The Next Generation Effect In This Country Is Pushing Property Values Ever-Higher
One of the best indicators of a healthy economy is the rate of growth of its middle class.
Over the past dozen years that I’ve been paying close attention to Colombia, I’ve witnessed the steady expansion of that country’s middle class.
My focus has been on Medellín primarily… where, I can tell you from firsthand experience, there are more cars on the roads… more shoppers in the malls… more locals in line for movie theater showings… and more diners in the restaurants all the time.
At last week’s Live and Invest in Colombia Conference, a colleague from Bogotá provided data to support my anecdotal observations.
In 2011, this local businessman and investor with a 40-year track record explained, 26.5% of Colombia’s population qualified as “middle class.”
By 2015, that figured had grown to 30.5%… a significant milestone as, that year, the country’s middle class became bigger than the percentage of people living in Colombia in poverty.
Assuming the current average annual GDP growth rate of a little better than 4% a year continues (as it is expected to do), by 2020, the percentage of this country’s population qualifying as middle class will reach 37%.
Colombia’s GDP, it’s worth mentioning, has been about 33% greater, on average, than the average GDP growth rate of Latin America as a whole over the past decade.
And, important, over the last several years, this continuing GDP growth has been fueled, not only by exports of oil and other commodities, as had been the case historically, but also by internal consumption… thanks to that expanding middle-class buying pool.
I witnessed the same phenomenon in Ireland when we were living in that country about 20 years ago. Specifically, in Ireland, the middle-class ranks were being bolstered by big numbers of kids being able to move out of their parents’ houses sooner than they would have traditionally.
The positive effect on real estate values was big.
This next-generation effect is an important force behind Colombia’s current rates of middle-class growth, as well… especially in capital city Bogotá.
Bogotá’s 114 universities have a current total student population of about a half-million and are launching into the world (and, specifically, the Bogotá economy) 100,000 graduates annually.
And that rate of matriculation is expected to continue for years to come.
Do these new grads want to move back in with mom and dad? Nah… like those youngsters I observed in Ireland two decades ago, they’ve tasted independence.
Fortunately, Colombia’s economy is growing right alongside them, providing job opportunities… making it possible for this generation of Colombians to transition from university to the work force… and afford digs of their own.
Translating into a new sweet spot for local developers.
Bogotá is both a university town and the economic engine of the country. More than 1,800 international companies are based in this city whose metro area holds a population of more than 10 million, which is more than 20% of the country’s total population.
This is a big, bustling metropolis that may not make sense for the expat retiree but that certainly holds opportunity for the foreign real estate investor.
Property values in Bogotá have appreciated 7% to as much as 18% per year over the last decade… which might suggest that you’ve missed the chance to get into this market early.
That could have been the case… if not for the current currency exchange rate between the Colombian peso and both the U.S. and the Canadian dollars.
Thanks to a super undervalued peso, you can get in on this market on still bona-fide bargain terms.
And the rate of property value appreciation isn’t expected to slow anytime soon, thanks to continually improving economic factors.
Where and in what, specifically, should you invest?
Bogotá is divided into 20 districts running north to south along a mountain valley. The poorer areas are in the south, the wealthier areas in the north. The middle-class neighborhoods are, well, in the middle.
One neighborhood in the middle that has my interest is Chapinero. You could buy an older apartment to renovate or something new pre-construction. Either way, you could then furnish and rent short term (if the building association allows short-term rentals) or skip the furniture and rent long term.
Or you could skip the apartment search altogether and invest turnkey with a developer. Several tempting turnkey investment opportunities in key Bogotá locations were presented during last week’s conference.
Lief Simon
