Buying Real Estate in Colombia
The purchase process is relatively straightforward when you’re buying real estate in Colombia. Foreigners can buy property in either their own name or in the name of a company and have all the same rights to ownership as Colombian citizens. All you need to buy real estate in Colombia is a passport. Residency isn’t required to buy real estate but buying real estate can qualify you for a Colombian investment visa depending on the value of the property.
However, there are two important notes for foreigners to be aware of when buying real estate in Colombia. In Colombia, there is no title insurance and there is no escrow (except for new construction properties). So, it is very important to hire an experienced lawyer who understands real estate law in Colombia to do a title search and other background checks.
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 for foreigners to take out a mortgage in Colombia. If you succeed, the bank will require you to make a 30% to 40% down-payment and charge you around 12% interest. Although a few banks now offer 20-year mortgages, most only offer five to 15-year home loans. Foreigners should plan on entering into a contract with cash in hand.
Most brokerage companies offer foreign clients the opportunity to transfer large sums of money into the Colombian market at a low cost and in a way that is more efficient and less time consuming than bank-to-bank transfers. If you are diligent you can expect to open an account within 7 to 10 business days.
Where to Buy Property in Colombia
Colombia is about the size of Texas and California combined. It is the second most biodiverse country in the world, so whether you’re concerned with climate, culture, or lifestyle, you’ll find your niche in Colombia. You can live in a sophisticated, modern city or a cute casita in the countryside…a colonial walled city by the sea, or a sleepy Caribbean beachside town…enjoy spring-like weather high in the Andes, steamy tropics, or the “perfect” weather in between. There are so many good towns and cities to choose from when it comes to looking for your perfect location in Colombia.
Medellín
Medellín is Colombia’s fastest-growing expat destination. Even though it is Colombia’s second-largest city, with a population of nearly 3 million, it really feels more like a bunch of neighborhoods all strung together. Due to the near-perfect climate, flowers are constantly in bloom and dot the streets with color year-round. Spend just a few hours walking around the city and you will see why it is nicknamed “The City of Eternal Spring.”
The El Poblado neighborhood continues to be one of the most sought-after areas for both purchasing and renting property. The area has the largest concentration of expats and is considered one of the most prestigious parts of the city. El Poblado is home to high-rise, terracotta-bricked apartment buildings, and low-rise townhomes that blend perfectly into the green mountainside landscape and provide a peaceful harmony between nature and development.
Property Samples in El Poblado:
- There is a two-bedroom, two-bathroom, 800 square-foot apartment for sale. The unit has a covered parking space, storage locker, 24-hour security, and a lovely balcony. This apartment is conveniently located within walking distance to EAFIT University, Éxito grocery store, the Metro, and is on several bus routes. List price: $100,000.
- Enjoy some of the most spectacular panoramic views of the city from your balcony in the La Calera area of El Poblado. The 2,518 square-foot apartment has three bedrooms, each with its own private full bathroom, marble floors, maid´s quarters, a library/TV room, and a large eat-in kitchen. The list price of $327,000 includes three parking spaces, a storage room, and 24-hour security. Amenities include a swimming pool, gym, sauna, and steam room.
Santa Marta
Located on Colombia’s Caribbean Coast in the department of Magdalena, Santa Marta is quickly becoming a sought-after destination. With a population of 500,000 residents, Santa Marta is significantly smaller than Medellín. Its average daytime high in the upper 80s F and an evening lows around 75F, the warm, tropical climate makes the city a magnet for those wanting an outdoor, ocean-focused lifestyle.
Property Samples in Santa Marta:
- The quiet, residential section of Bavaria is only a 10-minute ride to the beach. This three-bedroom, two-bathroom, 1,464 square-foot apartment comes with air conditioners in each bedroom, a large open living/dining area, and a parking space. Located very close to the Ocean Mall, grocery stores, and restaurants. List price: $73,000
- Live in luxury in this beachfront apartment. Built in 2017 the 1,2015 square-foot, the fully air-conditioned unit has three bedrooms, two bathrooms, an open kitchen, and comes furnished. Amenities include three swimming pools, a squash court, jacuzzi, sauna, steam room, a gym, a social game room, and direct walking access to the beach. All this for only $247,000.
Bucaramanga
With over 160 parks, Bucaramanga has earned the nicknames “The City of Parks” and “Colombia’s Beautiful City”. But admiration of Bucaramanga doesn’t end with its beauty, because this charming city is also known for its educational institutions, wealth, sophistication, and safety.
Property samples in Bucaramanga
- In the upscale Nueva Sotamayor section, there is a five-bedroom, four-bathroom, 2,045 square-foot, attached, two-story house for sale. The unit has tile floors, updated bathrooms, a balcony, a patio, and a one-car garage. List price: $134,000.
- Completely remodeled two-story, 1,938 square-foot house in Largos del Cacique neighborhood. Each of the three bedrooms has its own private bathroom, as well as a guest powder room. The house has four separate sitting areas and a huge kitchen with an island and a commercial-sized refrigerator. List price: $233,000.
How to Buy Property in Colombia
Step 1: Identify the Right Property.
Telling your real estate agent the specific characteristics of the property you want will narrow down the property search and help you see the properties that fit your profile. There is no Multiple List Service (MLS) in Colombia, so you should always have your real estate agent run comparisons that give you a reliable estimate of the market price of the property you’re interested in.
There is no license required to be a real estate agent in Colombia. So, to help improve your odds of connecting with a good agent, look for brokers with proven track records and get recommendations from other expats who have purchased a property in the area you are looking to buy.
The purchase process in Colombia varies with used and new properties. Prices on used properties can be negotiated between buyers and sellers and payment and other terms and conditions can be laid out in a relatively flexible way. Prices on new construction properties are usually fixed by the developer and the margin for negotiation is relatively small.
Many Colombians own property, and often informally pass properties between family members, so it’s important to make sure you are dealing with the person who has the legal right to sell the property you want to buy.
Step 2: Legal Due Diligence
A Due Diligence report is a risk assessment tool that will determine if there are any problems with the property´s title such as pending mortgages, unpaid debts, liens, encumbrances, pending or ongoing legal disputes related to the property, foreclosures, etc. The lawyer will check a certificado de tradición y libertad, which is a history of the property, and a certificado de paz y salvo predial that states municipal property taxes have been paid, and a certificado de paz y salvo de valorización that verifies that taxes related to increases in the value of the property have been paid. Once the report is done, and the title is clear, you can make an official offer for the property.
Some properties in Colombia can have hidden complications, including debts or a questionable history of ownership. If you are interested in a property with some type of issue, it is normally a very long process to resolve the issues, so it may be best to find another property. Colombian law requires the seller to rectify any defect with the title.
Pre-construction properties are usually purchased using a Trust Unit Structure. There is no actual title for the property until it is built, hence the investor (buyer) buys into a Trust Unit Structure becoming the owner of a right that entitles them to become an “area beneficiary” of that trust. The developer will need to hit the sales target established in the Trust with any other partners such as a bank or a construction company. Once this happens, the Trust Company will start disbursing monies so that the developer can break ground and begin construction. The Trust Structure has the purpose of protecting buyers’ and investors’ interests. If the developer doesn’t meet the sales threshold established, monies will be returned to the buyers and investors. Make sure your lawyer reviews the fine print of the Trust Unit Investor Agreement and that you fully understand your rights and obligations within the contract.
Step 3: Signing the Purchase Agreement
Once the title is clear and your offer has been accepted, the next step is to draft a Purchase & Sales Agreement (promesa de compraventa) laying out the terms and conditions mutually agreed by the parties. If back taxes or mortgage payments are due, you must negotiate with the seller to determine which of you will pay the delinquent funds. Usually, the terms laid out in the promesa de compraventa establish that the final payments are made only when the title of the property is transferred to the buyer’s name.
Common clauses in the promesa de Compraventa:
- Price and what items are included – is the parking, storage, appliances, curtains, etc. included? In most condo buildings parking spaces and utility storage units will have a separate title. Also, the owner can remove anything not physically part of the apartment including light bulbs and appliances. So, make sure what you want is included in the contract.
- Down payment – anticipo – this is essentially a down payment to secure the deal and is usually 30 percent. But this is negotiable.
- Penalty Clause – cláusula penal – the penalty clause covers if the buyer does not proceed with the deal and could lose the down payment of 10 to 20 percent. And if the seller does not proceed, the seller can be sued for a lien on the property for the penalty amount agreed to, usually 10 to 20 percent.
- Taxes, HOA, and rent are prorated – this is just a calculation that depends on the purchase date – taxes are paid yearly and prorated, administration (HOA fees) are paid monthly and prorated. If a rental property, rent should be prorated.
- When to sign at the notary – the promesa de compraventa will include a date, time, and location for the final closing when all parties exchange final payments (typically by cheque de gerencia issued by a bank or a bank transfer – remember there is no escrow in Colombia), and the title is signed over from the previous owner to the new owner.
Step 4: Closing at a Notary Office
The parties meet and sign the Public Deed at the notary and pay all relevant transaction fees including registration fees and taxes. This process takes approximately 3 hours and the new owner receives keys to the purchased property. However, sometimes issues arise and this closing date may be delayed. Closing transactions typically take place at a notary office, but all parties may also need to visit a bank together for the transfer of funds if a cheque de gerencia is not used for payment of the final amount.
Step 5: Getting Your Title
Once the public deed has been signed by the notary, it must be submitted to the Registration Office in order for the new owner to be registered as the formal owner. This process generally takes 10 to 20 business days. Once the new Certificado de Tradición y Libertad is issued, a buyer can rest assured the property is his/hers.
Closing Costs and Fees
Compared with many North American markets, Colombia has low closing costs.
- Real estate agent fees: 3% of the purchase price, plus 19% VAT, paid by the seller.
- Attorney fees: typically around 3 million Colombian pesos ($800) for title due diligence, checking the sales and purchase agreement adjusting the contract with any amendments if necessary, filing out and registering at least one foreign investment form with the Colombian Central Bank, and carrying out the closing which are typically a fixed price regardless of the value of the property.
- Registration fee: 0.5% to 1% of the purchase price, paid by the buyer.
- Sales tax: 1% of the purchase price, paid by the seller.
- Notary fees: 0.30% to 0.35% of the purchase price, split 50-50 between the seller and buyer.
- Income tax: the notary will also collect 1% of the purchase price from the seller for income tax.
- Transfer charges: 0.15% of the purchase price, split 50-50 between the seller and buyer.
- Local taxes: 1.05% of the purchase price, split 50-50 between the seller and buyer.