If you were asked to name one country in the world which would be potentially bottom of your list with regards to starting a new life there are many people who would choose Colombia. Colombia is a country which has been rocked with corruption, drug crimes and financial instability for many years. However, Colombia is now a country which has lately turned on a sixpence and has grown significantly over the last 20 or 30 years. While there is still much work to be done, especially to repair the reputation of the country, there is no doubt that Colombia is on the up and there is no more positive news flow from the country than negative news.
As a consequence, while not yet perhaps in the higher echelons of expats around the world, perhaps Colombia is an area of the world which should be considered as bizarre as this may sound. So what does Colombia have to offer, what can you expect and how drastically has it changed?
Where is Colombia
Before we go into further detail about the cost of living in Colombia it is worthwhile remembering exactly where the country is and its neighbours. Colombia is situated at the northwest of
South America and is bordered by Venezuela, Brazil, Ecuador, Peru, Panama, the Caribbean Sea and Pacific Ocean. It also shares maritime boards with Venezuela, Jamaica Haiti, the Dominican Republic, Honduras, Nicaragua and Costa Rica. So in simple terms, Colombia is connected to a great array of South American countries and is in many ways one of the vital trading points in the region.
The total land mass of Colombia is around 1,100,000 km² and it has a population in the region of 45.4 million with very strong connections to Spain – with the third largest number of Spanish speaking people after Mexico and Spain. Like so many countries in South America, the roots of Colombia can be traced back to Spain when it was part of the kingdom of Spain until breaking free in the 1800s. It is a country which has been racked by drug trafficking, crime, corruption, financial instability and political friction. However, the Colombia we see today is very different to the Colombia of 50 years ago, 30 years ago or even 20 years ago.
Before we go into detail regarding the economy of Colombia it is worth noting that the GDP has increased dramatically over the last few years ranging from 2.2% in 2001 to a staggering 8.2% in 2007. During this time the Colombian stock market has risen from 1000 points to 7300 points in November 2008 although obviously this has been impacted since then by the worldwide recession and the credit crunch. However, there are still high hopes for the Colombian economy which has proven to be more resilient than many had expected during these difficult times.
Like so many South American countries which have “turned the corner” the Colombian government is still forced to spend a rather hefty 37.9% of GDP on servicing the country’s large debt. While inflation has remained relatively low for some time, unemployment is in double digits, which is obviously a concern in a country which has such a diverse wealth spectrum – which continues to expand. Historically the Colombian economy has been based upon agriculture but the recent upturn in fortunes for the country has come about by switching this dependence from agriculture to industry and services. Like so many South American countries, Colombia is also very rich in natural resources and prominent exports include petrol, coal, coffee as well as gold.
In years gone by trying to transact business in Colombia was something which many companies literally give up on due to complications and corruption which was rife for many years. However, over the last decade we have seen a number of changes to security within Colombia and while there is still much work to be done there is no doubt that corruption is nowhere near the levels seen in years gone by. This move has given overseas investors more confidence in the country and hence hopes for the future are now high.
A quick look at the Colombian property market is something which countries such as the UK and the US would die for. Despite the fact that the worldwide economy has been in the doldrums over the last 2 to 3 years the average property price in Colombia continues to rise and indeed in year ended 2009, prices increased in real terms by 8.2% with headline growth of 10.7%. The truth is that house prices in Colombia have been rising since 2006 with double-digit growth commonplace until 2008 when the growth rate dipped to around 9.7%. However, this is a property market which has literally sailed through the worldwide economic downturn and many believe is set for further growth in the future.
There has been potential within the Colombian property market for some time but unfortunately security issues and criminal activity in the region had put off many overseas investors. However, a mixture of increased confidence, increased liquidity in the mortgage market and overseas investment in the region has created something of a triple whammy on the upside. The fact that, at least at the moment, foreigners are free to acquire property in Colombia is also a factor which has helped to create the very positive situation in the country.
However, it must be pointed out that while property prices are expected to increase during 2010 there has been an increase in jobless numbers in Colombia which now account for 12.4% of the workforce. It is hoped that the prosperity of the overall Colombian economy will continue and in time the uncomfortably high jobless numbers will start to fall. As more and more wealth is injected into the Colombian economy and spread amongst the Colombian population this should support the property market and demand for property.
Living costs in Colombia
Using the cost of living in New York City in the United States of America we are able to give you a snapshot of the buying power and cost of living in Colombia. The consumer price index is just under half that of New York City, the rent index is 87% less than that in New York City, the grocery index is around half, the restaurant index is 65% less and the consumer price index is nearly 70% less. However, we will now attempt to put these in perspective with regards to everyday goods and the cost of acquiring these in Colombia.
A relatively inexpensive restaurant will charge around £2.50 for a meal for one person, with a midrange restaurant charging anywhere up to £15 for a meal for two. The cost of domestic beer is around 80p a bottle, imported beer is around £1.80 a battle and water costs in the region of 60p a bottle. It will cost you around 60p for a litre of milk, £1.10 for fresh bread and a bottle of midrange wine will cost you £5 a bottle. Transplantation costs in Colombia are fairly low with gasoline costing in the region of 60p a litre and taxi and other transport networks fairly inexpensive.
The cost of utilities in Colombia is more expensive than for example Mexico with electric, gas, water and garbage collection costing in the region of £90 a month. The country does have access to mobile phone networks and Internet although the cost of these has yet to reflect the growing competition in this area. Surprisingly there is very little difference in the cost of renting properties in the city centre and outside of the city centre which would indicate a general improvement in property prices as opposed to lucrative assets being located in one or more particular areas.
Entertainment in Colombia is pretty much the same as any of the South American country and as we touched on above can be relatively cheap compared to countries such as the UK of the US. In simple terms, you will be able to find a social life to match your budget although obviously you would expect to pay a little bit more in some of the more populated areas of Colombia and its major cities.
Despite the fact there is a major Spanish influence in the country there is also a growing influence from European visitors with a need to accommodate this market, something which Colombian entertainment companies have been only too happy to oblige with. As the increase in overseas investment continues to flow into Colombia it is highly likely we will see more European influence in the region and more expats visiting.
The tax situation in Colombia is a lot more straightforward than that in many other countries with a progressive taxation system which begins with a tax-free allowance up to 1090 tax units although between 1091 tax units and 1700 tax units the income tax rate is 19%, between 1701 tax units and 4100 tax units the income tax rate is 28% and above this figure is flat rate of 33% of the charge. The system is based upon tax units which are effectively $23.763 per unit.
While residents of Colombia are taxed upon their worldwide earnings, non-residents and new residents who have been in the country for less than 12 months will only pay income on their Colombian earnings. The capital gains tax system is a lot more straightforward than that in the UK, with Colombian residents effectively placing any capital gains tax in the same bracket as their Colombian income and paying the appropriate level of taxation.
Corporation tax in Colombia is a flat 33% although there are various “free trade zones” where a tax rate of 15% is applicable. There are also various other taxes such as stamp duty tax, property tax, dividend tax and interest deductions which will need to be taken into account when calculating your finances.
When moving overseas and attempting to appreciate the cost of living in your new homeland, it is vital that you make contact with various expat communities in the region. While it is very easy to read the figures from the Internet, from books and from other literature nothing is ever constant in the world of finance and you need to appreciate the subtle changes and differences when you actually land in Colombia. It will save potentially weeks and months of time if you’re able to make contact with those who have been there and done it.
Whoever thought we’d be looking towards Colombia as a potential destination for expats around the world, especially with the country’s reputation for crime, corruption and economic instability. However, as we see with so many South American economies of today, the difference between the Colombia of today and the Colombia of 20 years ago is enormous. The government has dramatically changed the economy over a very short period of time by introducing regulations and security which has improved the confidence of overseas investors who are now happy to plough money into the country and help to grow the Colombian economy.
Also, the influx of foreign investment has prompted many expats to look towards Colombia as a potential new home for the future which only 10 or 20 years ago would have been something which few people would have considered. The living costs of Colombia are relatively low compared to other developed countries around the world and while this could change in due course, as the economy continues to grow, at this moment in time Colombia has many things going for it.
The property market is also worth mentioning because it has remained very strong throughout the worldwide economic downturn and the damaging credit crunch. This in itself perfectly illustrates the new Colombia and the new Colombian economy which has been able to overcome the worldwide economic downturn and still boast double-digit property value growth during 2009. There are few, if any, other property markets around the world which come anywhere near the Colombian property market at this moment in time!
Caution must be a watchword for any South American economy but there is no doubt that Colombia has more positive signals emanating from within than negative vibes.