How the exchange rate effects your Bogota real estate investment.

Falling Dollar

As the world economy was on the brink of collapse earlier this year, many world governments and large institutional investors sold off their investments in equities and other high risk financial instruments and flocked to what was at the time the world’s safest investment, U.S. Government-backed Treasury bonds. As more money flowed out of the world’s stock markets and into these bonds, the strength of the U.S. dollar climed to 5-year highs versus many of the world’s currencies. For example, on March 5, 2009 the exchange rate between the Colombian Peso and the U.S. Dollar was 2,611 to 1.

Most investors knew that this quick rise in the value of the U.S. Dollar was fueled mostly by fear and would eventually retreat once the world economy recovered and investors looked to sell their U.S. Treasuries and reinvest in more high-yielding investments. The global economy has shown signs of improvement since then and investors have reentered the world markets and, as predicted, the value of the Dollar has fallen sharly as a result.

Colombian Pesos

What does this mean for those considering investing in real estate in Colombia? Let’s say for example that an astute investor realized that the exchange rate between the two countries was artificially high in early March and invested $100,000 in a Bogota apartment. On March 5, that $100,000 could have purchased an apartment worth roughly 261,000,000 Colombian Pesos. If that same investor decided today that he no longer wanted that apartment in Bogota (and I have no idea why anyone would decide that) and would be willing to sell it for exactly what he paid for it 6 months ago, that wouldn’t have been a good investment, right? Actually, even though this investor would not have realized any gains in the value of his property, 261,000,000 pesos is worth, at today’s official exchange rate $127,069. That’s a 27% return in 6 months. Not too shabby.

This example shows the importance of the currency exchange rate and why it should be a major factor in determining whether or not to buy real estate in Colombia. I use Yahoo Finance to track the daily changes in the USD/COP exchange rate.

This was a post from a previous blog of mine written a couple of months ago when the exchange rate was still about 2,000 to 1. Since then, the has Dollar declined even more, but has risen in the past several days. One thing is for certain. The Uribe Administration seems dedicated to keeping the Peso from gaining much more ground on the Dollar.