Authors
Multifamily, institutional rent or build to rent (BTR) are some of the various names for the new real estate model that offers a complete experience to the lessee. The idea consists in developing housing buildings that are owned by a single owner (usually private equity funds) and operated and managed entirely by a specialized operator; which is innovative and different from the regular build-to-sell (BTS) business. This type of project is presented as an attractive option for real estate development, since it offers housing solutions to specialized demographic recesses (students, seniors, small families) that are not interested in buying a property, but need to have access to housing solutions in good locations with a variety of common areas and amenities (gym, coworking room, theater, etc.) at affordable prices.
The Colombian market can be considered as one of the most attractive for this type of projects, since from the investor's perspective, income is relatively stable and growing with a long-term projection. This is due to different factors, among which the following are worth mentioning:
- According to DANE´S information, in the year 2020 it was quantified that 36.9% of the Colombian population lived in rents or subleases. This percentage is significantly higher than the average in Latin America, which according to the IDB is 21%.
- According to Asobancaria's data, in the last twenty (20) years, leases prices have doubled.
- There are demographic and social dynamics that have changed the way people live in Colombia, which has potentially increased the multifamily target market. For example, there are more families conformed with fewer members.
- Population groups are looking for specialized solutions to their needs, such as the elderly, university students, national and international executives whose interest is focused on locating close to work or even having work-at-home options as a legacy of the pandemic.
- The high costs per square meter when buying housing in almost every city in the country, with special emphasis on the city of Bogotá.
However, the current regulation can be seen as an obstacle to its adequate development. This is due to the fact that, although it is a model that responds to the social needs and new housing trends in Colombia, it is unexplored by Colombian legislation, and it is framed within the prerogatives of the housing lease contract (Law 820 of 2003) and the horizontal property regime (Law 675 of 2003). These norms imply that the operation of the multifamily brings several challenges because they do not recognize the business model, generating barriers for the investors, operators, and owners of the property.
In first place, the lease contract for housing in Colombia has an inflexible form for the dynamics proposed by this business model, since it is a matter of public order rules that do not admit any agreement in the contract and tend to protect the lessee. For example, the lease contract entails a limit in the agreement of the lease fee, since this cannot exceed 1% of the commercial value of the property in any case, being an issue that may discourage the development of this type of projects in which the amenities play an important role and that, in principle, cannot be charged within the rent fee.
Likewise, lease contracts have strict rules for their termination, and in the event of default, they must be referred to restitution of leased property processes that do not have the necessary speed for the exploitation that would make the model profitable.
On the other hand, the horizontal property regime is not entirely investor-friendly, due to the limits on the economic exploitation of the common areas or the sharing of surpluses, since the horizontal property per se is a non-profit entity that prevents its owner from receiving direct income from its operation. In order to make the exploitation of these areas viable, they must be catalogued as private property, which implies an increase in the private areas impacting the costs of property taxation.
Thus, to conclude, although this is a business model that is still under development in countries such as Colombia, it is important to consider the challenges in its implementation through a regulation which corresponds to the new social dynamics in housing.
