Here are three things that should grab your attention about Medellín, Colombia, the market I have identified as the most undervalued in the world right now:
- Low property prices, in absolute terms.Medellín offers a safe, elegant, first-world lifestyle that beats the competition. Yet real estate prices in its most exclusive neighborhood are lower than in Panama City… Montevideo, Uruguay… or Fortaleza, Brazil…
- Potential for appreciation.Costs of real estate have been rising between 5% and 8% per year, over the past three years. This is a steady, healthy gain… but not a bubble.
- Double-digit yields from income-producing properties.Short-term furnished rentals can earn 10% in good neighborhoods, while longer-term furnished rentals can reach 8%. These rates are almost unheard-of… in any market.
It’s a perfect storm for us property buyers.
Of course, when thinking about retirement or relocation, cost is crucial, both cost of living and cost of real estate. Living anywhere, the biggest part of your budget will be given over to housing—either the purchase of a home, or to rent.
In this context, Medellín shines.
You can buy in El Poblado, the top end of the market and the best location in the city, for as little as US$1,700 per square meter. Medellín properties cost as much as 48% less than its “competing” cities, such as Santiago, Chile, or Montevideo, Uruguay.
Or you could rent a nice, modest apartment in a good neighborhood for US$500 a month… or less.
Real estate prices in Medellín are downright cheap. Not relatively, but absolutely.
Friend and Latin America Correspondent Lee Harrison is as sold on Medellín and on Colombia in general as I am.
Lee told me recently:
“Some would say that I’ve over-invested in Colombia for a small-time investor. But I was completely sold by the quality of life I could enjoy in Medellín for such low prices… not to mention the solid, first-world construction quality.
“I bought a primary home here, expecting to rent it out when I’m not in residence. And then I bought a rental property—also large and well-located—with my self-directed 401(k) plan.
“I was told that returns would be good… but I didn’t expect them to be quite this good. Both properties rented almost 100% last year. In fact, the only time they’ve been vacant—so far—is the time necessary to transition from one tenant to the next.
“And aside from the good rental returns, both properties have increased in value by at least 10%, per an independent appraisal.
“The truth is that I’d buy in Medellín even if my property didn’t rent—or wasn’t going up in value—because the quality of life and the weather are worth it. But these returns have provided a welcome, extra bonus.”
It’s not just small individual buyers who are recognizing what Medellín and Colombia bring to the table. Legendary real estate investor Sam Zell has made billions with his savvy. He’s smart. He’s tough. And he’s famous for his timing. Zell sold his Equity Office Properties Trust in 2007 for US$39 billion, right as the real estate market in the U.S. was peaking.
Where is his timing telling him to invest now?
Colombia.
“Colombia is the next star of Latin America,” Zell says. His company has already invested US$75 million in a mixed-use development. And where Sam Zell leads, others follow…
The world’s richest man, Carlos Slim, recently decided to “increase his investments in Colombia because of the country’s liberal oil exploration policies, along with its mineral assets and expanding middle class.”
Prices are low, the supply of premium rentals is low, and demand is increasing.
That’s a combination you can’t beat.
In addition, in recent years, Colombia has enjoyed some of the highest rates of growth of any Latin American country. And, through the end of last year, it continued to out-perform traditional powerhouses like Brazil, the United States, and the Euro-zone.
This is due to many favorable factors, including the country’s steadily decreasing crime rate.
International investment money is pouring in. Between 2001 and 2012, foreign direct investment (FDI) jumped an amazing 600%… and it has increased more than 200% since I came here for the first time in 2010.
I can’t stress strongly enough how great the window of opportunity is right now in Medellín in particular and in Colombia in general.
Remember, I’ve seen this many, many times before, over the decades we’ve been covering this beat. I recognize the potential that Medellín is offering, for both the investor and the retiree.
And today’s exchange rates make this an irresistible time to take a position.
Lief Simon
