April 14, 2010
In yesterday’s letter, I told you why Medellin, Colombia might just be the greatest city in the world for some people. Well, today I had to send my assistant flowers because she got bombarded with so many subscriber emails questioning my sanity–
“You must be kidding! Medellin is the heart of the Columbian [SB: yes I know it's a misspelling] drug dealing racket!”
“Isn’t Colombia the most dangerous place in the world?”
“Are you kidding me? Colombia is one the most violent places to live. Crimes and kidnapping are terrible.”
We also received a handful of emails like this one:
“Bravo! Finally another American who sings the praises of my favorite city! Medellin is a hidden gem because most Americans are scared to go there… it’s amazing what they believe about getting killed and kidnapped. Their information is outdated by 15-years.”
Naturally, my experiences on the ground here have me more aligned with the latter opinion. In 4-years of traveling to and around Colombia, I have never felt unsafe.
There are definitely problems, no doubt. Antioquia Department, where Medellin is located, is still experiencing paramilitary activity out in the jungles where a lot of the gold mines are located. Gold, drugs, and AK-47s tend to not mix well.
Back in Medellin, however, away from the guerrilla action, I’ve read conflicting reports about whether the crime rate is increasing or decreasing. One report mentioned that the murder rate is up 50% year over year, while the government’s commission (biased, clearly) says that violent crime is down.
Here’s the bottom line– don’t automatically believe all the negative publicity that you read about Colombia. Come and see for yourself.
To pain the picture more clearly, I want to tell you a quick story about a local friend of mine. I’ll call him Victor:
Victor is sharp… very sharp. You pick up on that within 10-seconds of shaking his hand. He studied hard science and engineering in the US for nearly a decade and has a full residency visa to go back whenever he wants.
Ten years ago he returned to Colombia to start an engineering firm in Medellin. The business became successful quickly, and life was good…
… until the FARC came along and kidnapped Victor’s brother. This was in 2000. They held him for over two years to the tune of $1 million, which Victor eventually paid. After releasing his brother from captivity, the FARC destroyed all of their heavy equipment out in the field, effectively bankrupting the company.
Victor had nothing left, a family to feed, and a job offer in the United States waiting for him… yet he decided to stay in Medellin.
As he explained to me yesterday, “We all knew the FARC was on the way out, and that Colombia was entering a new era of stability. The turning point was 2003, right around the time my brother was released. Given the opportunity available here, the quality of life, and cost of living, I wouldn’t be anywhere else.”
Victor now has another successful business. His story is very compelling, and if you come down here you should meet up with him.
Locals understand that the tide has turned… but for now the rest of the world is still transfixed on the ‘FARC stigma,’ drug trafficking, and conflicting reports on whether violent crime is rising or falling. (of course, the rest of the world doesn’t really know what the FARC is, or how they differ from other guerrilla groups)
Frankly, it is this negative perception of Colombia’s danger that keeps it a hidden gem… otherwise cities like Medellin and Cali would be crawling with drunk college kids on spring break, and Cartagena would be mentioned in the same sentence as Punta del Este.
I have no doubt that this will all happen someday, and probably within the next 10-years.
This is why, in my assessment, Colombia (and Medellin in particular) is definitely worthy of consideration to plant an overseas flag, particularly for real estate. For a country with such a developed infrastructure and vast amenities, real estate should be much more expensive.
In some of the best neighborhoods of Medellin, for example, existing apartments sell for roughly $750 to $1,000 per square meter. In many cases, this is less than the construction hard costs– a real indicator of value in my opinion.
In neighboring Panama, you’d be very lucky to see $1,200 to $1,500 per square meter for comparable quality, and $2,000+ is not uncommon for existing home sales. New construction is even more.
Is the perception of Colombia’s risk worth a 40% discount to Panama? When you put your boots on the ground in both places, the obvious answer is no.
Expanding the analysis a bit, I would peg Medellin’s property market in line with Tangiers, Morocco where I was just a few months ago, and slightly cheaper than Pattaya, Thailand where I spent most of March.
In the long run, despite euphoria-based ups and downs, the market always catches up with value. When that happens, I expect that prices of quality real estate assets in Medellin will double.
In the meantime, Medellin’s pro-landlord property market offers viable double-digit rental yield opportunities, especially when catering to long-stay tourists and business travelers.