CONCERNS THAT HAVE ARISEN AS A RESULT OF THE PANDEMIC IN THE REAL ESTATE SECTOR

Many of our clients, throughout this situation, have expressed their concerns regarding their properties or investment projects. We have decided to support them by clarifying some of the questions they have raised.

What will happen to properties? Will they increase or decrease in value?

To answer this, it is important to distinguish between residential properties and commercial properties. In the residential sector, there has been noticeable market movement and significant dynamism; in fact, in September a historic figure was reached for the sale of new and used properties. It is important to clarify that the prices of apartments for sale in Medellín have not changed—we can say that prices were frozen during the pandemic, which shows that the market remains stable. However, commercial properties present a very different scenario; currently, we are seeing high vacancy rates in offices, retail spaces, and commercial houses, creating great uncertainty in this sector. This is where we see a clear difference between buyers and sellers.

Let’s talk first about sellers: they are in a position where they believe prices may increase and tend to expect appreciation, while buyers are looking for opportunity prices due to high supply. This creates a gap between the two parties, indicating that prices tend to decline because of the excess supply.

Uncertainty in rentals

During the crisis, rental prices entered a negotiation phase. In the residential sector, rents were negotiated down by around 20%, while in the commercial sector reductions reached up to 80%, resulting in significant changes. Within our company, we continue to negotiate commercial properties with a long-term perspective due to the economic recession. Currency circulation has begun to recover, but not enough to return to normal. Likewise, the commercial sector has suffered a major disruption, forcing different industries to adjust rental rates through 2021 in order to avoid higher vacancy levels, which would otherwise lead to a massive drop in profitability.

Where to invest in times of crisis?

Residential real estate is currently the most stable sector. We can find areas that offer property appreciation—an apartment for sale in Medellín and its metropolitan area can provide not only appreciation but also rental income which, although lower than in the commercial sector, is much more consistent. On the other hand, the commercial sector can offer higher returns, but due to the crisis, it is clearly riskier to invest unless an opportunity price is found and there is sufficient financial capacity to wait for a return to normal conditions.