BUILDING CONNECTIONS

Colombia 2017 | CONSTRUCTION & REAL ESTATE | REVIEW

The construction industry is poised to record serious growth thanks to domestic infrastructure projects and international opportunities.

2017 is expected to be a strong year for real estate and construction in Colombia, and private sector firms are positioning themselves to take advantage of growth across the market. The recent peace deal, large infrastructure projects, improving inflation, an influx of international investment, and strong fundamentals in the domestic economy are expected to propel the industry forward in 2017. Moving forward, the PPP model will be particularly important as firms across Colombia seek to rebuild infrastructure. According to BBVA, construction will be the industry with the third highest growth rate in 2017, thanks largely to 4th Generation Road Concession (4G) projects and growth in low and middle-income housing projects. Additionally, new housing projects are expected to account for nearly 450,000 new homes by the end of 2018.

Construction has remained one of the leading drivers of growth, and it has served to counterbalance declines in mining and oil and gas. According to the most recently available data from the Colombian government, the construction industry in Colombia is the third largest in Latin America, representing around USD35 billion in economic activity. The sector has grown by an average of 8% in the last five years, and it is projected to top USD52 billion by 2020. Cement consumption in Colombia has also been on the rise and it currently totals 291kg per capita, with projections for it to reach 329kg by the end of the decade. All told, 4G projects are projected to need 74 million tons of aggregate materials. By 2018 building material consumption is expected to rise in all core areas: concrete, cement and plaster consumption is projected to reach USD5.17 billion; metals products, USD2 billion; non-metallic minerals, USD2.314 billion; clay minerals, USD1.793 billion; and PVC pipe, USD308 million, according Colombia's National Administrative Department of Statistics. With wages 24% lower than the rest of Latin America and nearly 200,000 college graduates from fields related to the sector, the construction industry is poised to continue growing strong well into the next decade.

4G Projects

A 10-year, USD24 billion project, the 4G plans to develop a national toll road system, revolutionizing transportation infrastructure in Colombia and setting a new standard for the region. According to the World Bank, this project will rely on at least 40 PPPs, with major domestic and international firms. In coming years, the plan is set to include the construction of almost 6,000km of new roads, scores of new tunnels and nearly 100 new bridges. Though there have been some delays and a few setbacks in the project, Colombian firms are largely optimistic about the growth the 4G plan can bring to the country in terms of both economic prosperity and social integration. In an exclusive interview with TBY, Luz María Jaramillo de Méndez, President of Pavimentos Colombia, discussed the holistic role she sees her company playing in the development of the country. “We have a macro commitment to the 4G projects that will connect Colombia to the world,” said Méndez. “We also have a micro commitment to our communities to bring progress as well. Roads will bring them to locations and opportunities to access the world they did not have before. The social responsibility we follow is not only internal as a company but is focused on the local communities as well as the rest of the country.” Economic growth and community development go hand in hand with the 4G projects, and expectations are high.

Growth and prosperity will not, however, be limited to the construction sectors and many players in the real estate space are excited about 4G's implications for their business. In an exclusive interview with TBY, Roberto Cáceres, Managing Director of Colombia for Colliers International, explained the potential he sees in the 4G plan and how his company hopes to take advantage of these opportunities. “The 4G plan will have a special impact on roads that will completely change the logistics market. This will generate huge development opportunities in the next few years, causing the logistics of the country to change massively. This is what we are targeting,” said Cáceres. “Altogether, there will be huge opportunities for developers and investors who understand these new logistics.”

Global Reach

Colombian construction firms are also looking beyond Colombia, targeting new markets for growth and development. Latin America, the Caribbean and North America are all markets being considered by Colombian firms, and expectations are high that Colombian firms will cement their status as world-class builders and developers. In an exclusive interview with TBY, Juan Esteban Calle, CEO of Cementos Argos, discussed his firm's ambitions for expansion, noting the growing importance of Colombia's neighbors to the North and South. “We want to become a leading cement producer in the Americas,” said Calle. “Our area of interest stretches from Canada to the tip of Argentina.” According to Calle, the US alone is projected to represent 55% of the company's revenues and 45% of its EBITA in 2017. Like many Colombian firms, Cementos Argos is interested in operating in a mix of high growth areas and more stable markets. “We want a balanced footprint of assets and business,” said Calle. “The US is particularly attractive because it is a developed market with a stable currency. This means that most of our exposure is in Central America and the Caribbean, where the demographics are attractive and the potential for growth is high.” Like Cementos Argos, more and more Colombian firms are maturing and looking beyond the Colombian market for their next move.

Real Estate Market

According to international consultancy E&S Property Investment, commercial property has been steady in recent months, while there has been some slowdown in office space and an uptick in retail. Bogotá in particular has seen impressive growth in recent months, and office space is expected to grow by 43% by the end of 2017, and rental prices are between USD25-40 per sqm per month. Medellín, the country's second largest market, has also seen impressive growth, and it is expected to finish the year with 36% with rents between USD15-25 per sqm per month. Cali is expected to hit 29% growth by the end of the year. The Colombian Association of Shopping Centers projects that Colombia will add more than 30 shopping centers across 18 cities by the end of the year.

Affordable Housing

Colombia has long suffered a housing shortage in many areas, but new government programs are aimed at correcting this. The government hopes to reduce the shortage by as much as 50% in coming years. More than 100,000 homes for the poor have already been constructed. Slum housing has been a persistent problem, and the government is committed to bringing an improved standard of living to as many Colombians as possible.
Additionally, Colombia's Housing Ministry is attempting to increase housing loans to citizens across the country. According to Bloomberg, Colombia's Housing Minister has made overtures to the country's banking associations to increase maximum loan-to-value rates for mortgages to 80%. Mortgages currently sit at around 7% of GDP, and over the last decade, home prices have increased over 80%. Public and private officials are hoping that relaxed credit requirements will further stimulate the market, bringing new homebuyers into the fold. While there have been some concerns that the Colombian housing market may be entering a bubble, prices are still below the highs seen immediately preceding the crisis in the late 1990s.

Building for the Future

Sustainability has become the new buzzword in the Colombian real estate market. In a recent interview with TBY, David Luján Pérez, General Manager of LJN, described developers dedication to rebuilding Colombia in a more socially and environmentally conscious way. “Now we are a part of a new generation that thinks that the economic growth of a company and the environment should both be considered in equal measure,” said Pérez. “You do not have to damage the environment to have economic growth; this is a new generation trying to develop and generate projects and ideas that take care of those issues for the long term in a sustainable manner.” Green building is coming more and more to the fore as developers recognize the value and importance of creating homes and infrastructure that can coexist with the natural environment. “The market now appreciates that when some projects are more sustainable than others, people notice. And this is what causes demand to grow.”