Can Real Estate Buyers Take Out a Mortgage in Colombia?

Mortgage in Colombia

While traditional financing may not be accessible to foreigners in Colombia, investors have options.

With its bustling cosmopolitan cities, sparkling Caribbean coast, emerald-green hilltops, and warm, friendly locals, Colombia has become a favorite among travelers, digital nomads, expats, and – increasingly – real estate investors, who may want to find a mortgage in Colombia. 

Over the last 15 years, Colombia has seen steady growth in tourism, the economy, and the housing market. Real estate prices took a big jump in 2003 and have been rising ever since. But even with climbing prices, Colombian properties continue to represent some of the best real estate bargains in the world. 

The exceptional value of Colombian properties is partly due to the devaluation of the Colombian peso (COP) against the U.S. dollar (USD). Colombia’s peso dropped to a record low in March 2020 compared to the USD, which peaked at $4218.38 pesos to the dollar. As of today the USD remains strong against the COP due to the weakness in the price of oil, Colombia’s primary export.

Another reason investors are drawn to Colombian real estate? With the purchase of a qualifying property, investors can secure a residency visa and put themselves on the path to obtaining a second passport. To be eligible for a resident visa, foreigners must invest over 650 times the monthly minimum wage in Colombia.

In 2020, the minimum wage in Colombia is $877,803 pesos per month. Based on today’s exchange rate, a foreigner can qualify for a residency visa with a minimum investment of $570,571,950 COP or $150,150 USD.

For a USD investor, Colombia represents an unprecedented opportunity to purchase real estate at a much lower price and obtain a second passport further down the road. Sweetening the deal, there are minimal obstacles to foreigners purchasing property in Colombia—with one notable exception.

Mortgages in Colombia 

As Adrian Beales, Director of Sales at Lifeafar, explains, “Traditional financing, such as mortgages or loans, is pretty much not available to foreigners.” 

As a primarily cash-based economy, Colombia has a relatively small mortgage market. Only around 3% of Colombian homeowners have mortgages, compared to more than 60% of homeowners in the U.S. 

The Colombian mortgage market has seen growth over the last few years due to historically low interest rates. However, it remains challenging to obtain a mortgage even as a Colombian citizen and next to impossible as a foreigner. Before they can even be considered for a mortgage, foreigners must obtain residency in Colombia and typically reside in the country for several years. Foreigners are also required to have a Colombian bank account and established credit, and they may be asked to present proof of paying Colombian taxes.

With mortgages off the table for most foreigners, investors have been required to pay for properties in cash in full. Now, however, an alternative financing system has become increasingly available to foreign buyers.

Developer Financing: An Alternative Financing Option 

Mortgage in Colombia

Referred to as quotas, this system is an installment agreement made with the developer. Quotas agreements have become more available to foreign investors in recent years. “[With the quotas system], a foreigner who doesn’t have all the money straight away can essentially get financing—but it is limited,” explains Beales. 

The quotas system is available exclusively for pre-construction or sobre planos (off-plan) properties and arranged directly with the Colombian developer. With this type of agreement, the investor typically puts between 5-30% of the property purchase price down initially and continues to pay installments while the building is constructed over the next 24 to 36 months. At the end of construction, the investor pays the remaining purchase price of the property or flips out of their position. 

Beales gives the following example: 

“Let’s say you buy an apartment worth $100,000 USD and put down 10%. Over the next 24 months, you would pay around 7.1 million pesos ($1,875 USD) per month. By the time the construction is finished, you’ve paid 50%—10% at the start and 40% over the development period. Then, when the construction is finished, you pay the remaining 50%.” 

“It’s basically saying you are going to pay for the apartment over a two- or three-year period, but at the end, you have to have all the money,” says Beales. 

The quotas system has long been common among Colombian homebuyers, but developers have recently become more willing to provide this option to foreigners. 

Unlike mortgages, the quotas system is theoretically available to any homebuyer, regardless of whether they live in Colombia. It is up to the developer to set eligibility requirements, though they will likely want assurance that the investor will be able to pay the total amount at the end of construction. 

Mortgages in Colombia – The Bottom Line

A growing economy coupled with residency options and the current strength of the U.S. dollar versus the Colombian peso makes Colombian real estate a fantastic opportunity. And even though the lack of traditional mortgage in Colombia options may limit the number of foreign investors, the absence of leverage in the Colombian real estate market reduces the likelihood of the country experiencing a real estate bubble. 

If you are interested in the lucrative but sometimes challenging process of investing in Colombian real estate, contact us today. Our team of local and international real estate specialists can help you learn more about arranging a quotas agreement and successfully purchasing a high-quality property at a fair price in Colombia.

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