Poblado is done…

The development of El Poblado, Medellin (officially known as Comuna 14) is basically coming to a close.  After a 25 year construction boom and just north of 1000 completed high rise residential and office buildings, there is literally almost nowhere else to build within the Estrato 6 enclave of El Poblado.  When you  combine that with a city planning/building permission department (aka the “Curaduria”) that is gun-shy about geologic concerns (ala Edificio Space), mounting traffic issues and conservation of green space you take a lot of potential supply for new construction off the market.  Word on the street is that Curaduria approvals for construction projects that weren’t already “pregnant” in 2014 (industry speak for a fully excavated site/initial concrete pour), have ground to a halt under major scrutiny.

This in part is what has led to the shift in the current construction boom towards Envigado and Sabaneta and to an extent Itagui, Belen, and Bello.  According to our data on Casacol less than 10% of all new construction projects in Medellin are located in Poblado.  Poblado is now a mature market and I think this has some implications for investors as well as I’ll discuss below.

1) Higher demand for re-sales vs. new project sales (by definition of lower supply)
2) Pickier buyers who are demanding better locations and lower lying neighbourhoods
3) Larger long-term sustained price increases for Poblado (also due to lower supply, but also demand from an increasingly wealthier middle class)

Bubble?

I often get asked a lot, “don’t you think prices in Medellin are in a bubble”?  Everyone is a bubble watcher these days (including the banks/Government here) and that alone I think alone is enough to deter any irresponsible borrowing/lending.   However, sooner or later there is going to be a recession or some kind of Global economic shock and yes Medellin and Colombian real estate will take a hit most likely along with everyone else.  But just as the US real estate bubble affected various cities and neighbourhoods differently, any shock to the system here will have a similar affect:  lower quality real estate will take a hit in terms of discounting and longer sales cycles and high quality real estate will be fine.  The value of any property is always linked to the underlying rental opportunity and as long as you own in high quality, well located buildings you will insulate yourself from any market shocks sooner or later.

Sabaneta/Envigado

Which brings us to the next topic of location.  There are more than 200 high rise towers under construction in Sabaneta/Envigado and dozens and dozens more being planned by the large builders.  The allure of buying cheap at pre-construction discounts has brought Colombian middle class families into the market for their 2nd, 3rd, 4th “investment properties”.  Bancolombia is even now financing buyers with as low as 10% down payments on construction projects that they are backing.  The price/rent analysis that we’ve done leads us to believe that despite the cheaper purchase prices, the rental opportunities are struggling in these areas.  Also in terms of quality of life, I would rank both of these middle-class municipalities well behind that of Laureles for example where you find well developed infrastructure and real neighborhood appeal.  These could be early warning signs for Sabaneta/Envigado in my opinion and any downturn in the market is going to hit these areas hard.

The Astute Investor

While new supply in Poblado may be slowing to a drip vs. the downpour in the South of Medellin, the inventory of high quality, well located buildings in Poblado, the transport infrastructure, hospitals, commerce, dining and nightlife, still makes Poblado the safest and most attractive place for an investor looking for rental yield to put their money.  Having said that, all of “Poblado” is not created equal and investing blindly would not be smart.  We’ve identified maybe 1-2% of the buildings in all of Poblado that represent truly good buying opportunities for investors and that is where we always direct our investors to look first.

Poblado then and now:

Also as much as people like to hate on Poblado, it has a very durable, long-term competitive advantage for investors in Medellin.  One hundred years ago, Poblado is where wealthy farmers and their families lived in Medellin.  Poblado is where Nel Rodriguez chose to build El Castillo, perhaps the finest and most famous home (now museum) ever built in Medellin.  Poblado is where the first residential high-rise apartments were built in the 70s, first 5-star hotels in the 90s/2000s, where the best restaurants of yesterday and today are located, etc., etc,.  And now that Poblado is basically “done” in terms of new development/supply able to hit the market, there is a solid floor under prices by definition of supply and demand.  Investors, I predict should continue to see consistent 4-6+% CAGR in top line prices, and 8-10+% yields/cap rates continue for the foreseeable future like we’ve seen for the last 15+ years and will be insulated from any global economic shock, recession or depression that might affect Colombia like the rest of the planet.

Happy house hunting, let us know if we can help.

Brad Hinkelman – brad@casacol.co

Founder/Owner – Casacol SAS

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