Jamestown Latin America | Trends + Views | Colombia | May 2013


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Last week, in a visit to Bogotá, Colombia, we held a series of meetings with government officials, economists, consultants, fund managers and real estate specialists, as part of our on the ground research effort.

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Jamestown Latin America | Trends + Views | Colombia | May 2013

  1. 1. EXECUTIVE SUMMARY Last week, in a visit to Bogotá, Colombia, we held a series of meetings with government officials, economists, consultants, fund managers and real estate specialists, as part of our on the ground research effort. Our discussions centered on: •  Recent slowdown in economic activity •  Policymakers’ responses to the aforementioned deceleration, namely through fiscal and monetary stimulus, and intervention in the foreign exchange market •  Political backdrop, with President Santos aiming for reelection in 2014, while the government conducts negotiations with the FARC guerrilla movement •  Improved investment climate in the country which has been a function of positive developments on the security front and pro-market economic policies •  Dynamics in the real estate market, with market conditions generally trending positively across residential and commercial, albeit with important differences amongst the major urban centers TOTAL GDP: 2012: $355 billion (global ranking: 31) GDP PER CAPITA: 2012: $10,792* (global ranking: 82) GDP GROWTH RATE: 2012: 4.0% / 2013E: 4.0% UNEMPLOYMENT: 2012: 9.6% / 2013E: 9.5% INFLATION: 2012: 2.5% / 2013E: 2.4% COP/USD: 201: 1767 / 2013E: 1875 TRADE BALANCE/GDP: 2012: 1.4% / 2013E: 1.1% 2012 GINI COEFFICIENT: 55.9 2012 INFRASTRUCTURE BANKING: 93 (144) 2012 INVESTMENT/GDP RATIO: 27.7% 2012 PUBLIC SECTOR DEBT/GDP: 40.2% 2012 FISCAL DEFICIT/GDP: -0.8% ECONOMIC SNAPSHOT Colombia Trip Report – May 2013 TRENDS + VIEWS JAMESTOWN LATIN AMERICA Real Estate Private Equity www.jamestown-latam.com Contact: Bret Rosen – Managing Director, Research +1 212-652-2141 brosen@jamestown-latam.com Rio de Janeiro • Bogotá • Atlanta • New York Sources: Credicorp Capital, DANE, Econcept, IMF, World Bank, Banco de la Republica, The Global Competitiveness Report 2012-13, CIA World Factbook *GDP per capita based on purchasing power parity. In nominal terms, GDP per capita = $7,800.
  2. 2. Optimism abounds, industrial production cools, and consumer demand increases Optimism toward the economic backdrop in Colombia is widespread amongst international investors, as the country has made important advances over the last decade. Once off the radar of global capital markets, Colombia has become a clear target for investors, as the sovereign achieved investment grade status in 2011.1 In fact, Colombian sovereign bond yields 3.32 percent on the country’s benchmark 2024 issue, while in January, the government issued a ten year bond at just 88 basis points above U.S. Treasuries, a testament to investor enthusiasm in the country.2 However, on our visit, a clear tempering of sentiment is occurring; while over the last several years, economic growth in Colombia has been above the regional average, there has been a clear deceleration in activity over the last couple quarters. While the economy boomed, with 6.6 percent growth in 2011, the trend for 2013-14 appears to be at around four percent, which is considered slightly below potential for Colombia.3 Both the external environment and local factors account forthiseconomicslowdown. TermsoftradeforColombia have shifted negatively of late, with world demand for commodities slowing. If one expects global growth to remain relatively subdued, then this factor could hamper growth for the rest of 2013. Some disappointment in terms of the pace of growth of oil production, and the absence of any meaningful new discoveries are also tempering enthusiasm in that space. Reserves in fact stand at just six years of total production, well below other peers. Notably, manufacturing has underperformed for quite some time, with seven of the last eight months displaying year over year contractions.The latest data on industrial production was especially disappointing, having slipped 11.5 percent year over year in March. Forty two of forty eight sectors within industry contracted in March.4 Industry continues to struggle with competitiveness issues, some of which may be temporary (an appreciated exchange rate), and others which could take longer to resolve (namely infrastructure bottlenecks). On the domestic front, local economists cite issues related to public investment, especially inability to roll out key infrastructure projects, as responsible for curtailing growth. Consumption, which accounts for 60 percent of economic activity in Colombia, has been trending at slightly above four percent growth on a year over year basis, supported by a decent jobs market and easing credit conditions. Indeed, two-hundred basis points in rate cuts, since July by Banco de la Republica, to 3.25 percent (just a one quarter point above the all- Colombia Trip Report – May 2013 TRENDS + VIEWS 1 Current sovereign ratings for Colombia are: SP has a BBB, Moody’s a Baa3 and Fitch BBB-. 2 Bloomberg, as of this writing. 3 Finance Minister Mauricio Cardenas has stated that potential growth for Colombia is approximately 4.8 percent. 4 DANE, Colombia’s official statistics agency. 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 0 1 2 3 4 5 6 7 8 CHART 1: COLOMBIA ANNUAL GDPYEAR-ON-YEAR (%) Source: Dane, World Bank, Bloomberg PAGE 2 The economy has decelerated of late, in line with softer terms of trade TRENDS + VIEWS MAY 2013
  3. 3. time low registered in the post-Lehman period), have given a boost to consumer credit conditions. Inflation not an issue, but the strength of the peso is Inflation meanwhile is very subdued, with the last figures running at approximately 2 percent on a year over year basis. Expectations for the next year(s) are anchored at or below the three percent official target, with consensus looking for 2.5 percent inflation this year.5 With some slack evident in the economy, inflation pressures are subdued. However, economists do expect inflation to increase somewhat over the remainder of the year due to the lagged impact of interest rate cuts and fiscal stimulus in the pipeline. Indeed, the level of the peso (COP) remains perhaps the most controversial economic topic in Colombia, even as the COP has weakened several percent in the last few months. Since hitting a 52 week high versus the dollar on January 14th, at 1,759, the COP now hovers near 1,850.6 Banco de la Republica has been intervening in the currency market on a daily basis, via purchases of USD 30 million in each session. Key officials have jawboned the currency as well, and some form of capital controls cannot be totally ruled out if the peso were to appreciate back through the 1,700- 1,750 level, although officials are clear in communicating that they prefer not to resort to such heterodox policy measures. The decision to lower the benchmark rate by two hundred basis points has alleviated pressure on the COP, and indeed many observers believe that the central bank’s decision to ease rather aggressively has been to some extent driven by its intention to weaken the peso. Most likely, the central bank will forge on with dollar purchases, which are due to expire this month and indeed Finance Minister Mauricio Cardenas has been vocal about the need to continue to accumulate more USD. This policy approach serves the dual role of weakening the exchange rate along with building central bank reserves. Weaker terms of trade and some disappointment in energy production also have served to push down the value of the peso. Pension fund reforms underway The administration is also evaluating other indirect means to weaken the COP, with the intent of boosting PAGE 3 The central bank is intervening to weaken the peso, intending to assist the export sector CHART 2: COLOMBIA INFLATIONYEAR-ON-YEAR (%) 0 1 2 3 4 5 6 7 8 9 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Source: Dane, Banco de la Republica 5 Banco de la Republica, May inflation survey. 6 Bloomberg, as of this writing. Colombia Trip Report – May 2013 TRENDS + VIEWS CPI CPI Net of Food 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 0 500 1000 1500 2000 2500 CHART 3: COP/USDYEAREND EXCHANGE RATE Source: Bloomberg TRENDS + VIEWS MAY 2013
  4. 4. competitiveness especially in the industrial sector. One mechanismabouttobeimplementedisamandatoryshift in the asset allocation of the country’s pension funds, which currently manage in the neighborhood of USD 60 billion.To briefly summarize, the government would like to lift the lower limit on the amount of capital that pension funds allocate in non-COP instruments, which could increase dollar demand by around USD four billion (over an as yet undetermined time frame).7 According to those that support this strategy, the idea would 1) increase diversification of pension funds’ portfolios, as currently over 90 percent of their assets are invested locally; 2) prevent overvaluations from surging in local equities and fixed income. The local equities market is notably thin, with only four to five stocks that trade reasonable volume on a daily basis. However, as pension funds’ assets swell, due to the increased formalization of the labor market and overall demographics in the country, pension funds are forced to bid up stocks and bonds locally for lack of other investment alternatives. The market capitalization of Ecopetrol, the state oil company, at one point exceeded that of Petrobras, whose production is several times more than Ecopetrol, partially for this reason; 3) lead to the aforementioned increased USD demand in the neighborhood of USD four billion as pension funds move out of COP denominated assets into USD paper. Depending on the time frame for pension funds to carry out this reallocation, a move in the COP-USD exchange rate could result as this dollar amount represents a significant degree of USD demand. There are also plenty of criticisms of this strategy, namely that authorities would be pushing the local pension funds into lower yielding USD paper. Some point out that this strategy essentially utilizes the savings of the working class in Colombia to subsidize the export sector via an indirect depreciation of the peso that would result due to the changes. Infrastructure in Colombia remains poor While the government would prefer an exchange rate above 1,900, it is easy to blame the slowdown in industrial production squarely on the COP, and minimize other factors. Local businessmen always emphasize the poor state of infrastructure in Colombia, an issue the Santos government is trying to address, although it is facing many issues in terms of execution. Nonetheless, Colombia faces geographical obstacles in terms of its infrastructure build out, namely that the country contains wide areas of the Andean mountain range and large swathes of jungle that inhibit connecting the various urban centers of the country. Geographical obstacles between cities inhibit infrastructure projects aimed to connect key cities. Still there is an immense amount that needs to be done to improve the country’s ports and roads, which rank poorly in international surveys.8 One of our interlocutors mentioned that it costs more to ship a good from Bogotá to Cartagena than it does from Cartagena to NewYork. 7 http://www.bloomberg.com/news/2013-04-15/colombia-draws-pension-funds-into-battle-to-weaken-peso-1-.html 8 According to the most recent Global Competitiveness Report (http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf), Colombia’s infrastructure ranks 93rd out of 144 countries surveyed. Quality of roads rated 126th, and ports placed 125th, which places Colombia along many underdeveloped countries in Africa. Changes to the pension funds’ investment profile can help weaken the currency PAGE 4 Colombia Trip Report – May 2013 TRENDS + VIEWS CHART 4: COLOMBIA INDUSTRIAL PRODUCTION -20 -15 -10 -5 0 5 10 15 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Dane Year-on-Year (%) TRENDS + VIEWS MAY 2013
  5. 5. Demand for credit still strong but slowing to more sustainable level In conjunction with the economic slowdown, credit growth in the overall economy has decelerated over the last year or so, which at first pleased the authorities, who had expressed concern at rapid growth in leverage within the consumer segment last year. Notably the central bank had made mention of this development in their policy meeting minutes, also referencing the rapid rise in home prices as a result of credit accessibility. Overall credit growth is expanding at 15 percent on a year over year basis versus over 20 percent, a year ago, while the annual expansion in mortgage credit outstanding has undergone a similar move, slipping from 36 percent in early 2012 to 25 percent according to the most recent data.9 Part of this development is due to the overall credit cycle, as Colombians took on substantial debts in prior years and are hence less likely to add to their credit burden until certain loans are paid off. Still credit to GDP of 38 percent and an outstanding mortgages to GDP ratio of 4 percent are low by regional and global standards as the financial system still struggles somewhat with the legacy of the 1990s when the country faced a major financial crisis. The overall pace of credit growth is considered by economists to be more sustainable than the rate seen last year. The central bank decision to lower the benchmark rate to 3.25 percent should provide a boost to credit growth in the months ahead. Local economists expect the central bank to stay on hold for the near-term, and allow the stimulus already in the pipeline to work its way through the system. The government also recently announced a fiscal stimulus package, focused on construction and investment in infrastructure. The program is intended to add one percent to GDP growth. Meanwhile, it is 9 Data provided by Econcept and Superfinanciera. CHART 5: CREDIT GROWTH IN FINANCIAL SYSTEMYEAR-ON-YEAR (%) CHART 7: MORTGAGES OUTSTANDING AND GROWTH RATE (%) -40 -20 0 20 40 60 80 Jan-08 Jun-08 N ov-08 A pr-09 Sep-09 Feb-10 Jul-10 D ec-10 M ay-11 O ct-11 M ar-12 A ug-12 Jan-13 0 50,00 10,000 15,000 20,000 25,000 0 5 10 15 20 25 30 35 40 Jun-08 Sep-08 D ec-08 M ar-09 Jun-09 Sep-09 D ec-09 M ar-11 Jun-11 Sep-11 D ec-11 Sep-12 D ec-12 M ar-12 M ar-13 Jun-12 Source: Superfinanciera and Econcept Source: Superfinanciera and Econcept Credit Growth NPL Growth COP bn Outstanding Y/Y Growth PAGE 5 Colombia Trip Report – May 2013 TRENDS + VIEWS 0 10 20 30 40 50 60 Brazil Chile Colombia Mexico Peru United States CHART 6: MORTGAGES/GDP (%) Sources: Apoyo Consultoria, Econcept, Chile Ministry of Finance TRENDS + VIEWS MAY 2013
  6. 6. expected by most that the central bank will adopt a more cautious monetary stance after its aggressive cuts over the last months. Politics: Pointing toward 2014 elections The political backdrop, as always, is particularly entertaining for those that enjoy a little bit of drama. President Juan Manuel Santos’ approval ratings have fallen somewhat in recent months. Recent public opinion polls place his support at just under 50 percent, compared to 75 percent in the first months of his term in 2010.10 His rivalry with former President Alvaro Uribe dominates chatter locally. Santos was Uribe’s Minister of Defense, and likely owes his presidency to Uribe’s support when he left office. However, since assuming the Presidency, the two have been odds, namely over Santos’ conciliatory approach toward Venezuela and the rebel organization FARC, with which he initiated peace negotiations several months ago. Uribe prefers a more bellicose treatment of the FARC and doesn’t trust the guerrilla group, based on prior failures to come to agreements at the bargaining table. The Santos-Uribe split drives political discussion in the country, and with presidential elections in 2014 approaching, is an important driver as coalitions are formulated. Whether Santos would seek reelection has been a big question mark, but most indications suggest that he will. If the government is able to secure a peace agreement with the FARC – and Santos had stated that this hopefully would occur by November – his popularity would likely increase and provide sufficient momentum into the elections. The negotiations come against a backdrop of a weakened FARC, as a good portion of its leadership has been captured or eliminated. Its overall membership has dwindled in recent years, from an estimated 18,000 guerrillas five years ago to perhaps under 8,000 currently. While the FARC still has the ability to wreak havoc, especially via attacks on oil pipelines, its overall capabilities have been minimized, and it no longer controls the vast swathes of land that it dominated in the late 1990s and early 2000s. We should highlight that many locals express skepticism about this process, which is occurring in Havana, Cuba. Many believe that any peace agreement will lack teeth and that this process is more political, aiming to boost support for the government and the president’s reelection campaign, rather than bringing a true peace to the country.The current talks center around a number of topics, namely agrarian reform, amnesty for certain members of the FARC, the ability of FARC members to seek political office, and overall economic policy. Despite some of the criticism of the talks, namely from the Uribista camp, should a peace agreement be delivered, this would certainly boost sentiment toward Colombia, especially in the international investor community; as we have mentioned, there has been a clear correlation between foreign capital entering the country and improvements in the security situation. Should Santos seek reelection, he would be the overwhelming favorite, as support for any leftist candidate is generally marginal while the Uribe camp 10 Econcept: Political Questions and Economic Answers, February 2013 based on polls from ElTiempo, Datexco and W Radio. PAGE 6 Colombia Trip Report – May 2013 TRENDS + VIEWS In the next few months, look for the field of candidates for 2014 elections to be defined Expect Colombia to maintain economic orthodoxy regardless of whom the next president is TRENDS + VIEWS MAY 2013
  7. 7. does not boast any popular names. If Santos were to refrain from presenting himself as a candidate, the conventional wisdom appears that Housing Minister German Vargas would be the most likely name to emerge as a leading candidate. Vargas has gained substantial support for the current housing program occurring in the country. Regardless, as the names sort themselves out in the weeks ahead, we believe there is minimal risk of a shift away from market friendly policies in Colombia. Santos of course is a known quantity who has presided over a good period for Colombia and there is little support for any radical shift – at the national level at least – to any figures that might break with the key pillars of economic policy making. Real estate market: Shifting dynamics, but demand still strong Real estate in Colombia has been hot, in line with our discussion about the improving economic and investment backdrop in the country. The overall backdrop for real estate demand, despite the deceleration in the economy and vagaries of the Bogotá market, appears to be relatively robust due to structural factors that should remain favorable for the foreseeable future. Colombians are repatriating substantial amounts of capital, as their confidence in the country improves. Add on investment capital from foreigners entering the country’s real estate market with Venezuelans that are looking at Colombia as a safe haven, and one notes a large ‘bid’ coming to the market – aside from the favorable demographics trends domestically. Furthermore, the failure of one of the country’s largest brokerage firms, Intervalores, has also pushed locals to further emphasize hard assets. As credit availability has improved, and interest rates have fallen, there has even been some worry that certain sectors of the market have started to become overpriced, namely for higher-end residences in Bogotá, which according to our research, in some cases can approach for $700 per square foot for new properties. Bogotá, as the center of business, finance and politics in the country, clearly attracts the most attention, but it is important to note that the real estate market in Colombia extends well beyond Bogotá. The country has five cities with over a million people: Bogotá, Medellín, Cali, Cartagena and Baranquilla. The free trade agreement with the United States led over 700 Colombian enterprises to export to the United States for the first time over the last twelve months. Meanwhile record levels of foreign direct investment into Colombia (over $15 billion alone last year) suggest that there is plenty of promise beyond the residential sector. Turning to the dynamics in the housing market, there is a clear government imperative to boost the construction industry, which impacts one’s analysis of the backdrop. Earlier this year President Santos initiated a program to provide 100,000 homes free of charge to the lowest income Colombians. According to government reports, the 100,000 homes should all be completed by year- end, helping to address some of the housing shortage for the lower economic classes while clearly providing Santos a political boost. On top of this program, the government recently announced another initiative to provide subsidies on another 100,000 homes. The idea for this venture is that the government will finance part of the mortgages faced by buyers of homes below 200 million pesos, or slightly above 100,000 dollars.11 Mortgages will be effectively capped at 7 percent as the 11 http://www.minhacienda.gov.co/portal/pls/portal/docs/1/9546602.PDF Lower rates, capital from abroad and government support are buoying real estate market PAGE 7 Colombia Trip Report – May 2013 TRENDS + VIEWS TRENDS + VIEWS MAY 2013
  8. 8. government covers the first 5 percent of payments on mortgages for the first seven years (of a typical 15 year mortgage). Banks would then be induced to hold this rate fixed for the remainder of the life of the mortgage. Indeed during our visit to Colombia, BBVA announced its first mortgage below (net) 6%, publicizing a mortgage rate of 5.9 percent.12 The government hopes that a shot in the arm to the construction industry, which has been lagging during this slowdown, will have important multiplier effects for the economy, while also supplying subdized housing to the needier economic classes in the country. City by city, and segmental commentary Focusing on market characteristics, it is important to assess market conditions on a city by city basis. Obviously Bogotá is the country’s economic and financial center, but this particular market has a number of particular characteristics that differentiate it from the country’s other urban areas. As mentioned above, the left-leaning mayor of Bogotá has limited the expansion of the city, preferring urbanization to be more concentrated in higher rise buildings near the city center. These decisions mean that zoning rules have generally prevented the expansion of the city to the degree developers might have preferred. According to our interlocutors, the mayor also believes that it would be difficult to provide public services should the city extend much further. The geography of the city also limits the direction of development as the Andean mountains border the city’s eastern edge.The net result is that prices for office rents, homes in higher tier neighborhoods and so on are more resembling of what might find in major US cities such as Washington DC or Chicago. It should be noted that there are some initial signs that this trend might be shifting and indeed construction licenses for Bogotá in March were up 29 percent year-on-year according to the national statistics agency DANE - although a good percentage of this increase can be attributed to a doubling in approvals for social housing. Nonetheless, the limitations on construction in Bogotá have pushed developers toward the country’s other major cities, namely Cali, Medellín, Baranquilla and Cartagena. Unlike other Latin American countries such as Chile and Argentina, where the capital very much dominates the country, Colombia has five cities with over a million people, and seventeen with over 500,000, speaking to the opportunities beyond Bogota. In particular, Cali has garnered attention as the largest metro area close to the Pacific; as Colombia increases trade with Asia, Cali’s location is proving to be beneficial. Cities on the Caribbean such as Baranquilla and Cartagena are apt to benefit from the free trade agreement with the United States, and indeed exports from Colombia to the US grew 20 percent in the first year of the free trade agreement, while non-traditional Colombian exports rose 18 percent.13 We would expect over time that the free trade agreement should have an even greater impact on commerce between the two countries. Turning to the dynamics of each market segment, 2012 12 La Republica, “ConTasa de 5.9 percent, BBVA entra a pugna por creditos.” May 17, 2013 edition, page 18. 13 http://www.miamiherald.com/2013/05/15/3399641/us-exports-gain-in-first-year.html PAGE 8 Colombia Trip Report – May 2013 TRENDS + VIEWS CHART 8: NATIONAL MONTHLY LABOR INDICATORS (%) 0 2 4 6 8 10 12 14 16 50 52 54 56 58 60 62 64 66 68 Jan-07 A ug-07 M ar-08 O ct-08 M ay-09 D ec-09 Jul-10 Feb-11 Sep-11 A pr-11 N ov-12 Source: Dane, Banco de la Republica Unemployment Rate Global Participation Rate TRENDS + VIEWS MAY 2013
  9. 9. was the best year of absorption on record for offices space in Bogotá. The vacancy rate for office space stands at just 5.1 percent, which is the lowest level in half a decade. Top tier rents according to a study from Jones Lang LaSalle, are up 14 percent on a year over year basis, and can run up to $45 per square meter per month. Current trends suggest that vacancies could fall further and anecdotal evidence speaks to a major supply shortage for top tier office space.14 Regarding the home market, sales in 2012 for the three largest cities, Bogotá, Medellín and Cali, registered a shade above 85,000 unit sales (both new and used homes), which was down four percent from the prior year. However, the average unit sales for the 2004-12 time period was 64,000 for these three locations.15 As mentioned earlier, overall financing for homes is the cheapest in Colombia on record. Mortgage rates for the typical home have moved toward single digits and typically range from 8-12 percent. This is a function of Banco de la Republica having lowered the benchmark rate to 3.25 percent, and banks enjoying strong liquidity. Furthermore the policy rate has fallen two-hundred basis points in the last months, and yields on government paper are at record lows (namely TES, which on 10- year paper, yield under 5 percent).These developments should be supportive of mortgage demand for the foreseeable future. Mortgage availability is improving, although still low by international standards. In the late 1990s, mortgages to GDP neared 10 percent, before the banking system and mortgage market essentially imploded. Mortgages to GDP fell to under 3 percent by 2005/06, and now stand at 4 percent of GDP.16 On a year over year basis, total mortgage credit is growing at 25 percent, although notably the trend in non-performing loans is worsening somewhat with NPLs increasing at 15 percent year over year. Still non-performing loans account for just 2.4 percent of total mortgages as of February 2013.17 Regarding the supply of homes on the market, Medellín surpassed Bogotá by end of year 2012. If one takes the three major cities plus the extended areas of Bogotá, total supply is approximately 40,000 homes versus the eight year average of 30,000.18 As for the new homes market, there was a 4.2 percent increase in dwellings available at year-end 2012 versus the 15.1 percent increase displayed in 2011, with Bogotá down 2 percent and Cali off 17 percent. Bogotá is most supplied in the lower-middle income strata (homes in Colombia get divided into categories one to six, with six representing the higher end), while Cali and Medellín display greater number of homes for sale in the middle income and upper-middleincomestrata.Forty sixpercentofavailable homes in Bogotá are accounted for in the lower-middle income as opposed to 37 percent in Medellín and 42 percent in Cali. While supply has ticked up in the major cities, still, based on current supply-demand dynamics, absorption trends should remain favorable. In terms of pricing, Bogotá unsurprisingly is the most 14 Jones Lang LaSalle, “Bogota, Colombia Office Report,Year-end 2012.” 15 Banco de la Republica. “Analisis de la Cartera y del Mercado de Vivienda en Colombia.” Marzo de 2013. 16 Banco de la Republica report. 17 Econcept. 18 La Galeria Inmobiliara. PAGE 9 Colombia Trip Report – May 2013 TRENDS + VIEWS VACANCY RATE (%) CLASS A RENTS (US$/Sq. Meter/ Month) CLASS A-B RENTS (US$/Sq. Meter/ Month) BOGOTÁ 5.1% 30-45 26-32 MEDELLÍN 3.7% 22-32 14-22 CALI 8.0% 21-26 13-23 TABLE 1: KEY OFFICE MARKET STATISTICS Source: Jones Lang LaSalle, Cushman and Wakefield, Colliers TRENDS + VIEWS MAY 2013
  10. 10. expensive market in Colombia with an average price for new homes of 3.3 million pesos per square meter. At current exchange rates, this comes out to around $178 per square foot. Prices in Bogotá are up 7.4 percent year on year in real terms. Medellín prices out at 2.2 million pesos per square meter ($119 per square foot, up 3 percent year on year) and Cali averages 1.5 million per square meter ($81 per square foot, an increase of 5 percent year on year). Notably in Bogotá homes in the upper-middle income stratas 4-5 have seen the largest hike in average prices; in Medellín it was the highest strata, which saw the most impressive price increase. Some other key statistical highlights: •  In 1Q 2013, units sold in Bogotá fell by 14.5 percent on a year over year basis, and the total value of homes sold for this period fell by 1.7 percent. Medellín and Cali also saw declines in units sold, while Cartagena and Baranquilla enjoyed increases of 7-8 percent. •  In Bogotá, homes above 600 million pesos saw the most impressive volume of sales. •  As of April 2013, the number of square meters of residential units on offer was up 2.6 percent for Bogotá, year over year, 10.2 percent for Medellín, down 5 percent in Cali, and up over 20 percent in Baranquilla and Cartagena. PAGE 10 Colombia Trip Report – May 2013 TRENDS + VIEWS PRICE PER SQ. METER (Millions of Pesos) USDTERMS (Dollars/Sq. Meter) BOGOTÁ 3.3 $1,833 MEDELLÍN 2.3 $1,277 CALI 1.5 $833 BOGOTÁ SURROUNDING 1.6 $888 TABLE 2: KEY RESIDENTIAL MARKET STATISTICS Source: Banco de la Republica. Based on price of new homes for sale. TRENDS + VIEWS MAY 2013