The Real Estate Sector in Colombia

Prepared By: Santiago Concha

Pinilla González & Prieto Abogados

Bogota Colombia

Colombia is a democratic Nation that bases its real estate sector activity under the principle of respect for property rights and justly acquired rights, which are limited in accordance with the Constitution and the law, only by the so-called social and ecological purpose of Property and the prevalence of the general interest or the common good.

This statement is particularly important since Colombian legislative development for real estate, has had enormous development from the Constitution of 1991, giving birth during the 90s and the beginning of this century to revolutionary real estate rules.

In implementation of this legal premise, Colombia has developed local powers and responsibilities to regulate land use and its development, under the premise of political centralization and administrative decentralization.

In this sense, the Nation, through the Congress, has the authority to issue general laws for the management and use of land, for the rights and environmental obligations, the organization of cities, the legal conditions of rural development, as well as the rules on administrative procedures for licensing and sanctions, legal proceedings, land taxes and duties, etc.

The national government has the legislative authority to regulate of the law, especially for this sector, developing all necessary rules to establish policies on the management of the Territory, sustainable development, natural resource utilization, rules on supply and demand for housing and other destinations, distributions of burdens and benefits for development, land appraisals, etc.

And municipalities have the legislative authority to issue regulations within their territories of the special rules on land use and development through the Land Management Plans (POT, from its acronym in Spanish) and rules that develop and complement it, as well as the ability to establish municipal taxes for uses and land use, all in accordance with the law. Additionally, municipalities have the authority through its agencies to issue zoning permits.

Another fundamental player in the sector due to its regulatory delegations is the environmental authorities with specific responsibilities divided between the Ministry of Environment, the Regional Autonomous Agencies, Metropolitan Areas and the municipalities themselves.

Based on the above, it is possible to note that Colombia has developed a wide series of regulations for real estate which is now-a-days the basis of legal certainty, which allows a sufficient level of information for making investment decisions in this field.

Under these conditions, whatever the direction of a real estate investor, particularly for one who purchases land with any soil use for general real estate investment, or one who acquires land for enabling it for urban use, or that investing in rural development land, or the one who intends to acquire urban land for urban development or purely architectural, or simply the investor of institutional or social activities that must acquire property for its purpose, they all find sufficient regulations that may apply to the good and sought to establish the legal conditions, in order to decide on investment.

But due to the amount of relevant legislation, that of course also requires close due diligence for the investment decision and therefore the investor should be highly careful in the analysis of all levels of regulation, which involves a complex and specialized work requiring the participation various specialties of law, in such a way, for example, that property taxes studies should include analysis of the transfer titles of the land, not only on limitations and encumbrances registered in the public registry, but the status of the piece of real estate from its origins, in order to have legal certainty about its private property status. Another example of the close scrutiny is that it should contain studies on the actual existence of the area and boundaries, terrain adjacent and related, but not only physically in the field but through research before to the competent authorities, as well as research on soil environmental conditions, existence of environmental liabilities or penalties for these causes; verification of environmental licenses required for the performance of an activity in the soil, review of rules on land use and development together with the complementary technical and legal assessment of the conditions for enabling urban soil use; study of the conditions necessary for obtaining planning and zoning permits, assessment of agricultural and environmental legal possibility of rural development or rural ownership restrictions, etc.

Moreover, it should be noted that there may be contradictions in the different fields, ie., environmental vs. zoning and therefore collision of competencies between different governmental authorities, representing legal and technical challenges on these properties and the required expertise for predicting the risks and legal means of conflict settlement, in order to achieve adequately and safely over time the development of the investment.

Finally, on this regulatory topic, it is important to note that especially at the Municipal level, there are frequent changes, which require extreme care in handling administrative legal terms to translate regulatory expectations into acquired rights, so that due diligence cannot finish with the aforementioned analysis before the investment decision, but the monitoring of activities necessary to strengthen the rights of the investor on the property to avoid the change of laws risk.

In economic terms, Colombia is going through a great investment moment and particularly in real estate development, and in this sense it is possible to call it the country and the sector of opportunities.

The sector is so important that the National Government, has placed special focus on real estate as one of the pillars for growth (“locomotive of the economy”), with the impact on proactive government decisions, such as issuing rules that allow investors certainty over acquired rights as per granted licenses and permits, subsidies to promote housing demand for the less favored, important investments in the sector of water and sanitation, significant investments in subsidies for the development of social housing projects; rules allowing quick and efficient management of soil uses to enable supply of housing and other uses; taxation rules that allow efficient property investment, investment benefits for technical agricultural development, etc.

On a final note, we have perceived that most authorities appreciate the need to generate high quality cities in Colombia and this means, to apply all the methodologies necessary to provide quality spaces, with good roads, adequate public space, massive transportation systems and adequate institutional uses.

No doubt Colombia is the land of opportunity to invest in all these developments for which we are politically, legally and culturally ready.

For more information about Pinilla González & Prieto Abogados or Santiago Concha, please visit www.ccn-law.com or the International Society of Primerus Law Firms.