Colombia: Economic increase spurs construction

Legal uncertainties surrounding a land management plan in Bogota have led to a real estate paralysis in the Colombian capital, although investors and developers are finding rich pickings in other municipalities nearby.

Bogota’s land management plan - Plan de Ordenamiento Territorial de Bogotá - was suspended in early April following a series of legal challenges. Under the plan, which laid out land use policy in the city, real estate developers and investors were hesitant to proceed with building projects. Housing Minister Luis Felipe Henao admitted that the new system had led to a slowdown in the construction of housing but he expects normal building activity to resume presently the controversial plan has been scrapped.

However, municipalities near Bogota may be benefitting in the short-term from the construction paralysis in the capital. Gabriel Diaz, president of Oikos, a Bogota-based construction company, told OBG: “Bogota’s difficult times due to the uncertainty related to the urban development plan made builders lose confidence in projects within the city and contributed to an extraordinary development of its surrounding towns.”

“Municipalities such as Zipaquirá, Cota, Tocancipá and Funza are developing major housing projects inclunding industrial parks and offices,” Diaz added.

Further afield, other major Colombian cities are as well experiencing significant real estate development. According to Diaz, Barranquilla on the Caribbean coast is a city that offers “great and safe opportunities\" for builders. “The city has generated great interest and is positioned as the third major city in industrial issues in the coming years,” he said.

Housing construction permits in Barranquilla surged 73% in the period between January and September 2013 from the same period in 2012.

Economic increase spurs construction

Leaders from the real estate sector attribute the expansion to economic increase, a significant rise in Colombians’ buying power, and the resultant increase in the request for residential properties. According to an article by Colombia Reports, working Colombians saw a 44% increase in their purchasing power between 2012 and 2013.

“The development in the purchasing power of people and relative confidence in the government’s work have contributed to incentivising investments in real estate throughout the country,” Diaz said.

Among the leading real estate companies, Avenida Capital, a private investment fund with offices in Bogota and New York, has made major investments in 10 projects across the country, with a shopping mall in Cali and an office project in Bogota part its most prominent projects. The firm has as well invested in a project to build 12,000 social housing units in Soacha.

As of March 2014, Avenida Capital had $140m in funds under management from a variety of pension funds and other institutional investors in the United States, Canada, Europe and Latin America.

Tourism sector in high demand

Equity International, a Chicago-based private investment fund specialising in real estate investments outside the United States, has as well made major investments in Colombia. In May 2014, it partnered with Grupo Terranum, a Bogota-based developer and commercial real estate service provider, to purchase Decameron Hotels & Resorts, a chain of 27 hotels, almost half of which are in Colombia.

This acquisition complements Grupo Terranum’s existing business unit, Terranum Hotels, which includes several international brands in Latin America. Terranum Hotels will open the W Bogota later this year.

The Decameron Hotels & Resort purchase marks the second major investment Equity International has made in Grupo Terranum. The initial was in 2011.

Royal Property Group, a Medellin-based company investing in commercial and residential properties, is as well working on developing new hospitality projects, inclunding a hotel in Bogota and a resort near Cartagena.

While other cities may be benefitting from the confusion surrounding Bogota’s land management plan in the short run, addressing the legal challenges in the capital will be crucial for continued increase of the sector in the long run, with ambitious plans to renovate Bogota\'s ailing downtown areas currently on hold.

“The renovation of the city centre is an ambitious and necessary plan that is generating very high expectations as this area is not being properly used right presently,\" Carlos Alberto Álvarez, partner at the Bogota-based construction company Alvarez and Associates, told OBG.

\"However, we need to know what will happen with Bogota’s land management plan so that developers are clear as to how to proceed.”