Diamonds in the rough

Where are the hotspots in Latin America’s hard-hit real estate market?

Over the last two years, Latin America’s real estate market has been impacted by the Covid-19 pandemic, political instability in the country’s larger markets, the global economic crisis, and rising global inflation.

But the strong US dollar makes Latin America’s property very appealing for international investors as it increases their purchasing power. In addition, Latin American markets have favourable tax regimes and a wide range of accessible markets providing value-for-money properties. Today, Brazil, Colombia, and Chile are the most attractive markets for foreign investors, according to property investors, BRIC Group International.

A Mexican real estate investor sees certain pockets of opportunity and risk, despite macroeconomic headwinds, “In terms of real estate, there has been no slowdown in demand for industrial parks and last-mile logistics centres in strategic areas of Mexico, such as the Bajío, Northern Border and the Peninsula, where large logistics hubs are being established. On the other hand, office space is still showing mixed results, but the impact is not necessarily due to inflationary growth, but rather to the non-recovery of space after the pandemic.”

“In terms of real estate, there has been no slowdown in demand for industrial parks and last-mile logistics centres in strategic areas of Mexico.”

Real estate investor, Mexico

The residential real estate sector in Latin America is facing specific challenges according to a real estate entrepreneur, “There are six main risk factors to consider in Latin America’s residential estate market: unsustainable gentrification, stagnating foreign demand, a lack of social housing, a lack of flexible financial products, construction standards and market speculation. Some of these may become opportunities but some are structural risks that need to be understood.”

Chile allows developers to buy land using their own equity to mortgage the asset and to finance the building of the project. Similarly, Colombia’s economic recovery plan includes a programme to boost its residential segment with both demand and supply subsidies. The downsides are the challenges that some real estate investors face which include construction cost increases, restricted financing opportunities, and overly complex finance structures.

Colombia also has some compelling incentives, according to a Colombian real estate investor, “In terms of the country’s best practices, I highlight: low sales prices, low barriers to sale, strict KYC processes and low levels of speculative buyers that distort prices. These favourable market dynamics are attracting many investors from the US and Spain, especially from Colombians abroad who are looking for retirement homes on the Caribbean coast.”

“These favourable market dynamics are attracting many investors from the US and Spain, especially from Colombians abroad who are looking for retirement homes on the Caribbean coast.”

Real estate investor, Colombia

Elsewhere, office buildings and warehouses are increasingly considered for new investment opportunities in the regions of Monterrey, Bogotá, Lima, Santiago, São Paulo and Buenos Aires. The return-to-office policies following the pandemic lockdowns and a sustained demand for logistics hubs due to the consolidation of e-commerce and a growth in consumers in the region are compelling market drivers. The real estate entrepreneur confirmed, “E-commerce has created opportunities in the logistics area for warehouses, etc., but we are not yet seeing the demand for office space at pre-pandemic levels. Many small companies have completely given up their offices and are trying to operate remotely and even larger companies are reducing the size of their offices to reduce costs.”

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