Sovereign Man Notes From the Field By Simon Black
Here’s What $66 Gets You In Medellin
Last night after a flurry of legal meetings and property tours throughout the day, I had drinks with a Canadian real estate developer who set up shop here in Medellin a few years ago.
He told me a great story about his family background-- he comes from a long line of real estate developers going back several generations.
His grandfather emigrated from Germany to Canada in the 1940s to escape the coming war in Europe, and, at the time, Canada was a business and investment paradise.
For experienced professionals, there was so much untapped opportunity back then; Canada was clearly on an upward trend in the 1940s, and yet it was seriously underdeveloped.
The next several decades saw a major boom in Canada, and the family became extremely successful.
Now his grandson is in Medellin, which the family feels has similar potential as British Colombia back in the ‘40s. So they’re plying their skills and experiences here.
It’s an interesting example of the opportunities that are available to smart, talented people when they bring their skills and energy to rapidly developing countries.
Were my colleague to have remained in Canada, the competition from other developers would be fierce. And the prices astronomical. It would take millions just to get started.
Here, he’s built six buildings and has had very little competition. Plus he can execute bold projects with minimal capital.
We discussed Colombian property at great length last night, and I agree that real estate is a very attractive asset class here, especially in Medellin.
I prefer commercial, warehouse, and agricultural property. But for personal reasons, I took a tour yesterday of several residential apartments. It’s hard to even believe how great these deals are.
My benchmark for “cheap” residential property that’s high quality and well-located is about $1,000 per square meter. That’s about $92 per square foot.
Remember that while Medellin is a city of several million people, it is the second largest city in Colombia, i.e. not the political or commercial capital.
So by comparison, in places like San Antonio, Charlotte, Toulouse, Porto, Shenyang, Recife, Quebec, Brisbane, etc., property prices can range from $2,500 to over $15,000 per square meter.
In Medellin yesterday, I saw gorgeous apartments at prices under $1,000 per square meter. And I’m talking VERY luxurious places.
One apartment in the nicest part of town had a pristine view of a park below; it was a two-story penthouse apartment with marble floors, its own private swimming pool, and private elevator.
The price for nearly 6,000 square feet of luxury living? Less than $400,000. Or about $66 per square foot.
This wasn’t an anomaly; I spent half the day looking at similar properties with similar price points.
There are a few reasons for this.
One is the currency; the US dollar is extremely overvalued right now at a time when the Colombian peso is undervalued. This creates significant opportunity.
Second is the ‘Colombia stigma’. It still exists. And, at least for now, it’s keeping mainstream investment away. I expect, however, that this will change rather abruptly and the rest of the world will get very excited about Colombia.
Last is that this is primarily a cash market.
Central bankers don’t manipulate home prices in Medellin like they do in the United States because it’s less common for buyers to borrow extensively.
People pay cash for homes, so that keeps the property market from becoming a bubble... which means that pricing is based on real supply and demand.
I fully expect demand to increase as more and more people discover this place.
Supply, on the other hand, is fixed. And getting tighter. Medellin’s mountainous geography constrains growth, and this is likely going to heavily influence prices over the long term.
So for now, this place is one of the most attractive residential property markets I’ve seen in the world. I can almost guarantee this won’t last.
Simon Black Founder, SovereignMan.com