Behind the Success

"We have always believed that tough times are a synonym for opportunities."

What are the core reasons behind the current success of the construction sector in Colombia?

The Colombian economy has experienced continued and impressive growth. This also means that people are experiencing a better financial position, and the first basic need they aim to solve is their housing situation; thus, they invest in real estate. A few years ago, many people did not have access to the housing market, which made the market stagnant. Also, Colombia has a large backlog in terms of housing and construction. Other reasons behind the construction sector’s success include the number of investors with large amounts of cash available that have decided to invest in real estate—many people see real estate as assets that, despite crises, generate value and can be passed on as inheritance. Over the last few years, we have also seen the consolidation of the second housing segment. Finally, the boom of the trustee industry also gave a boost to the construction and real estate sectors. The level of trust toward the country has increased, and that has encouraged many people to invest in the country and leave their savings in Colombia rather than in other countries and currencies.

In your opinion, what kind of real estate projects does Bogotá need right now?

Projects with a social interest, as well as housing units for the lower strata of society, will continue to be necessary, because the backlog we have accumulated over the years is quite large—our country still has many people that require access to housing units. At the same time, the continued growth of the middle class requires additional residential real estate projects for them—society’s purchasing power is increasing, thus allowing people to move up the social ladder. These two segments of the population still have potential for further development, especially the first one. Regarding upper-class residential projects, the market still offers opportunities in this segment too, but the potential is not as great. For institutional investors, there is also a great need for quality office buildings of single ownership in cities such as Barranquilla, Cali, and Bogotá. There is also an interesting potential in logistic or industrial park developments in free trade zones (FTZs).

“We have always believed that tough times are a synonym for opportunities.”

What role does your company play in the development of new social interest and lower strata real estate projects?

We are a marketer of real estate projects, which has become very prominent among new investors arriving to Colombia or individuals and companies coming to Bogotá. We have also attracted many small constructors that are interested in outsourcing their marketing department. We advise our clients from A to Z, meaning that we analyze the potential of their projects, and how to better market their products. Marketing real estate projects also means we assume the administrative side of selling housing units, collecting the money, and registering processes. We have foreign clients, many of them from Spain, who see us as the best local partner to understand the market.

Estrategias Comerciales is the market leader in brokerage of under construction projects. What explains your position in the market?

We have always believed that tough times are a synonym for opportunities, which is how we were born; it was some 14 years ago, when Colombia had its first economic recession in more than 60 years. The country was in the middle of a banking and financial crisis, and the banks had a vast portfolio of new and incomplete projects. By the early 2000s, Colombia was advancing toward economic recovery thanks, amongst other factors, to the boost in exports that were enjoying a more attractive exchange rate in addition to growing prices for Colombia’s leading export product: petroleum. During this time, we started marketing real estate assets from banks based on our vast knowledge of the industry. As the country walked toward recovery, we started working with property constructors on new projects. I believe that we can split the competition into three segments: real estate brokers (pure real estate companies that do nothing else other than act as an intermediary); large constructors and developers in Colombia (these companies do similar activities to ours, beside, of course, design and construction); and finally our particular segment of the industry, in which we have a niche. The first two segments I mentioned, however, are not in direct competition with us; they are just part of the sector.

What is the potential for the real estate private equity industry?

We are currently managing the sale of fiduciary investments in the hotel industry for retail clients, for example. The hotel industry in Colombia has expanded over the last few years due to a lack of facilities in the past, along with the increase of tourism activity in the country. Today, the country is catching up, and one way of doing that is by democratizing the investment in hotel projects. For example, we have a brokerage agreement with Grupo Hotelero Estelar, the largest Colombian hospitality company, which is owned by Luis Carlos Sarmiento Angulo of Grupo Aval. Grupo Estelar has constructed many hotels in the last few years under different schemes; it owns some of its hotels, and it has sold units to private investors. Now, it has finally democratized the investment in this segment of the real estate sector through real estate investment trusts (REITs). For example, it went in search of people willing to buy fiduciary titles, a very interesting activity that makes those buying it direct owners of the project. The return on investment is between 9% and 15% at the moment, depending on the hotel and the location. Colombia is currently experiencing a boom in REITs and fiduciary duties, which are being applied in other segments of the sector apart from hospitality.

What cities are you looking at in terms of expansion of your business activity?

The Financial Times’ Intelligence Unit highlighted the economic prospects of Cali and Barranquilla, mentioning the opportunities the signing of the FTA with the US offers for their commercial and business relations. Barranquilla is a very interesting city—a maritime city that is expanding quickly—and this has fostered the development of the real estate sector, too. We plan to open offices there in the near future. Cali, too, holds great potential for our business. Other cities with a great potential are Villavicencio, Ibagué, and Neiva. There many middle-sized cities with great potential in this country.

Do you believe there is a real estate bubble in Bogotá?

Property bubbles have a number of characteristics measured by numerous financial indicators, such as price-to-income ratio, the affordability index, the deposit-to-income ratio, and housing-debt-to-income ratio, to name a few. In my view, the main reason why real estate bubbles are created is the housing-debt-to-income ratio. In Colombia, this does not happen, because many people pay by cash and those asking for financing can only cover 50%-60% of the value of the property. This reduces risks. However, I think land supply is very limited, and, thus, costs are high, which is driving prices up in Bogotá. Furthermore, Standard & Poor’s has upgraded its credit rating for Colombia to BBB from BBB-.