, they add from proptech.
Finally, Fedelonjas commented that although the current macroeconomic conditions may discourage the purchase and sale of housing, it is important to remember that “the aforementioned situation is temporary; this will depend on the policies adopted by the National Government in economic matters and that impact on the variables mentioned above (interest rates, inflation, among others)”.
“The most important thing is to remember that housing is a long-term investment decision. Ideally, you should first do the math, check the value per square meter and if the property is very overvalued before making any decision.”
*Chief economist at IN ON Capital
With information from Bloomberg