Colombia’s real estate market is hot. While home prices in the U.S. plummeted during the economic crisis in 2006 to 2009, the real estate market weathered the storm unscathed. Between 2010 and 2011, property values leveled off, with values increasing an average of 4.8% to 5.3% nationwide. In 2012 and 2013, home prices soared again, with property values rising by 11% to 12%. According to the latest DANE (Departamento Administrativo Nacional de Estadística), the Colombia department of statistics, new home prices increased 6.6% in 2017 and 7.6% in 2018.
Buying, selling, or renting property doesn’t have to be a confusing process if you know the rules, regulations, and norms for the country (and sometimes the city) where you are planning to do the transaction. Below are some tips about what you should know about real estate in Colombia.
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There is no license requirement to be a real estate agent. Put up a shingle, create a Facebook page, print a few business cards, and you are in business. This means you can find real estate agents who are selling or renting real estate as a part-time side business with next to no experience. However, there also are many, many excellent real estate agents who work privately or for a real estate agency. So, to help improve your odds of connecting with a good agent, look for real estate agents with proven track records and get recommendations from other expats who have purchased property in the area you are looking to buy.
Unfortunately, Colombia does not have a Multiple List Service where you can find all property listings in a given city, town, or area. What that means for you is that the real estate agent you choose will only show you the listings that they have. Also, you will not be able to get statistics, such as days on market or list vs sale price, that you may be used to using to help you with your offer and purchase decision. There are a few websites that do try to consolidate listings from various real estate agents. Fincaraiz.com.co and Encuentra24.com are two of the most popular, but there are no statistics.
You will not have to sign an exclusive agreement with a real estate agent when you are buying, selling or a property. There is no such thing as real estate agent loyalty. As a matter of fact, it is common to see several real estate agent signs on properties for sale or rent. From the owner’s perspective, the first person to find a buyer gets the deal. Co-brokering between real estate agents does happen, but not very often. Especially since the real estate commission is only 3% of sales price. In many cases sharing for only 1.5% commission is not worth the real estate agents time.
Colombians are accustomed to having a selling price and a price recorded with the municipality. The recorded price is often much lower than what you actually pay for the property. This if often done to reduce the impact of capital gains tax for the seller. While Colombians do it all the time, it isn’t something expats are used to and should be avoided. You would not want to have to absorb the prior owner’s capital gain in yours when you sell the property.
A change in Article 90 of the Tax Statute for 2019 that would require purchasers to register the commercial value of properties will make this issue of two prices go away. This change has already been approved by the Colombian congress and awaiting signature by the President.
Real estate transactions may vary but here is a good estimate of what you can expect to have for closing costs. A couple of the fees are shared by the buyer and seller.
- Real estate agent fees: 3% of the recorded purchase price, plus 19% VAT, paid by the seller.
- Attorney fees: typically around COP $1 million ($334 USD) for basic work, such as investigating the title and property tax records. Your fee will vary depending on complexity of work needed, and which attorney you choose. Shop around.
- Registration fee: 0.05% to 1% of the registered purchase price, paid by the buyer.
- Sales tax: 1% of the registered purchase price, paid by the seller.
- Notary fees: 0.30% to 0.35% of the registered purchase price, split equally between the seller and buyer.
- Income tax: the notary will also collect 1% of the registered purchase price from the seller for income tax.
- Transfer charges: 0.15% of the registered purchase price, split equally between the seller and buyer.
- Local taxes: 1.05% of the registered purchase price, split equally between the seller and buyer.
Colombia has a very sound and conservative banking system. To qualify for any type of loan, a Colombian must have an extensive history of good credit, money in the bank, and a steady income. Financial instruments such as adjustable-rate mortgages, interest-only loans, and second mortgages don’t exist here. Fixed rate loans are the norm.
It is very difficult, if not impossible, for foreigners to take out a mortgage in Colombia. If you do manage to succeed, the bank will require you to make a 30% to 40% down-payment and charge you around 16% interest. Although a few banks now offer 20-year mortgages, most only offer five to 15-year home loans. So, cash is king when buying a property in Colombia if you are a foreigner.
When you look at real estate listings in cities and towns in Colombia, you will likely see a reference to the home or apartment’s estrato, followed by a number. The estrato number refers to a socio-economic scale of one to six (with one being the lowest and six being the highest). This tiered system determines the price you will pay for utilities, property tax, and cable/internet.
Residents living in estratos one through three receive subsidies on their services and taxes, while those living in estratos five and six pay more for their services to provide those subsidies. Usually those living in estrato four dwellings pay the actual usage rate. The trick is to see if you can find a lower estrato building in a higher estrato neighborhood. The estrato system does not exist in rural areas.
Notaries, Lawyers and Escrow
Notaries, lawyers, and escrow function much differently in Colombia than in the U.S. It is important to know the roll of each of these in the real estate purchase/selling process.
Notaries in Colombia have much more clout and importance than in the U.S. This is where all closings happen. Your lawyer will perform the title search and prepare documents, but all purchase and sale transactions occur under the charge of a notary. They will require a paz y salvo (statement of no liens) from the building administration, property tax, and utility companies before executing the transaction. Your lawyer and real estate agent should attend the closing to provide support and answer any questions the notary may have. But, without the notary’s seal, the transaction is not valid.
While very commonplace in the U.S., the idea of using a lawyer to hold money in escrow is completely foreign to Colombians. They would never give money for the lawyer to “hold on to” in case of contingencies.
New construction is going on practically everywhere you look in the larger and mid-sized cities in Colombia. Entering into an agreement to purchase real estate for projects “still on the drawing board” can be worrisome, especially in a country where you may not speak the language as well as you’d like.
Rest assured that the fiduciary system in Colombia has addressed this concern. The fiduciary company which administers the new development project requires enough of the units are pre-sold to cover the entire construction cost (usually 75% to 80% of the number of units) before the contractor can “put a hole in the ground.” This means that the only money at risk is the contractor’s profit. While it is true that on very rare occasions buildings never get completed, the vast majority of projects are completed. So, if you bought “pre-construction”, you will not lose your investment.
Thinking about renting out your apartment on Airbnb for a few weeks to earn some quick income while you are traveling? You may want to re-think that idea. In Colombia, Airbnb hosts are now on a level playing field with hotel operators.
In late 2017, the Colombian Ministry of Commerce, Industry and Tourism instituted a policy requiring that anyone renting their property for less than 30 consecutive days must register with the National Tourism Registry (RNT) (website: https://rnt.confecamaras.co/home) and follow all the rules, regulations, and standardized policies that the hotels do. Of course, the hotel industry is thrilled with the decision as they felt that Airbnb and other online platforms have had an unfair advantage.
However, this doesn’t have to be a barrier to owning a property to rent out on a nightly or weekly basis. Some real estate companies have either purchased or built entire apartment buildings for the sole purpose of renting short term. If you buy one of these apartments and use them as your property manager, they include the license and proper documentation in the deal.
Fiadors and how to get around needing one
Traditional Colombian-owned real estate rental agencies require at least one, and sometime two fiadors (cosigners) in order for you to rent an apartment. They want someone to cover the rent in the event you stop paying. Finding someone to act as your cosigner will most likely prove challenging since you won’t know a Colombian who is a homeowner with sufficient income and who is willing to sign for your lease.
There are ways to overcome the fiador requirement:
- A few real estate agencies (often owned by expats) will lease apartments without a fiador, but you will have to pay three to six month’s rent in advance.
- Deal directly with the property owner and bypass the rental agency. You may be able to negotiate better and convince the owner to rent to you without a fiador.
- There are companies that will act as your fiador for a few, which can be as much as one or two month’s rent.
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Does New York City have a bigger booster than Marcelle Shaoul? This is an easy question: It does not.
She loves listening to the garbage trucks as they make their early morning rounds. She is equally charmed by the other street sounds (horns, car alarms) that serenade her for the rest of the day. She is even delighted — so she says — by the sight of trash piling up curbside. It is just so very New York.
Three years ago, when macular degeneration made driving impossible, Mrs. Shaoul, encouraged by her four children, decided it was time to sell her condo in Manhasset, N.Y., and move to Manhattan.
“But I didn’t want to buy,” said Mrs. Shaoul, now 90, who settled happily in a two-bedroom apartment with a balcony on the Upper East Side. “It was easier to rent.”
She joins a sizable crowd. Of the 30 most populous cities in the United States, New York has the largest share of households of renters age 60 and over — 572,132, to be precise — according to the apartment-search website RENTCafé.
In 2017, renters who were 60 or older made up 27 percent of the city’s rental population, a 20 percent increase over the previous decade, according to RENTCafé’s analysis of American Community Survey data from the United States Census Bureau. And senior renters outnumbered senior homeowners in Manhattan, Brooklyn and the Bronx, as is the case for renters in general. They even outnumbered those in the under-34 demographic, if only by half a percent.
Really, it makes perfect sense. Many young professionals, undone by the high cost of living in New York City, are reverse commuting — moving to glossy new rentals near train stations in the business districts of suburbs — while their parents flock to the city, sign leases, chase down culture and try to solve the mystery that is avocado toast.
The group includes former co-op shareholders who want to cash out and invest the proceeds elsewhere, but who want to remain in the city, at least for a while. It also includes suburban empty nesters who no longer require bonus rooms and backyards, and perhaps more to the point, have had it up to here with shoveling the driveway, mowing the lawn and cajoling the furnace.
If downsizing and reducing aggravation are part of the getting-older game plan, renting an apartment rather than buying fits right in with that strategy.
“We’re in the middle of a very dynamic setting, which is accessible just by walking out the door,” said Connie Vance, 79. Three years ago, Ms. Vance, a retired nursing professor, sold her Westchester townhouse and moved with her husband, Ralph Kelley, a semiretired lawyer, to the Encore, a rental building in Lincoln Square.
“We loved the city and wanted less responsibility,” Ms. Vance said.
After two years in a one-bedroom, the couple moved a few floors up, to a two-bedroom, a very easy matter because, after all, they were dealing with a rental. The gym, the roof deck, the lobby — all great. “But we don’t have to maintain any of it,” Ms. Vance said. “It’s like living in a hotel.”
In some instances, the adult children of these new older New Yorkers also live in the city, along with the grandchildren. Such is the case with Mrs. Shaoul. Yet another reason to make the move.
“You get to see your children for dinner or just for coffee,” said Gary Malin, the president of the real estate brokerage Citi Habitats. “You don’t have to make elaborate plans to see each other as you would if you were still living in the suburbs. It can be spur of the moment.”
The city, always relatively easy to navigate, always hospitable to people well past the first flush of youth, has become even more so in the past decade, said Kathy Braddock, a managing director at the real estate agency William Raveis NYC. “Before, the outer boroughs were a little isolated,” she said. “But now you have Uber and Lyft.”
Access to the offerings of big-box stores is also no longer the sole province of suburbanites. “With the advent of Amazon, the need to live out of the city for those resources no longer exists,” Ms. Braddock said. “You combine that with advantages like joining a museum here for $100 a year and being invited to special parties for members — and as you get older, you can make do with a smaller place, because New York becomes your playground.”
And in New York, unlike many other cities, there is no wrong-side-of-the-tracks stigma to renting.
In the last five years, Nancy Albertson, the director of leasing for Glenwood, a real estate development and management company, has seen an uptick in over-60 renters at two of its Upper West Side properties, the Encore and Hawthorn Park.
“I’ve had people tell me that living in Manhattan is part of their bucket list,” Ms. Albertson said.
Laurie Zucker, the vice chairman of Manhattan Skyline, a property development and management company, has seen a similar surge of over-60 renters in Skyline buildings like West River House on the Upper West Side, Claridge’s in Midtown West and 55 Thompson in Soho.
“We have people who are renting in certain buildings to be near their kids, who are bringing up their own kids in the city,” Ms. Zucker said. “At 55 Thompson, we’re seeing people in their 60s who are divorced and want to start their lives over in a young, hip neighborhood.”
Renting, as the over-60 demographic clearly understands, can be a synonym for freedom. Someone else has to fix the broken faucet. Someone else has to take out the trash. It’s also a way of dipping your toe in, no commitment. If, after a year, you don’t like the vibe of your building or neighborhood, you can try another part of town on for size, or simply leave town.
Without question, New York is an expensive place to live. But as Mr. Malin observed, “When you look at the costs of owning a home and cars and the cost of insurance, it’s not always as unobtainable as you think.”
For those who wonder how they would deal with tighter quarters, Mr. Malin points to the myriad amenity-rich new-construction rental properties that have sprung up in recent years. Even if the apartments themselves are relatively small, there are lots of other places to perch in many buildings: gyms and on-site theaters, libraries, game rooms and lounges. Some have dining rooms that residents can reserve for large family gatherings.
When William and Mary Deam became empty nesters, they no longer wanted to deal with the upkeep of their house in Greenwich, Conn., and they no longer wanted to be held hostage to the Metro-North train schedule.
In 2017, the couple moved to a two-bedroom rental on the Upper West Side, within shouting distance of Lincoln Center — “a wonderful resource,” said Ms. Deam, 65, a homemaker. Their building has a gym and a rooftop terrace, which compensate for the downsizing.
“We were very fortunate to be healthy and fit, and while we had that going for us, we thought it would be a smart thing to move to the city rather than going to a retirement situation in the south,” she said. “It’s been even more fun than I had hoped, and it’s been a constant discovery process.”
Ms. Deam said she thought that she knew the city when she lived in Greenwich. “But it’s different living here and being on the street,” she said. “And it’s so lovely to go to a concert and not edge out while others are applauding and think, ‘Oh, am I going to be able to make the 11:10 train?’”
Even many of those who toy with the idea of buying are holding off because of new and proposed changes to the tax code.
“I have clients in this demographic who are factoring in that they can no longer fully deduct property tax in New York,” said Graig Linn, a salesman at the real estate agency Douglas Elliman. “The result is that, as they’re getting closer to retirement, they’re looking for the simpler style of renting.”
Former co-op owners may find the move to a rental singularly satisfying. No longer are they waking up every morning to ponder — or, more to the point, worry — about what exactly their apartment is worth. No longer are they at the mercy of a capricious board that can reject a prospective buyer, just because.
“I do believe that as we get older, we want to be able to control our assets, and that’s not always possible with a co-op,” said Ms. Braddock, of William Raveis. “If you’ve been in your apartment for a while, the asset has appreciated nicely, so why not stay liquid and rent?”
Janna Raskopf, a saleswoman at Douglas Elliman, has clients who owned a co-op on the Upper East Side, where they had raised a family. “They’ve sold, and now they’re like, ‘We want to rent downtown and see how it goes,’” Ms. Raskopf said. “If they like it, they may buy, but they don’t want to make the commitment without trying it out.”
Among the new wave of renters are former New York City residents who left years ago to raise a family or to follow a spouse, but who always hoped they would come back someday. And someday is now.
Susan Strein moved to Manhattan from Nassau County at the age of 23 to work as a technician for the WCBS-TV network. She stayed for eight years, until she married and headed back to the suburbs to raise a family.
Along the way, she got a divorce. Now, with two daughters grown up and out of the house, “it was time to downsize,” Ms. Strein, 59, said. “There was too much space and too much upkeep, and I’m a city girl at heart.”
In late March, she signed a lease on a one-bedroom apartment on the second floor of a walk-up building on the Upper West Side, near Fairway, Trader Joe’s and a park.
“I wanted to rent because I was looking for a foot in the door, and I wanted time to figure things out,” said Ms. Strein, who now works in the hospitality business. “I have a one-year lease because I want the flexibility of exploring other options.”
She doesn’t have a washer and dryer, but so what? There’s a drop-off laundry nearby. And her new kitchen is compact. But again, who cares?
“There are a lot of food places around, and I’ll make do or do without. That’s what city people do,” said Ms. Strein, who is selling her car and eagerly anticipating walking everywhere.
“My daughters still live on Long Island. They’re not ready to move here,” she added. “They’re like, ‘Oh, boy, here she goes. Mom is doing it.’”
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