AN ENEMY OF FATE
Colombia's real estate market saw reduced activity as oil prices fell over the past few years, but an aggressive government subsidy program and improving economic fortunes have helped spur new demand.
Colombia's real estate sector has seen steady growth over the past few years as government programs have encouraged homebuilding, and a more stable political landscape has spurred new development in previously underdeveloped parts of the country. After record-breaking levels of new development in 2015, the market slowed over the following two years due to worsening oil prices that led to compounding economic effects, though it has been showing signs of stronger growth over the first half of 2018. The continued health of the sector is still subject to the wider economic environment, but government commitment to investment in housing and infrastructure should help keep the real estate market on track and provide the construction industry with a constant stream of new jobs.
According to the Colombian Chamber of Construction (CAMACOL), building construction fell by 10% YoY in 2017 as the sector dealt with the effects of reduced economic confidence and activity due to the continued oil-price related slowdown. Nonresidential project volume fell by 16.2%, while the residential sector posted slightly stronger performance, falling by 6.2%. Per CAMACOL figures, 163,466 residential units came to market and 173,000 units were sold, which represented a YoY contraction of 17.3% and 10.8%, respectively. One of the few market sectors to buck these trends was low-income government subsidized housing, which saw the number of sales grow by 15.6% YoY. Elsewhere, however, development and sales decreases only increased with income; while the middle-income sector saw developments drop by 18% and sales fall by 12.9%, the luxury housing sector was most affected by the economic conditions and saw both new arrivals and sales fall by around 30%.
Similar trends were found in the office and retail markets. Both segments saw growth spike in the years after the financial crisis, peaking in 2014, but the years since have seen a slowdown as reduced demand and a glut of supply arriving to the market have limited development. Just under 600,000sqm of new office space came to market in 2017, a fall of 31% from the year before and less than half as much as in 2014. Likewise, 2017 saw around 1.2 million sqm of new retail space, a drop of 38% from 2016. The cyclical nature of the real estate sector means that this is not necessarily a reason for concern, and industry leaders expressed the view that 2017 represented a somewhat necessary correction in the face of an uncertain economic environment.
In pointing to reason for optimism, CAMACOL pointed to data on consumer confidence and salary growth. Historically, consumer confidence has lagged slightly behind any change in real wages due to the delay in assessing changing market conditions. Though consumer confidence remained low as of November 2017, real salary growth began to rise again in mid-2017 after almost two years of decreases, suggesting that demand would soon begin to rebound. The sector can also take heart in the recovery of the peso and increased access to credit. After spiking in 2016, inflation returned to the government's target band in 2017, increasing confidence in the fiscal health of the country and giving Colombia's central bank the confidence needed to cut interest rates. Early returns from 2018 showed that industry confidence in these indicators was not misplaced. During the first four months of 2018, the number of residential sales rose 11% over the last trimester of 2017. Low-income subsidized housing continued to post the strongest numbers, growing 18%, but in a promising sign middle-income residential housing also grew by 15%.
Residential growth in the low-income sector has been spurred by the Colombian government's aggressive stance toward housing subsidy programs. The housing ministry's Vipa program offers mortgage interest rate subsidies to families earning up to two times the minimum wage, allowing these families to purchase homes with less than 30% of their income. Thanks to its partnerships with more than 150 housing developments across the country, Vipa is seen as one of the main driving forces behind the strong demand for lower-income housing in Colombia.
Another program, “Mi Casa Ya,” targets homebuyers making up to four times the minimum wage. Mi Casa Ya offers a subsidy toward the initial payment on a home and then continuing interest subsidies. A third program, launched in February 2018, will spend more than USD420 million on subsidizing interest rates for seven years in an attempt to reach households not previously affected by one of the previous housing programs. Government projections report that the COP1.2 trillion in spending will generate some COP6 trillion in economic activity, making the real estate sector one of the most productive sources of investment. These programs, implemented under the Santos administration, are expected to last through the next few years but questions remain about their long-term viability. There have been heated debates on the merits of such heavy spending on housing subsidies, throwing their future into question.
Real estate-related activity has slowed in recent years as the market has adjusted, and as a result new construction licenses declined in 2016 and 2017. However, the trends that indicate improving fortunes in the housing market also suggest a coming increase in construction activity, with low-income housing projects a particular area of new growth. Just as significant, however, is the government's ambitious infrastructure development program. The Fourth Generation (4G) road infrastructure program is the largest such project in Latin America. It calls for the construction of more than 8,000km of roadway and significant port and railway expansions by the end of the decade. Part of a wider plan that calls for USD70 billion in infrastructure development by 2035, the 4G project is to both produce new construction jobs and activity, particularly in previously underdeveloped regions made accessible by the end of the FARC conflict. Colombia's public-private partnership law allows for extensive private control over projects, with some firms even able to propose new projects to the government. As financing for these projects is secured, the construction sector should see a steady stream of new development.

TABLE OF CONTENTS
Guest Speaker
François-Philippe Champagne, Minister of International Trade, Canada
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Juan Gabriel Pérez, Executive Director, Invest in Bogotá
TBY talks to Juan Gabriel Pérez, Executive Director of Invest in Bogotá, on rounding a turning point, the opportunities for foreign investment in infrastructural PPPs, and finding the perfect investors for adding value on a local scale.
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Patricia Tovar, Executive Director, Colombian British Chamber of Commerce (Britcham)
TBY talks to Patricia Tovar, Executive Director of Colombian British Chamber of Commerce (Britcham), on finding new strategies in trying times, supporting Colombians investing in the UK, and the rising importance of ecotourism.
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Orlando Velandia Sepúlveda, President, Agencia Nacional de Hidrocarburos (ANH)
TBY talks to Orlando Velandia Sepúlveda, President of Agencia Nacional de Hidrocarburos (ANH), on Tax Refund Certificates, developing pedagogical programs, and the Territorial Strategy of Hydrocarbons.
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Diego León Vélez Velásquez, General Manager, Ingeniería y Gestión Administrativa (IGGA)
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Iván Herrera, Vice President , Business Solutions and Government of Huawei Colombia
TBY talks to Iván Herrera, Vice President of Business Solutions and Government of Huawei Colombia, and Cao Wei, Country Manager of Consumer Business Group of Huawei Colombia, on their growth plans for the country.
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Carlos Alberto García Montes, General Director, National Institute of Roads (INVIAS)
TBY talks to Carlos Alberto García Montes, General Director of the National Institute of Roads (INVIAS), on developing Colombia's road networks, linking intermodal transport, and establishing private partnerships.
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María del Carmen Araujo Grijalva, Executive President, Hidalgo e Hidalgo (HeH) Colombia
TBY talks to María del Carmen Araujo Grijalva, Executive President of Hidalgo e Hidalgo (HeH) Colombia, on contributing to productivity and growth in Colombia, working closely with local communities, and areas of opportunity.
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Santiago José Castro Agudelo, Rector, Universidad La Gran Colombia
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Andres Hernandez, General Manager, Mareauto Colombia S.A.S,
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City of Gold
Colombia's regulatory policies are generally regarded as welcoming to foreign investment, as seen by the World Bank's 2018 Doing Business report, which ranked the country's business environment 59th globally. Chief among the country's appeal to foreign investors are its stable political and economic system, rich natural resources, and geographically important location at the crossroads of two oceans and continents.
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