COLOMBIA - NOVEMBER 2025 COUNTRY UPDATE

Colombia will Continue To Underperform Until It Elects A New President in 2026 that Embodies a Path Forward. The Far-Left Policial Experiment Weakened the Economy While Solving Few Of Colombia’s Problems. While Commercial Real Estate Performs Well, Residential Real Estate Development Remains Thwarted By The Suspension Of Housing Subsidies.

EXECUTIVE SUMMARY

After 5 years of refraining from promoting Colombia as an investment destination, recent trends may be changing:

• New President in 2026: President Petro’s policies have held Colombia’s economy back and have crippled housing. El Dorado Capital Advisors expect a decrease in risk premium on government bonds and currency as his term draws to a close. We expect a new administration to reignite middle class growth, unleash pent up demand for housing and generate new demand for commercial real estate.

• A Free Venezuela? Should Trump’s pressure campaign oust Maduro, Venezuela would offer significant trade and business opportunities for Colombia. Venezuela has the world’s largest proven oil reserves and in theory should be a wealthy country. A western-oriented regime in Venezuela would be a big plus for both Colombia and the region.

• Demographic Dividend: The Colombian fertility rate has declined from 3.0 births per woman in 2000 to 1.6 in 2024. In the near term (10-20 years), a declining birthrate can lead to an increase in national wealth as experienced in other emerging countries.

• Regional Shift to the Right: After swinging to the left in 2020-2023, the LatAm political pendulum is now going the other way. Peru and Chile have seen popular pushback against their leftist agendas. Argentina and El Salvador have elected populist right-wing governments. And Trump is accelerating efforts to reshape the politics of LatAm in his own right-wing image.

What does this all mean for foreign investors? If currency and bond risk premiums were to continue at today’s levels, current investment returns may not be sufficient for many foreign investors. But what if the new wave of governments is successful and finally unleashes more of LatAm’s potential? What if the region embarks on a path of sustainable economic growth and risk premiums subside?

When we first entered Colombia in 2008, the country was at the cusp of a new era.  After being held back for decades by bad governments and security concerns, the country was finally open for business. For the next decade, the economy was the fastest growing in the Americas. The currency was stable, and the credit rating upgraded. Commercial real estate was being professionalized, and residential development was a sure thing.

In 2008, there was an arbitrage opportunity between what local investors and landowners could see and what international investors could foresee. Early investors were rewarded with very high returns. We may be glimpsing at the onset of such a period again.

The question now is whether the country can establish itself firmly on the path to a higher-rated, more resilient upper middle-income economy. Accordingly, El Dorado Capital Advisors is monitoring the political landscape and the likely policy priorities of the next government.

ECONOMY

Latin America

LatAm's growth is expected to moderate from 2.4% in 2024 to 2.2% in 2025. This will leave LatAm as a laggard among emerging markets (EM), behind both the overall global growth rate of 3.0% and the overall EM growth rate of 4.1%.

LatAm countries are not a homogeneous bunch – each has their economic drivers and challenges, and overall, the interdependence of the economies is less significant than, say, in the EU. In 2025, Colombia GDP growth (2.6%) is forecast to slightly outperform relative to its regional peers - Peru (3.3%), Chile (2.5%), Brazil (2.2%) and Mexico (-0.5%).

While not what it once was, LatAm also still has a demographic advantage. In China, the working age population is already in decline, and the drop-off is accelerating; the government estimates the workforce will shrink by 100 million by 2035. While LatAm fertility rates have fallen to near developed country levels, the population is expected to grow until 2053, when it will peak at 730M, about 10% higher than today. Furthermore, by concentrating resources on fewer children and freeing women to remain in the workforce, per capita income is expected to increase (as happened in developed countries).

From 2020-2023, there was much discussion about the new wave of leftist governments in Peru, Brazil, Chile and Colombia. Now the political pendulum may be swinging the other way. Peru, Colombia and Chile have seen popular pushback against their leftist agendas. Argentina and El Salvador have elected populist right-wing governments.

There is a catch to this promising landscape: the historical ambivalence of Latin American governments toward the private sector and the market-based reforms necessary to modernize their economies. In 2012, East Asia had roughly the same per capita incomes to LatAm, as measured by purchasing power parity. Today, East Asia is 40% ahead.  It is for good reason that Latin America continues to be viewed as one of untapped potential.

As a result of early tightening by the region’s central banks, inflation has peaked, and interest rates are on the way down. Following steep selloffs in 2020-2022, the region’s currencies have stabilized.

Now that the commodity boom fueled by China's rapid economic expansion in the 2000’s has subsided, LatAm needs a catalyst to break free from its destiny as a laggard among emerging markets. While possible catalysts include renewed interest in commodities, a more probable impetus would be a general change in political direction. Progress in El Salvador (security crackdown) and Argentina (taking a chainsaw to the status quo) may convince LatAm that there is a better way.

Since taking office, President Trump has imposed tariffs ranging from 10% to 50% for most countries, including those in LatAm. Existing trade agreements with LatAm countries could come under an ‘America First’ review.

While China has made inroads in the past few years, Trump is accelerating efforts to reshape the politics of LatAm in his own right-wing image. While Trump’s plans for LatAm are not yet known, his actions suggest a belief that the great powers – China, Russia and America – should have their respective spheres of influence, and America’s should extend from Canada’s northernmost territory to Argentina’s Tierra del Fuego. El Salvador’s Nayib Bukele and Argentina’s Javier Milei would likely become the favored sons.

At the time of this writing, Trump is moving a flotilla of US Navy warships towards Venezuela. While the stated aim is to reduce drug trafficking, the real goal remains unclear – Regime change? Direct control of the nation’s oil? Some sort of geopolitical trade with Putin? Difficult to answer as nothing is as it seems.

If the stated aim really is drug trafficking, one wonders if Colombia, a more substantial drug producer, is next. As Colombia has influential supporters in the US, one could think that Trump’s displeasure would probably be limited to its leftist President.

Venezuela has the world’s largest proven oil reserves (304B barrels – 18% of global reserves) and in theory should be a wealthy country. An American intervention in Venezuela would offer significant trade and business opportunities for Colombia. A western-oriented regime in Venezuela would be a big plus for both Colombia and the region.

LatAm stock markets (MSCI LatAm) are up 25% YTD in 2025 as investors anticipate political shifts and favorable economic conditions.

Colombia

2004 growth was a lackluster 1.7% and is forecast to grow 2.6% in 2025.  Colombia’s medium-term economic growth prospects remain strong.  According to the IMF, Colombia’s GDP growth from 2026-2030 (2.7%) is expected to surpass that of the US (2.0%), Canada (1.7%), Europe (1.2%) and its LatAm peers (2.6%).

September inflation was 5.2% and is expected to be stuck at the level for the next few months, largely due to the indexing effect of a 9.5% minimum wage increase in January.  Consensus inflation for 2025 is 5.1% and 2026 is 4.3%. Subsidized housing prices are linked to inflation as they are typically indexed to the minimum wage (CPI plus 1-3%). 

After peaking at 13.25% in October 2023, the policy rate decreased to 9.25% in September 2025. The consensus expectation is for the interest rate to continue to decrease to 8.75% at the end of 2025 and 7.5% at the end of 2026.

Among LatAm nations, Colombia has a particularly compelling opportunity in nearshoring/ friendshoring of supply-chains.  To date, and notwithstanding Petro dampening impact, this has manifested itself in strong services growth, primarily in IT and business process outsourcing (BPOs) which has lent strength to the office market.

Colombia is now three years into the four-year term of Gustavo Petro, the country’s first-ever leftist president.  Petro is embattled on all sides, navigating an ever more difficult labyrinth of his own creation. His approval rating is now close to 30%, very low by any standard.  

The atmosphere of uncertainty has frozen decision making and stifled new investment. Overall, with its ineffective government, Colombia will underperform relative to its potential for the balance of Petro’s term (ending 2026). That said, we expect a strong rebound thereafter.

Petro has deepened Colombia’s ties to China by signing on to China’s Belt and Road program and applying for funds from a Chinese-based development bank. While these moves may be reversible, this is a big step away from alignment with Western democracies and a total break with decades of close ties to the USA.

Petro’s mismanagement of the economy has resulted in unsustainable fiscal deficits. Rating agencies have taken note and reduced Colombia’s outlook to negative, while the bond market has increased the 10-year yield premium ~150 bps.

However, it may be too early to fully write-off political risk. Petro remains ideologically anti-capitalist and anti-US, and Trump has taken notice. It is unclear what Trump’s intentions are with Venezuela, but conflict could spill over into Colombia.

The population is disillusioned with Petro’s leftist dreams and are likely to return to a more centrist government in mid-2026. Presidents can only serve one term in Colombia.

In regard to demographic trends, the Colombian fertility rate has declined to 1.6 births per woman, slightly below the LatAm average of 1.8%.  This decline is attributed to increased access to education, progress in gender equality, and greater female participation in the workforce. 

This will dramatically alter Colombia’s population pyramid, with a drop in children and an increase in seniors. However, the working age population will continue to grow until 2050, with the dependency ratio (children and seniors/working age population) declining until 2050. 

By 2050, people aged 65 and older will make up around 20% of the population, double the current 10%. While lower birth rates will reduce demand for childhood education, an aging population will increase demand for specialized services, including healthcare and seniors living.

In the near term (10-20 years), a declining birthrate could lead to an increase in national wealth:

• Demographic Dividend: A period where there are fewer children and a larger working-age population, which can fuel economic growth.

• Increased Human Capital: Smaller families can lead to more resources and investment per child, improving education and health, resulting in a more skilled and productive workforce.

• Greater Female Labor Force Participation: Falling birthrates can free up women to enter or remain in the workforce, increasing the overall number of workers and contributing to economic activity.

• Resource Reallocation: Resources previously spent on larger families (e.g., housing, childcare) can be redirected toward more productive investments like R&D and advanced technologies.

• Higher Living Standards: An increase in per capita income and per household income should increase the middle class and benefit housing.

As a final thought, one would hope that the Petro era will soon be history but remain as an illuminating lesson: the political class feigning interest for the poor through empty promises is no longer a winning hand. Avoiding other Petro’s in the future means that new governments must foster a more inclusive distribution of wealth so that the lower classes can also participate in Colombia’s new wealth creation. Our observation is that many in Colombia have already internalized this lesson.

Residential

YTD 2025 Colombian pre-sales increased 27% YOY, largely a result of mortgage rates that have recovered to ~11.5% after peaking at 16-18% in 2023.

VIS (subsidized housing representing 70% of the market) pre-sales were largely driven by subsidy programs, the most important of which was “Mi Casa Ya”.  In 2024, the program was suspended as part of a cut to social programs. This is a setback for VIS housing developments, and it is not yet known if or when the program will return or how it may be changed.

In large cities (i.e. Bogota), other sources of subsidies (cajas de compensación) are helping fill in the gap while some smaller cities (i.e. Cartagena) are putting their own subsidies in place.

Prior to COVID, annual pre-sales were around 180,00 units but surged to 227,000 units in 2021. El Dorado Capital Advisor projects a surge in pre-sales in 2027-2028 driven by pent-up demand, especially if the new government reinstates subsidies

Cancels surged to 80% in 2023 as many 2020-2022 pre-sales no longer qualified for subsidies and/or mortgages. Cancels, which were below 20% prior to COVID, are still very high at 42% (49% VIS and 21% Non-VIS). VIS cancels are expected to decrease when new VIS pre-sales are underwritten without the expectation of subsidies

El Dorado Capital Advisors projects that:

• Cancels, while high (~40%), will decrease as new pre-sales are underwritten without expectation of subsidies.

• Annual pre-sales should slowly recover from 123,000 in 2024 to 150,000 in 2025 and 160,000 in 2026. In 2027-2028, pent-up demand could drive pre-sales up to 200,000 if subsidies are restored.

• Either by developers’ choice or by lack of financing, many projects are being delayed and/or aborted. This is keeping inventories under control.

• VIS units are priced at 135-150x minimum wage in the year of delivery (not year of pre-sale). Minimum wage increased 9.5% in 2025 and should continue to increase at CPI+2% going-forward. Meanwhile, construction cost inflation is trailing inflation (now 3.4% versus CPI of 4.9%). Consequently, the VIS profitability is the best in years.

Like other developed countries, housing affordability has hit a wall. With VIS prices tied to minimum wage (CPI + 2%) and most workers’ salaries only increasing with CPI, the gap is only getting bigger. For example, since 2019, minimum wage has increased 72% while CPI increased 50% resulting in a real increase in VIS prices of 22%. Potential purchasers are increasingly stretching to attempt a purchase but ultimately get declined by their bank at closing. This worsened with the suspension of the subsidy programs.

With longer pre-sales periods and a flood of cancelations near delivery, the traditional Colombian residential development model is being challenged. This won’t improve until cancels fall below 10% and pre-sales recover.

With high construction interest rates and weakened sales, many developers have their finances stretched thin. Many smaller developers may not make it while the big developers may be “too big to fail”.

Colombia currently has a 4.9M unit housing deficit. With annual household formation averaging 340,000, of which ~180,000 have the means to buy a unit, the demand will simply accrue during this slowdown. While 45% of Colombian’s rent, nearly all new supply is geared towards condo development.

Potential Opportunities:

1. Invest in viable projects from medium-sized developers that are being held back due to a lack of financing.

2. Provide liquidation mechanisms for unsold inventory at the completion of projects.

3. Recapitalize developers or provide alternative development financing options as the current amount of capital is insufficient to meet demand.

4. Establish a residential rental platform.

Office

Office vacancies are stable (Bogota 8%, Medellin 7%), net absorption positive, and market rental rates are rising (up 2% in Bogota and 12% in Medellin). The office market has been helped by the growing presence of BPO tenants. Compared to North America, physical office occupancy is very high with nearly all employees working 3+ days in the office. The vacancy rate compares favorably to regional peers (Mexico City 21%, São Paulo 18%, Rio De Janeiro 28%) and international markets (New York 17%, Toronto 18%).

Most rents are CPI linked (usually CPI+1%).  Since 2019, CPI has increased 50% while market rents have increased 40%. Therefore, it is not uncommon for in-place rents to be10%-20% higher than market rates. As Colombian leases do not offer the same ironclad protections to landlords as North American leases, powerful tenants are negotiating to bring their leases back to market. So, while in theory, average in-place rental rates should increase ~6% in 2025 and ~5% in 2026, actual increases should be about half of this (negative in real terms). It is unlikely the today’s Argus-based valuations are picking up this phenomenon (i.e. properties may be over-valued). This trend is impacting all asset classes.

Most leases are semi-gross with landlords responsible for insurance and real estate taxes. These expenses (approximately 15% of revenues) have increased at a rate of around 10% in recent years, far exceeding inflation and consequently cutting into property NOI. This is presently not being picked up in Argus-based valuations. Tenants generally pay for their own improvements.

Typically, in Colombia, financing for property portfolios has been through unsecured corporate debt instead of individual mortgages on properties. Banks are increasingly requiring partial mortgage security and amortization. With interest rates around 11%, El Dorado Capital believes that financing constraints will lessen the pool of purchasers and put a damper on valuations.

Valuation parameters remain sticky. Valuation cap rates remain ~8.0% and discount rates ~12.5%, even though the 10-year government bond rate is now 11.8%. We expect cap rates and discount rates to remain stable as 10-year bond yields decline.

Retail

Retail vacancies are stable (Bogota - 3%, Medellin 1%) with rental rates increasing. The retail market has been helped by strong retail sales growth. However, some major tenants have used their leverage to reduce contractual rental rates.

Contrary to North America where shopping centers serve an essentially utilitarian function, modern Colombian retail malls have in fact become part of the social fabric that serves a community function much like the old town squares used to decades ago. Expect resiliency from this asset class.

Retail cap rates remain unchanged at 8.0-8.5%.

Most retail tenants have long-term semi-gross leases with contractual annual rent escalations (>CPI). Tenants generally pay for their own improvements.

Industrial

The industrial market is very strong with low vacancies (Bogota - 4%, Medellin - 3%), positive net absorption, and market rental rates that are rising (up 5% in Bogota and 18% in Medellin YTD). Colombia’s industrial market did not experience the spike in rental rates typical of many developed markets. Since 2018, average rental rates increased 40%, while North American rates increased 100%-200%.

Colombia has a small industrial base and its logistics market has been limited by road and transportation infrastructure. Furthermore, the rapid growth of e-commerce, characteristic of most developed markets, has not yet occurred in Colombia.

Industrial cap rates remain unchanged at 7.5-8.5%.

Most industrial tenants have long-term semi-gross leases with contractual annual rent escalations (>CPI). Tenants generally pay for their own improvements.

Real Estate Capital Markets

Interest rates on corporate and development debt peaked at 17-18% and have decreased to 11% compared to 8-9% pre-COVID. Higher interest rates have diminished development profits and rendered many projects unviable.

In the US, the average office REIT trades at a discount to NAV of 20% (27% for US office REITS). Similarly in Colombia, publicly traded real estate funds are trading at steep discounts to NAV. This is a consequence of investors being skeptical of valuations, lack of liquidity in secondary markets, high interest rates diluting dividends, political concerns, and proposed pension fund legislation that would shrink the investor pool. Therefore, real estate funds, which have been major sources of real estate capital, have been shut out of the market.

While the demand for commercial and residential real estate remains strong, a scarcity of capital will suppress new supply for the next few years. El Dorado Capital Advisors foresees pent up demand fueling a strong real estate recovery in 2027-2028 once interest rates recede and investor confidence returns.

Conclusion

Overall, the Colombian real estate market has been disciplined and has avoided overbuilding. We do not see Colombia real estate succumbing as much to some of the macro trends impacting real estate in the developed world such as WFH and e- commerce. However, high interest rates and a scarcity of capital will likely suppress supply for the immediate years to come.

If currency and bond risk premiums were to continue at today’s levels, current investment returns may not be sufficient for many foreign investors. In 2008, there was an arbitrage opportunity between what local investors and landowners could see and what international investors could foresee. Early investors were rewarded with very high returns. We may be glimpsing at the onset of such a period again.

El Dorado Capital Advisors expects that risk premiums for investing in Colombia will subside with a new government in 2026. We continue to monitor price dislocations or capital deficiencies that will trigger the next wave of attractive investment opportunities.

Appendix – Colombia Residential

Land Sale Structures

The typical residential land sale structure in Colombia is a “land swap” where the landowner rolls-in land in exchange for a percent of sales (13-20%). The structure of selling land for an upfront payment is less common.  Upfront land purchases would provide investors with a more meaningful equity investment and longer investment period particularly when applied to large multi-phase projects,

Strata

In Colombia, neighborhoods are classified by Strata that vary from 1 (poorest) to 6 (richest) that are used by the state to determine cross-subsidization indexes for public services.  For example, the electricity rate may be 25x more expensive in a Strata 6 home than in a Strata 1.

Housing Unit Classification

In Colombia, housing below a price ceiling - 135x monthly minimum wage in small cities and 150x monthly minimum wage in large cities – are eligible for subsidies. Any unit below the price ceiling is referred to as a VIS unit (Vivienda de Interés Social) while those units at the price ceiling are referred to as Tope VIS (TVIS) units. Approximately 65% of housing development is VIS/TVIS units and are generally Strata 2-3.

An even lower classification exists for VIP (Vivienda de Interés Social Prioritaria) with a price ceiling of 90x monthly minimum wage. These represent approximately 5% of housing development and are generally Strata 1.

The most important subsidy program was “Mi Casa Ya” that provided up to a 20% pricing subsidy and 5% discount on mortgage rates. These subsidies totaled ~60,000 per year before being suspended in 2024.

Note that the VIS price in a pre-sales contract is a multiple of minimum wage, not a fixed price. The final price will be determined by the minimum wage in the year of delivery. Thus, VIS developments are inflation hedged and, in fact, slightly benefit from surges in inflation.

Deposits

Deposits are typically 30%, paid in equal installments until closing. Purchasers prefer longer installment periods which can be as long as 36 months at a project’s launch.

Each individual phase of a project is set up as a separate development trust with a third-party fiduciary controlling cash flow. Funds cannot be commingled between phases, projects or with the developer. This serves to protect consumers and prevent the types of Ponzi-like structures seen in China where deposits on current phases were used to fund development of previously sold phases.