Foreign Ownership of Property - Colombia
IMPORTANT POINTS TO NOTE WHEN BUYING PROPERTY IN COLOMBIA.
Unlike some Latin American countries, foreigners can own real estate in Colombia. Anyone coming to this country can purchase property and register it with their passport. There is no need to worry about this type of transaction as Colombia stands out among all of the Latin American countries with the best records for protection of foreign investments.
The internet is rife with stories of inflated ''gringo'' prices and while these tend to be over exaggerated, it is not unusual for someone to try to take advantage of you, at least if you are not careful.
First rule of thumb, use a reputable realtor. Colombia does not have a formalized, national MLS system and it is difficult to get comparable sold prices. Hopefully the realtor knows the marketplace and will show you similar properties in equivalent ranges. Trying to buy a ''for sale by owner - fsbo'' may bring you lots of surprises. In these situations you may be presented with a ''gringo price''. Not only that, you may be sold a lot of ''notions'' that don't exist.
Recently I had a client decide to look for a ''fsbo''. He found a place that he liked very much and was happy with the price. The apartment was a 140 m2 (x 10.7 for sq. ft.) and had one parking space. As it turned out, the apartment was 98 m2 and had 5 common area parking spots, but none legally owned by the unit for sale.
My very first real estate adventure in Colombia, had the seller double the price of the condo when he saw that I was a foreigner. Fortunately I was with a realtor and I knew the real cost before we arrived. If the realty company has a website, this is even better because you can see in advance what price the property is listed at.
There is also a myth that Colombians over inflate their prices. Honestly, at least in my opinion, it is the foreigners who list their properties much higher than their true value. We see a negotiation differential in Medellin of about 5% to 7% from the listed price. Rarely do we see distress sales and repossessions are difficult to attain when they do exist.
In Colombia, neighbourhoods are rated as strata 1 through 6. Strata 6 is the highest rating. This means it will probably be the safest or most comfortable place for an expat to live. It also means that the prices of properties, taxes and public utilities will be the highest. Strata 6 homes subsidize public utilities in the poorer ''barrios''. It is possible to find interesting (and safe) homes in strata 4 and 5 areas. Even in El Poblado, the most ''exclusive'' part of Medellin, there are a few strata 4 and 5 zones.
The process of buying in Colombia is different than other parts of the world. First of all, here exclusive listings are almost non-existent. When you find a property that you like, you must first verbally negotiate the price. Colombian real estate deals can be a little unusual at times so make certain that your real estate agent or lawyer explains this stage thoroughly.
Title Search comes First
Once the price has been established you need to have a title search performed. The title offices are well organized in Colombia and the records are very well kept. You should hire a lawyer to perform this task to ensure that it is done properly. This title search eliminates the need for title insurance which does not exist in Colombia. Depending on the lawyer you hire this could take 2 days or a week, simply depending on their personal schedule.
Promesa de Compraventa
When you have affirmation that the title is clear the next step is a ''promesa de compraventa'' - a promise to buy/sell. This where you promise to buy and the vendor promises to sell. Here the final details of the deal are recorded; the date of closing, the deposit (usually 10 % - 20 %), the final disbursements, etc. If you do not fully comprehend the document you can request an official translation. This will cost you about 30.000 COP per page.
The deposit stage is unnerving for foreigners because as we have discussed there are no escrow accounts in Colombia. The deposit will be paid directly to the seller or possibly a family member. This is quite safe as the ''promesa'' documents this downpayment and there are substantial penalties if either party defaults.
There is an important difference between Colombia and North America. Even if something is affixed to the walls, it is not included in the price unless specified. This can mean, light fixtures, light bulbs, mirrors, curtains, fan hood for the stove, etc. Once again, use your lawyer to manage all of these details. If necessary include an lnventory list as part of your ''promesa''.
Escritura - the deed
The final formal step is the signing of the deed - the closing of the deal. Your lawyer should accompany you to this ''last waltz of your real estate dance''. If you do not speak Spanish then your lawyer can explain all of the details of the deal. Actually that should have been done at the signing of the promesa. Your promesa may have been signed at a Notary's office if not, the final closing will be formalized with a Notary.
As a buyer you will be responsible to pay 50% of the Government tax (1.05% of sale price), 50% of the Stamp tax (very minimal), 50% of the Notary Fees (.3% of the sales price) and 50% of the Notary's copies. As a rule of thumb, if you budget 1.5 % of the purchase price, that should cover your Notary and legal costs.
Generally unless you are coming to live permanently in Colombia, you want to have the price of the deed or escritura at its full value or almost its full value. Sometimes there is a difference between the assessed value and the market value. You should discuss this with your lawyer because when you bring money into the country, if you plan to take it with you when you leave, you should have the amount registered with the Bank of the Republic as a foreign investment.
Before you meet the seller at the Notary's office, you should make the effort to make an inspection of the property. If you are not able to do this, then your agent or lawyer should do so.
The Notary will not authorize the sale until the seller has presented ''Paz y Salvos'' for the taxes and the condo fees. These are documents from the tax office and the building administrators indicating that the accounts are paid in full and no amount is owing. In Medellin, the taxes must be paid until the end of the current fiscal year, so there may be a possibility that you will have to reimburse the seller from the closing date to Dec. 31. Check to see if there is any vaporization tax as well.
After the documents are signed you will be given the keys to your new home. Your lawyer will follow through on ensuring the property is registered and that your documents are filed properly for your foreign investment.
If it happens that you are unable to be in Colombia when the deal is closing, you can assign a Power of Attorney to an individual or your attorney to manage this for you.
Some legal firms promote the creation of corporations to buy your property. Analyze this carefully as to whether this suits your purpose. The idea supposedly is that this gives you security in that the corporation is anonymous. It also provides you the benefit that upon the death(s) of the owner(s), the company still exists. Thirdly it may provide you with tax benefits.
Talk to an accountant to get an unbiased opinion. Unless you are a multimillionaire, privacy is no longer such an important issue in Colombia. For inheritance, you can create a will for a lot less expense than a corporation. Be cautious here as some lawyers charge a fixed fee while others charge you a percentage of your wealth to create the will. If you are purchasing the property for personal use or to rent while you are not in Colombia, the odds are you won't be in a taxable position.
What the corporation does is to create a series of obligations that require the use of an accountant as you will need to file various documents throughout the year. If you do not file them, then you incur problems with the tax department (DIAN).
In our article about moving funds in and out of Colombia, we will discuss further the intricasies of transferring funds. It is important to note that some law firms will charge you a fee of anywhere from .5% to 1.5% to assist you in these tasks, while others will not charge you as part of the added value of the services that they offer you.
Thorugh our Expat/Legal Services at Steckenreiter Serna and Associates, we can manage all of the above matters for you.