This content is from: Local Insights

Colombia’s new vehicles for real-estate investments

Carlos Fradique Me´ndezLaura Villaveces Hollmann
Colombia has made great stride towards contributing to the development of its markets. In particular, construction has experienced a boom in the past months as the sector grew about 16.9% in the first quarter of 2013 compared to 2012, residential buildings increased 14.7% and non-residential 21.8%. Maintenance and repair also grew 2.7% and construction licences 31.5%. All of which creates an interesting scenario, further supported by new regulations providing for useful real property investment models that are attractive to both foreign and national investors.

Real-estate funds in Colombia were created rather late compared to international standards, and were only allowed since 2007. Yet the impact was not that great because of the regulatory restrictions that hindered their development.

However, Colombia has recently enacted Decree 1242 of 2013, which amends the previous regime and creates real-estate investment funds (REIFs), which must invest at least 75% in real property assets. Although further developments are still needed, the existing legal framework will significantly contribute to the development of real estate. For instance, while previously an investor was not able to hold more than 10% of a fund, and so in-kind contributions of real-estate assets were in practice impossible without breaching such a threshold, the new regime eliminates this. It also grants the possibility of having a general partner to direct investments (national or foreign). Before, this was only possible if the vehicle was a private equity fund (PEF), which carries some complications when investments are made in real estate (the finance superintendence has stated that PEFs may only invest in development projects – not in already constructed fixed assets). Furthermore, the minimum number of investors was reduced to two, and investments in other REIFs, projects and shares of companies dedicated to real estate are now permitted investments.

Therefore, despite not having the usual real-estate investment trust (REIT) model, REIFs are a good alternative for real property investments, regardless of whether investments are made in projects or in fixed assets to make gains from rents and valorisation. Participations are deemed securities and may be negotiated and listed on the stock market, and general partners and managers are allowed to create families of funds in an expedited manner.

Because of the high offer, the possibility of dividing the investment costs, as well as the high valorisation of assets, REIFs have become a very attractive alternative to address the challenges and opportunities of the real-estate sector.

Carlos Fradique-Mendez and Laura Villaveces Hollmann

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