Getting a Mortgage & Buying Property in Colombia

If you have wondered about getting a mortgage and buying a property in Colombia, the bottom line is that it is extremely difficult for foreigners to get a mortgage in Colombia from Colombian lenders. In fact it is even difficult for Colombians to get a mortgage, which is why the mortgage market in Colombia remains surprisingly small.

A recent article in ElColombiano, the local newspaper in Medellín, included some surprising statistics about the mortgage market in Colombia. According to the article, only 971,493 mortgages were recorded in Colombia as of 2014, which means only 2.82% of adults in Colombia have a mortgage. This is confirmed with numbers from Fedesarrolo, which indicate that the mortgage market in Colombia is only 2.6% penetrated in Colombia. Bancolombia, the largest bank in Colombia also recently released statistics that only 3% of adults in Colombia have a mortgage (rounded up to the nearest whole number).

This compares to a range of over 30% to over 50% mortgage penetration in countries like Sweden, Holland and New Zealand. In Latin America, Mexico, Chile, Panama and Bolivia all have higher mortgage penetration than in Colombia.

In March, according the DANE, Colombia’s statistics agency, the outstanding mortgage balance in Colombia stood at 41.44 billion pesos, which represents about 5.5% of the GDP of Colombia in 2014. This compares to outstanding mortgage balances totaling about:

• 8% of the GDP in Brazil
• 18% of the GDP in Chile
• 36% of the GDP in Japan
• 62% of the GDP in Spain
• 79% of the GDP in the United States

In Holland, Denmark and Australia, the outstanding mortgage balance totals about 100% of GDP.

Mortgages in Colombia

Three banks, which have nearly 80% mortgage market share, dominate the mortgage market in Colombia – Bancolombia has about 27% market share, BBVA has 24% and Davivienda has 17%. The mortgage market has been growing recently in Colombia due to interest rates that are low by historical standards. But it is still difficult for many Colombian citizens to qualify for a mortgage.

It has been even more difficult for foreigners to get a mortgage from Colombian lenders. To even be considered for a mortgage as a foreigner in Colombia, you will need to have residency and have lived in Colombia preferably for a few years. You also need to have a bank account in Colombia and a credit history in Colombia and may also be asked for proof that you pay taxes in Colombia. In other words you need to be well established in Colombia before banks will even consider lending to you.

For this reason, most property purchases by foreigners in Colombia are done with cash.

The Bottom Line

The recently improved exchange rate has made Colombian real estate very attractive to many foreign buyers but the lack of a mortgage market for foreigners in Colombia limits the number of buyers.

One way around the bank mortgage challenge in Colombia may be to arrange a private mortgage with the seller of the property. Lifeafar, the largest foreign-owned real estate firm in Medellín, does have a number of property owners that will accept a private mortgage.

Conversely another way to view this situation is the lack of leverage and financing in the Colombian real estate market bodes well for those concerned about a real estate bubble.