Although it is affected by a slowing economy, the construction sector remains one of the country’s most important industries. The sector posted negative growth in the first quarter of 2019, contracting by 5.6% year-on-year (y-o-y) compared to a decrease of 0.9% in the same period of 2018. Despite government efforts to subsidise low-income housing and invest in health and education facilities, along with private investment in tourism and retail, real estate construction continues to trend downward. Nevertheless, efforts are being made to revive the sector, particularly through social housing programmes, urban development and infrastructure projects.
Supply & Demand
The National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística, DANE) found that value-added for the construction sector saw an 8.8% drop in the first quarter of 2019, compared to the last quarter of 2018. According to Edwin Chirivi, vice-president of sectorial development at the Colombian Chamber of Construction (Cámara Colombiana de la Construcción, CAMACOL), this was a result of a slump in non-residential segments, which account for half of the sector. “There has been reduced activity in the development of offices and commercial real estate and residential projects are taking longer to be completed,” he told OBG. “A typical project involves between 18 months and two years of construction. Projects are taking more time, so their value is spread across a longer period.”
While the supply side will need time to adjust, demand has been showing signs of a recovery, with positive results in the sales of new housing units in Bogotá and Cundinamarca, two of the largest real estate markets in the country, and improvements in occupancy rates for non-residential real estate in the first few months of 2019.
As increased demand and slower supply results in a progressive absorption of surplus units, it is likely that the industry will start to reach a balance in the short to medium term, particularly as the country’s economy continues to recover. “Improvements in Colombia’s macroeconomic indicators and growing confidence among both homeowners and businesses should result in a boost in real estate sales in the years ahead,” Chirivi told OBG.
Meanwhile, there has been increased investment in public works, with the segment expanding by 8.5% y-o-y in the first quarter of 2019, as a result of growing confidence following the 2018 presidential election and efforts made by the new administration to restart infrastructure development projects.
Infrastructure works in mining, transport and electricity grew by 15% y-o-y in the first three months of 2019, indicating that despite disappointing results in some segments, the sector is still generating considerable momentum. Public works look set to expand further, driven by the transport and logistics sector, particularly the development of the Fourth Generation (4G) road infrastructure programme.
Social Housing
Social housing has long been a priority for the government, with both past and present administrations dedicating substantial resources to it. Housing is divided into three types: priority interest housing (vivienda de interés social prioritario, VIP); social interest housing (vivienda de interés social, VIS); and non-VIS, which includes any housing that falls outside these categories.
VIP is directed towards households that earn a monthly salary of less than COP1.7m ($581), while VIS is offered to households that earn up to COP3.3m ($1130) per month. Both VIP and VIS-eligible households are also able to apply for government assistance in the form of subsidies towards the purchase of a new home. In the VIP category, there are a number of free homes that can receive applications. The maximum price of a VIP unit is COP58m ($19,800), while a VIS unit can cost up to COP111.8m ($38,200).
The construction sector is dominated by local players, with very little participation from foreign firms, apart from those in the form of equity participation in local companies or the financing of specific projects. “Low margins for developers and the industry’s challenging regulatory framework can make it difficult for foreign companies to compete in the market,” Diego Prada, president of Bogotá-based construction company Prabyc, told OBG.
New Projects
The total number of new homes being built has fallen for two consecutive years, decreasing from 196,846 in 2016 to 172,211 in 2017 and 147,486 in 2018. The high-end housing market was impacted the most, with the construction of homes in this category falling by 44.5% since 2017. The construction of mid-range housing declined by 15.4% during the same period. The majority of homes being constructed fit into the VIS category, which accounted for 60.5% of all units built in 2018. This segment experienced a smaller decrease of 5.6% from levels witnessed in 2017.
The average duration of housing projects has increased from around 2.5 years in 2015 to three years in 2018. This is primarily a result of longer initial payment schedules, a larger number of projects being placed on standby and increased bureaucracy.
Bridging the Gap
Successive governments have sought to tackle the housing deficit by offering free housing and subsidies on interest rates for new home buyers, yielding promising results to date. According to a bulletin published by the Ministry of Housing, City and Territory (Ministerio de Vivienda, Ciudad y Territorio, Minvivienda) in April 2018, the housing deficit fell from 12.5% in 2005 to 5.2% by 2018. The significant decrease is in spite of the country’s high level of urbanisation, with the number of people living in city centres increasing from 8.2m in 2005 to 11.2m in 2017. According to Minvivienda, between 2010 and 2018 around 800,000 people received government housing assistance.
Although government efforts to reduce the housing deficit have improved the situation, the total number of new homes sold has decreased since 2016, with 172,000 units purchased in 2018 compared to 178,004 the previous year. However, in the VIS segment, the number of units sold increased from 97,064 in 2017 to 101,532 in 2018. In both years the number of new VIS units sold exceeded the number of homes built, showing the success of social housing programmes. CAMACOL estimates that the total number of units sold in 2019 will reach 175,641, 102,200 of which will be social housing.
In addition, the quality of housing has improved, with the number of homes in acceptable living conditions increasing from 76.2% to 90.2% between 2005 and 2018. Although this shows significant progress, population growth and rising demand for accommodation in urban centres has put additional pressure on developers to continue to deliver quality housing.
In order to ensure new homes adhere to safety and quality standards, the authorities are working to reduce informal construction, which is a particularly common practice in the low-range housing segment. According to a local media report in November 2018, around 50% of all homes in Colombia are built without a licence. Although these activities have become less common, due to a lack of capacity monitoring and sanctioning, illegal construction is not one of the government’s priorities.
Nevertheless, the authorities have taken steps to intervene in the construction and maintenance of housing in Bogotá. As of May 2019, 2684 government housing improvement grants have been issued across nine areas in the city, helping to improve the conditions of both homes and public spaces.
Government Support
The minister of housing, city and territory, Jonathan Malagón González, told local media in December 2018 that 520,000 affordable housing units will be constructed over the next four years under government programmes, with an estimated 126,000 to be built in 2019.
The Free Homes programme was launched by the government in 2012, offering housing to the most vulnerable members of society. Around 103,000 new homes have been built under the initiative between 2013 and 2019, and the government expects to deliver another 22,000 by the end of 2020.
In addition, the My Home Now initiative was implemented in 2015, which incentivises home ownership for low-income families by offering subsidies. The programme has progressively expanded, with 1801 subsidies offered in its first year, increasing to 32,000 in 2018, with plans to match this amount in 2019. The programme provides applicants with subsidies of up to COP23m ($7870), and reduced interest rates on mortgages for VIP and VIS.
The first programme launched under the new administration at the end of 2018 was the Homeowner’s Seedbed initiative, aimed at helping the most vulnerable families with initial payments on their homes. “Despite receiving subsidies, low-income households frequently struggle to reach financial closing. On average, they are short of around COP5m ($1710) for the down payment and are often unable to access credit as many do not own a bank account,” Malagón told local media.
Under the new programme, applicants can rent their homes for up to two years. During this time, the government will provide assistance of up to COP500,000 ($171), while the household will contribute COP350,000 ($119). Of the latter amount, COP200,000 ($68.40) is directed towards a savings account that will later be used for the initial payment on their new home. Households participating in this scheme also have access to a subsidy for the initial payment and the mortgage interest rate. This new policy aims to respond to one of the largest bottlenecks in the segment – the inability of vulnerable households to raise enough funds for the down payment. According to local media in December 2018, the programme had allocated COP452bn ($154.6m) for the first 40,000 subsidies.
The government is also taking measures to improve the standard of housing and formalise the real estate sector through the Dignified Home, Dignified Life programme, which was launched in November 2018. This strategy aims to improve the structure and quality of 600,000 households by 2022, through both interior and exterior maintenance works. The programme will also help lower-income families to obtain the legal ownership of their property to reduce informal activity in the sector.
Remaining Profitable
Although margins per unit can be smaller in the social housing segment, the support provided by the government, coupled with the stable demand, mean that most developers tend to diversify their portfolio by offering both social and non-social housing. “Social real estate projects, such as housing or hospitals, are generally countercyclical, provided support from the government is maintained, while non-social real estate projects are cyclical, offering financial stability to developers,” Prada told OBG.
Given the fall in demand for non-social housing units since 2016, construction companies have primarily focused their efforts on the social segment in recent years. Notably, although developers can launch projects in any segment, Colombian law requires that 20% of a development on a new plot of land is dedicated to VIP units. The steady growth of social housing is expected to continue as the amount of funding allocated to VIS projects consistently outweighs non-VIS. In February 2019 funding for VIS construction grew by 10.5% y-o-y, while non-VIS funding fell by 1.1%.
However, while interest rates for developers have trended downwards since 2018, the high cost of credit for operators still puts strains on their ability to refinance. “As project cycles increase and credit requirements become more stringent given stronger oversight of the financial services industry, applying for loans has become more challenging, and costs remain high,” Chirivi told OBG.
Following the mortgage crisis in the 1990s, the pre-sale model gained popularity in Colombia, with around 70% of all homes sold in this manner as of January 2018. The pre-sale model enables the industry to mitigate the risks in residential construction by delaying the onset of development until the economic viability of the project is ensured.
Materials
The lack of dynamism in the industry since 2017 resulted in reduced demand for construction materials, primarily impacting the cement and concrete segments. However, in mid-2017 the production and sale of both products began to make a recovery, which continued into 2018.
According to DANE, total cement production in 2018 reached 1.1m tonnes, representing a 6.3% increase on the previous year. Production rates for 2019 are looking promising, with output growing by 4.2% y-o-y in the first quarter of the year. Concrete production reached 6.7m cu metres in 2018, growing by 0.3% compared to 2017. Results for the first three months of 2019 also indicate progress, with an increase in production of 3.9% y-o-y.
Other building materials, such as tubing, welding and bricks, are predominantly locally produced. As a result, prices change according to the rate of inflation. In addition, metal products such as steel and aluminium were impacted by volatility in international markets. While these materials experienced a production increase of 10.3% in 2017, they grew by a more modest 2% in 2018. However, the positive growth indicates that the segment is still able to withstand fluctuations in prices.
Overall, the cost of construction for residential real estate has remained relatively stable in recent years, growing by 2.4% y-o-y in February 2019, compared to 3.2% y-o-y in February 2018. This slight increase has been attributed to rising labour costs. There are generally regional variations, with nine out of 15 regions showing above-average increases in construction costs. However, according to industry stakeholders, this may be set to change as developers increasingly resort to standardisation across all of their projects in order to maintain tighter control over rising construction costs.
Green Building
Particularly as foreign investors increasingly enter the construction sector, sustainability has become more of a priority for developers. “Foreign investors have traditionally used international certifications such as Leadership in Energy and Environmental Design (LEED) and Excellence in Design for Greater Efficiencies (EDGE) as a measure of quality assurance, ensuring the development adheres to international standards,” Viviana Valdivieso, president of the Colombian Council of Sustainable Construction (Consejo Colombiano de Construcción Sostenible, CCCS), told OBG.
According to the “World Green Building Trends” report published by US-based construction research company Dodge Data & Analytics in 2018, the development of green infrastructure in Colombia is primarily driven by internal corporate commitments, highlighting the importance of the private sector in promoting sustainable construction practices. Likewise, lower operating costs are also a significant driver for the industry according to the report.
As of June 2019 Colombia had 162 LEED-certified real estate projects, covering more than 1m sq metres, with another 210 projects in the application stage. Over 50% of LEED-certified real estate is occupied by offices, 20% by commercial space and 7.5% warehousing and distribution centres. However, the development of LEED-certified industrial space, public buildings, health care facilities and housing has been growing in recent years.
Housing units constructed under this format remain limited, accounting for only 2.5% of the total. However, with the trend towards sustainable construction methods gaining momentum both locally and globally, as well as strong support from the authorities, developers are increasingly using sustainable construction methods in housing, including within the social segment. According to Dodge, 46% of companies plan to use sustainable practices for over 60% of their upcoming residential and non-residential projects by 2021.
In this context, 2018 saw the first EDGE-certified social housing development. The Alegra construction project, led by Colombian construction company CFC, in the city of Manizales, was the first VIS project to receive the international certification. The 350-unit project was partly funded by Bancolombia’s first green bond issuance in 2017, enabling developers to access financing at more competitive rates. EDGE certification, created by the World Bank’s International Finance Corporation, is becoming more prominent across the country, with over 32 projects in the application stage as of June 2018. In June 2016 CCCS also launched its CASA Colombia certification for VIS and VIP projects, enabling developers to apply for preferential interest rates from banks.
Promoting Sustainability
While the authorities introduced a number of initiatives encouraging the use of green construction methods and the conscious use of water and electricity resources, developers consider a lack of political support and incentives, as well as higher initial costs, as the main barriers to sustainable building, according to Dodge.
In 2015 Minvivienda passed Resolution No. 549 to establish a guide for energy and water efficiency for new developments. The resolution is being rolled out nationwide across a range of segments including social and non-social housing, commercial real estate, offices, and hotels. It is expected that by the third quarter of 2019 these regulations will come into effect in Bogotá, requiring that all new buildings introduce initiatives to reduce the use of electricity and water by a certain percentage, depending on the location, type of project and other factors.
Urbanisation
According to DANE, over 75% of the population live in urban areas, with this number expected to increase to 83.5% by 2035. To cater to the growing urban population, in 1999 Colombia launched the Territorial Management Plan (Plan de Ordenamiento Territorial, POT) in cities with over 100,000 inhabitants. This roadmap, which is revised every few years, outlines the long-term urban planning of large cities, accounting for population growth, access to public utilities, development of mass transport systems and social inclusion. Colombia’s fastest growing city is Bogotá, which is increasing in size by around 90,000 people and 400 ha per year. In this context, the city’s plan includes strategies aimed at ensuring it is prepared for rapid expansion. According to the Urban Renovation and Development Company of Bogotá (Empresa de Renovación y Desarrollo Urbano de Bogotá, ERU), which is charged with overseeing the city’s renovation plans, Bogotá has 2612 ha worth of urban renovation projects currently in progress.
Many renovation plans include public-private partnerships (PPPs), which are an increasingly popular funding model for construction projects. According to the National Department of Planning ( Departamento Nacional de Planeación, DNP), by the end of 2018 there were a total of 332 projects registered under the Single Register for PPPs in Bogotá and Cundinamarca, with 36.1% directed towards public infrastructure development.
One of the largest renovation projects is the Partial Urban Renovation Plan launched in 2016, which saw 48.8 ha of Bogotá’s administrative centre renovated. The project, which aims to centralise government offices, starting with the Ministry of Defence, is expected to be fully completed by 2037 and cost around COP7bn ($2.4m) in total. According to local media in March 2019, the National Real Estate Agency is looking to seek private support to fund the project as public resources are insufficient for the scope of the development plan.
Other projects included in Bogotá’s renovation plan which have broken new ground in recent years include the areas of San Victorino, San Bernardo, Voto Nacional and the Bronx Creative District, all of which are expected to be completed by 2020. One of the first renovation projects to be completed was the COP55bn ($18.8m) Cinemateca, a cultural space with three cinema screens, a library and meeting spaces, which opened in 2019.
Another major component of Bogotá’s POT is improving access to the public transport system, with plans to extend the city’s first metro line and TransMilenio bus rapid transit system. In 2017 the city’s authorities passed Decree No. 621, which raised the maximum building height from three storeys to 20 in the Avenida Calle 80 and Avenida Carrera 30 areas. These locations were selected to take advantage of their connection to the newly extended TransMilenio network.
Urban development programmes have also been launched in Medellín. Its most notable renovation project is in the Ciudad del Rio, the former industrial centre. The project includes the construction of 4000 homes, of which 2400 have been completed as of May 2019, as well as the road networks necessary to connect the development to the rest of Medellín and to alleviate traffic congestion in the city.
Conflict
Difficulties can often arise as a result of conflicting interests between different developers. This has been the case for Medellín’s POT, which after approval in 2014, faced significant delays in its implementation, given challenges in implementing regulations, and complexities related to land integration and the management of existing landowners. This has caused delays for Ciudad del Rio, which is set to be completed by 2026, but does not have a clear deadline. In addition, according to local media in August 2018, some aspects of the project did not yet have a clear funding agreement in place, delaying the project further. Plans had been drawn up to build a new philharmonic theatre in Medellín, but the authorities had not confirmed a loan agreement, meaning that the developers were left unclear about the financial viability of the project.
Similar issues have occurred for Bogotá’s first urban renovation project, Pedregal, which was launched by the Colombian company Aldea Proyectos in 2014. The COP1.5bn ($513,000) development includes two high-rise office buildings, 5900 sq metres of public space and a five-storey shopping mall, as well as new roads and a parking area for buses. Expected to be finalised by 2022, the project has been facing some delays due to conflict with the TransMilenio line extension. Work on the bus line was suspended in April 2019, with construction only permitted to continue after modifications are made to the project to ensure it adheres to environmental and safety regulations and does not conflict with the land allocated for the Pedregal development.
“A lack of adequate information, weaknesses in long-term planning, and environmental and territorial licensing issues make the development of construction plans challenging. It is therefore vital that all parties respect the need for long-term continuity to ensure that plans are not disruptive and can run smoothly,” Chirivi told OBG. With regional elections scheduled to be held in October 2019, this is particularly important as there is the potential for difficulties to arise under a new leadership if the authorities are not informed of existing plans that could conflict with new projects.
Cities in Cities
However, building limitations in major cities have helped shift construction activity away from the main urban centres. In response to growing urbanisation and demand for housing, a number of projects spearheaded by the private sector have begun to arise in the periphery of major cities, which include all the necessary amenities available in the traditional urban centres. This has strongly impacted Bogotá, where scarcity of land, stringent urban development plans and high prices have resulted in the city spreading out into new areas: Cota, Chía and Cajicá in the north; Funza, Mosquera, and Madrid in the west; and Soacha in the south. This expansion has been particularly led by developers constructing low-income housing.
The first city expansion project began in 2010 in Ciudad Verde in Soacha. Covering a total of 328 ha and with a strong emphasis on public spaces, the project consists of 42,000 homes, as well as schools, health care centres, and three shopping malls. Developed by a group of companies led by domestic construction company Amarilo, Ciudad Verde has come to symbolise what urban expansion can achieve in terms of public and private cooperation, laying the groundwork for similar projects to follow. However, complaints about delays in completion, insufficient transport infrastructure and security issues show that experience in the field is still limited.
The largest of its kind, the Lagos de Torca project developed in the north of the capital began in 2016. For an estimated investment of COP4bn ($1.4m), the 1800-ha development will include the construction of 128,000 living units, divided equally between VIS and VIP, as well as parks, schools, health care facilities, and a road and highway network connecting it to the rest of the city. As is also the case with Ciudad Verde, creating efficient connections between the new development and the rest of Bogotá is vital to ensure the success of such projects.
One of the most significant projects, aimed not only at Colombians but also international buyers, is Serena del Mar in Cartagena. The 1000-ha project began construction in 2015 and is expected to have around 17,000 housing units in total, 600 of which will be VIS. The first homes were completed in 2018 and 1500 units are expected to be built by the end of 2019. Sustainability is an important part of the design and construction methods, with green areas making up 75% of the development and environmentally friendly building methods used throughout the project, from waste management to renewable energy sources. The development is led by Novus Civitas alongside 12 other large real estate developers, as well as a health care provider to assist in the construction of a hospital and Universidad de Los Andes, one of Colombia’s highest-ranking universities, which built a new campus on site.
Foreign Participation
While larger projects have successfully launched schemes to combine public and private financing for housing initiatives, obtaining credit for completely private projects can be difficult and expensive. In this context, real estate investment funds and international investors have progressively been filling the gap, particularly in the housing, hospitality, retail and transport segments.
Nevertheless, the success of foreign companies in the housing segment has relied heavily on partnerships with local players that understand the market and the regulatory environment, especially when negotiating with municipalities for access to land. Without local assistance, foreign companies can face difficulties, as was the case with Portuguese company Prebuild, which acquired local company Ekko Promotora in 2013 but was forced to cease operations in 2015 due to management issues.
While foreign participation in housing construction is limited to investments in equity or debt, other segments have already seen an outpouring of greenfield investments by foreign investors. Mallplaza, which is owned by Chilean multinational developer Falabella, has operated in Colombia since 2012 with a shopping centre in Cartagena and a new site recently opened in Manizales. The company has begun the construction of two additional malls in Cali and Barranquilla, which are expected to open their doors by 2019 and 2021, respectively.
Central American conglomerate, Grupo Roble, entered the Colombian market with the construction of Bogotá’s Marriott Hotel and the Bogotá Corporate Centre. In addition, together with Vendôme, the real estate arm of their parent company Grupo Poma, the firm worked on the La Felicidad development, which contains a multi-storey shopping mall and several apartment units.
Hospitality
Tourism has increased in recent years due primarily to the easing of political tensions following the signing of a peace deal with the FARC in 2016, which has helped to improve the country’s image. The government has also implemented reforms to encourage the development of the hotels industry. International chains first entered the Colombian market in the mid-2000s, after the passing of Law No. 788 in 2002, which provided an income tax exemption of over 30 years for new facilities and the remodelling of existing facilities. As a result, large international companies such as Hyatt, Marriott and Hilton established themselves in the country in the years that followed. According to DANE, between 2003 and August 2018, 52,373 new hotel rooms were constructed and over 27,000 rooms were renovated, with a total of $5.8bn invested in these improvements.
Although the exemption was replaced by a 9% income tax in 2016, international firms still benefit from considerable incentives, encouraging the hotels segment to continue to expand. According to local media, foreign investment received by the retail, restaurants and hotels sector increased by 60% between 2017 and 2018. In the first quarter of 2018 the sector received $674m worth of investment, representing an increase of 93.1% over the same period in 2017. Some 91 new hotels are expected to begin construction between 2018 and 2020, with 21 projects slated to come on-line in 2019 and 10 new hotels planned to open. This will increase the number of rooms by 3117 by the end of the year, with the majority in Bogotá and Medellín.
Infrastructure
The infrastructure development segment has seen strong foreign participation in recent years. In 2012 Law No. 1508/12, known as the PPP Law, was passed, facilitating the establishment of PPPs, which brought a wave of dynamism to the sector. Under this law, foreign firms are permitted to participate in PPPs, with no limitations on the amount of control they can exercise over a project.
However, incidents of corruption in the construction sector across Latin America following the Odebrecht scandal in 2017 have had a strong impact on Colombia, although to a lesser extent than other countries in the region. The main projects affected by the scandal were the Ruta del Sol II road network and the dredging of the Magdalena River, both of which suffered heavy delays as a result.
Given the scope of the scandal, many other infrastructure projects were brought to a halt over fears it would jeopardise concessions granted by the government during the period. However, with the arrival of the new administration in late 2018, there has been a continued focus on infrastructure development, through a mixture of PPP concessions, private initiatives and government-contracted construction.
Many of the infrastructure projects in progress comes under the remit of the 4G programme, which is focused on improving the road network in order to better connect inland towns with ports. According to the National Agency of Infrastructure, this will reduce road transport costs by 20% and cut transport times between the country’s production centres and ports by around 30%.
Other transport and logistics projects currently in progress include those under the government’s Master Plan for Intermodal Transport, which aims to reform the entire logistics value chain by focusing heavily on transport infrastructure. Plans to build a number of secondary and tertiary roads, as well as to restore existing roads, are also in the pipeline.
Utilities
Although the majority of the population are able to access public utilities, with electricity available to 96.9% of households, water to 86.6% and sewage systems to 76.3%, efforts are still being made to fill gaps that affect some regions. According to Malagón, 132 projects to improve utilities infrastructure were finalised in 2018, at an estimated COP547m ($187,000). This included the construction of 4000 indoor connections, affecting 16,000 households. In 2018 President Iván Duque launched the Blue Guajira programme, which aims to extend access to safe drinking water in the Guajira region, one of the country’s most underserved regions in terms of infrastructure. The COP424bn ($145m) project will be financed by the government, multilateral development banks and international organisations and is expected to run until 2024.
December 2018 saw the awarding of one of the four sections of the Metropolitan Cúcuta Aqueduct Project to Spanish civil engineering company Obrascón Huarte Lain. The project, which is worth an estimated COP384bn ($131.3m), aims to bring clean drinking water to the capital of the region, Los Patios, and the municipality of Villa del Rosario.
In 2018 the Council on Economic and Social Policy approved two documents that will set the stage to develop projects to extend access to drinking water and sewage systems in Buenaventura, in Valle del Cauca, and basic sanitation in the municipalities of Manizales, Villamaría, Pereira and Dosquebradas. The first will enable the country to apply for an external loan of up to $76m to improve sewage infrastrucure and construct urban and rural aqueducts in Buenaventura, at an estimated cost of COP200.4bn ($68.5m). This is expected to benefit around 424,000 households. The second permits an external loan of up to €40m to finance projects in the Chinchiná and Otún-Consota basins, to improve access to drinking water through the construction of two residual water treatment systems.
While measures to provide universal access to basic services are ongoing, efforts are still needed across a number of underserved regions. According to the Superintendency of Residential Public Services, the areas most at risk in terms of water quality are Putumayo, Chocó, Vaupés and Vichada.
Social Infrastructure
PPP programmes have proven successful for both consumers and the private sector across a variety of projects in the transport and logistics, energy, ICT, and housing sectors. However, social projects such as hospitals and prisons, which require more government input, have found it more difficult to attract private funding due to a lack of clear guidelines on how investors will be rewarded for their involvement.
The financial challenges experienced by health promoting entities (Entidades Promotoras de Salud, EPS) – organisations charged with channelling public funds to the health sector – have caused a decline in the construction of new hospitals in recent years. The total area under construction for this segment fell from 857,851 sq metres in 2014 to 510,318 sq metres in the second quarter of 2018.
In early 2018 the government announced that it would tender contracts for the construction of five new hospitals using the PPP model, covering 200,000 sq metres altogether and increasing the number of available beds by 1200. Local media reported in February 2018 that construction would begin in July 2019. However, as of June 2019, none of the projects had reached financial closing. “The financial situation for some EPS companies has cast doubts on the sector’s stability and the government’s capacity to ensure all parties uphold their financial commitments,” Juan Carlos Giraldo Valencia, president of the Colombian Association of Hospitals and Clinics, told OBG. “In order to reinvigorate the construction of new hospitals and health centres, the government should encourage these entities to improve their financial security and fulfil their service provision commitments to the rest of the system.”
Another area of social infrastructure which could benefit from PPPs is the prisons segment. According to the National Penitentiary and Prison Institute, the country has a prison capacity of 82,049 people, but currently has over 120,000 convicts. As a result of this pressure on the system, conditions are extremely poor, with 115 prison facilities facing overcrowding. In order to improve this, in 2017 the DNP proposed a number of projects to construct prisons using the PPP model, including a new facility in Popayán. However, although these ideas were first put forward in 2015, there has been little movement to begin construction as of June 2019. In May 2019 local media claimed that 1700 new prison spaces will be added by the end of that year, as a result of contracts made in 2014. The report also stated that the government were continuing to evaluate the viability of constructing prisons using the PPP model.
Outlook
Despite a slowdown in growth in recent years, 2019 is set to be a promising year for the sector. As the economy made a recovery in late 2018 it is likely that construction will soon follow suit, with initial estimates for the first quarter of the year already showing signs of improvement. Both residential and non-residential segments are expected to regain traction, with CAMACOL predicting that the latter will grow by 2.7% in 2019.
Developers have begun to seek alternative building locations due to pressure on traditional urban centres, resulting in cities expanding further outwards. Nevertheless, renovation plans show that the authorities have not abandoned the potential of city centres. These projects will require considerable resources and funding, which can only be attained through effective collaboration between the public and private sectors. Social housing and infrastructure will likely receive the most attention from investors, with both segments addressing crucial deficits in the country. Likewise, the advent of new vehicles to channel private sector funding are expected to continue driving the sector’s growth.
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