The whole discussion about prices and gentrification has evolved over the past few months and it has gained political interest. We can see that the Medellinenses are getting quite concerned about the prices on rents and other goods in the market. The discussion is getting barbaric, with locals shouting “Gringos go home” and expats responding “It is the market’s Law”. Both parties are getting more and more separated. Which is causing more and more disputes. In this article, we will talk about what the Colombian Legal System has to say about prices, with the hope to make the discussion a little bit more informed.
It is important to notice that there has been a convergence of internal and external factors that have risen the real estate prices to a point where you can see some prices higher than those in Miami.
Some factors are:
We think that the topic is worth an honest discussion. The goals with the discussion is to form more informed position, so populistic ideas don’t get spread and get grabbed by any opportunistic politician to promote retrograde laws and regulations.
First, what are Gringo Prices? There is not a formal definition, but you know it when you see it. For example, $30.000 COP for a bottle of water. A $12,000 COP lemonade. A $8,000,000 COP lease agreement for a 60m2 apartment in Conquistadores. A $70,000 COP hamburger. A $1,400,000,000 COP property for sale in Envigado, which is only 75 m2. Those are gringo prices.
One could say it is the free market or the “invisible hand”. But when does this free market behaviour degenerates to gringo prices?
Gringo prices can be defined as the extraordinarily high monetary values asked in exchange of services or products by (inescrupolous) locals to people who:
a) do not speak spanish as their mother tongue;
b) have a foreign accent;
c) have obvious non-andean or caribbean phenotypical features such as blue eyes, blond hair, tall, white skin, etc;
d) wear sandals and short pants.
The phenomena is easily viewed pretty much everywhere in the world. From Miami to Cape Town, from Berlin to Seoul. Some refer to it as the “tourist trap”.
Regardless of the context, gringo prices are the place you really don’t want to go, in case you want to preserve your finance’s health and self-esteem.
In the case of day to day activities, the common sense is what will keep you out the tourist trap. Getting informed, asking in the local facebook groups, having a local friend and learning the language will get you a long way. For more pricey operations, knowing the appliable rules will get you a support when negotiating.
Colombian Law, as most liberal, Napoleonic-influenced systems is based on the principle of free will of the contractors. That is, both parties have a big freedom to determine whatever they want, with a few limitations. This principle is written on article __ of the Colombian Civil Code. The most important limitations that we will discuss in this article are those set when renting and buying a house.
Let’s start with three definitions so we can be aligned in this explanation:
Price: The price is the monetary value agreed upon between parties of a sale contract. A price is only to be seen in the conext of a sale agreement and it is negotiable by definition. It is not to be confused with fines, taxes, penalties, official fees or other monetary values in the context of a relationship with the government.
Real property: Referred in the Colombian legal system as “bienes inmuebles” (immovable assets), is the kind of property that can not be moved from one place to another. Specifically, **is the land owned by a person or numerous persons, and includes its improvements and fixtures, such as buildings, machinery, wells, dams, ponds, mines, canals, roads, etc. Examples of such include appartments, houses, fincas, warehouses, parking lots, graveyard places, business premises, offices, etc.
Personal property: Referred in the Colombian legal system as “bienes muebles” (movable property), is property that can be moved from one place to another. Within this category, there’s another subclasification in tangible and intangible goods. Tangible goods are those that can be touched or felt, like a chair, a car, a dress, a cup and so on. Intangible goods are those that can not be touched or felt, specially rights against third parties (credits), intellectual property, securities, and so on.
When it comes to hiring services, as a general rule there’s not a limit on the price. Hence, you are left alone to negotiate the price. As in any free market, one of the best negotiation strategies consist in taking three (3) quotations or estimates from three different service providers and comparing their pros and cons to choose the best deal.
Remember that this type of contract does not involve the transfer of ownership rights and can be born to legal life both written and orally. This is why a lease agreement can be done by shaking hands, but is not advisable at all, because in the event of contract breach, it will be quite hard to prove the terms upon which the contract was agreed.
So in this case, if you are willing to hire a cleaning service, a consultant, an accountant or even a lawyer, the best way to get the best deal is to compare different offers.
In the case of goods sales and purchase, there are also no specific limitations. What the law does provide, and what you should care about, is about the legal warranties. The legal warranties are incorporated to our legal system through the Consumer’s Statute. This estatute provides that when you are purchasing goods from a retailer, it needs to meet basic security and quality standards. If you buy an item that comes from a retailer, and has factory defects, you can appeal to the rights contained in the articles 7 to 18 of said law.
The way to do so is to talk directly with the retailer. This is a procedural requirement in order to appeal to the Law. If you don’t get a satisfactory answer, the authority who can help you better is the Superintendencia de Industria y Comercio at the Dirección de Protección al consumidor.
Notice that we are going to refer to mid and long term rents, this will not be applicable to airbnbs, hotels and hostels, since these operations are subject to the Unified Regulatory Decree of the Tourism sector.
The rules we are going to refer to are those contained in the Law 820 de 2003. This Law constitutes the legal frame for urban rentals.
On its 18th article, this norm provides that the monthly value of the rent can not be set higher than 1% of the commercial value of the property. The commercial value of the property can not be more than double of the cadastral value.
When buying or selling a house, the Colombian Civil Code includes a legal sanction when the price is too low or too high. Such sanction is to be found on article 1947 of said Code, and is called “lesion enorme”. Unfortunately, I haven’t found yet a good translation or equivalent term in english or in common law systems.
The “lesion enorme” is a civil sanction that applies when a seller sells for less than half of the “fair price” of the estate. Or when the purchaser purchases for more than twice the “fair price” of the estate. This is a cause of termination of the contract, with all its consequences.
The “fair price” is a pretty vague and ambigous concept, but it has been accepted as the commercial value of the property, as recognized by the Colombian Supreme Court in the case SC948-2022. Such commercial value is to be proven by any legal methods, but is preferred to have an appraisal by an official proficient valuator.
We can agree that having to pay 300% more for a beer at a certain fancy restaurant than in the supermarket, is something more comprehensible than having to pay more just because of your nationality, the color of your skin, accent or any other body features. It’s something that resembles a bit too much to plain racism.
Do not misinterpret me. There are very good reasons for locals to do so: The level of poverty and scarcity is nowhere to be seen in the first world countries; the lack of education, opportunities, jobs and infrastructure pushes a big chunk of the population to dispair and drama families that in a lot of cases end up in crime organizations, immoral businesses and so on.
Never had I thought I would be in the position to explain the immoral consequences of free market (and its benefits) to US citizens.
In my personal opinion, elevating the prices highly without a correspondent added value (speculation) might do more harm than good in the long run for the local economy, so there are a couple of “good-to-know” infos within the Colombian legal system regarding prices. Notice that these laws also protect you being a foreigner. It is not that you for beeing a foreigner do not have rights, or that locals have more rights than you. That is definitely not the case.
According to the Colombian Constitution, considering you have entered and stayed legally on the country, you have the same rights as the nationals.