In the real estate world, changes often come without warning, and currently, Colombia is no exception. Tough times have come to the rental market, leaving landlords and tenants facing unprecedented challenges.
In this post, we will closely explore the complex and changing reality of rentals in Colombia, analyzing the reasons behind this situation and examining how it impacts people’s lives.
The increase in default rates, the median balance of obligations, the inflation that we are experiencing worldwide… These are just some of the concerns that are being seen today.
What we are observing in the rental market in Colombia
The immediate concern is the sudden rise in default rates, which skyrocketed to 22.3% in August 2023, marking an alarming 41% increase compared to July of that same year.
But this is not an isolated problem. In a long-term analysis, we find a staggering 278% annual increase in the default rate compared to August 2022.
Beyond the numbers, a silent crisis is taking shape in the rental market. The median liability balance has seen a staggering 124% growth since January 2022, suggesting a growing financial burden for tenants. Although monthly payments have increased, their proportion with respect to the total balance of obligations has decreased significantly, from 9.4% to 6.7%.
Additionally, monthly rents have seen a 22% increase since January, adding even more pressure on renters.
In this challenging scenario, it is crucial to understand the causes behind these numbers and how they are affecting both homeowners and renters in Colombia. Join us in this exploration of the crisis in the rental market and discover the implications that this trend has for the future of the real estate sector.
Why traditional approaches fall short in this high-risk and unstable situation
Despite the difficult times facing the rental market in Colombia, traditional credit scores have not shown a clear downward trend, raising incisive questions about their effectiveness and relevance today.
One of the most notable problems lies in the lack of vision of these scores. As risks in the rental market grow steadily, credit scores remain relatively stable, raising questions about their ability to adequately capture emerging challenges.
Another problematic aspect is the over-reliance on simplistic rules. Many companies rely solely on credit scores and rent-to-income ratios to make leasing decisions. However, these measures may be blind to the complex patterns that are now emerging in the market. The reality is that people’s financial situations are more diverse and nuanced than these simple indicators can reflect.
How SRS and the power of machine learning can augment traditional risk policies
The SRS algorithm has been meticulously designed to address and understand the complex patterns that emerge in the dynamic residential rental market. The changing nature of this market demands innovative approaches that go beyond the limitations of traditional credit and solvency assessment methodologies.
SRS stands out for its ability to analyze in depth and precision trends and relationships that often go unnoticed by conventional approaches. This algorithm draws on a rich source of data that includes updated information from thousands of rental contracts in Colombia. Not content to evaluate superficial indicators, SRS delves into the very fabric of the market, identifying significant patterns.
The true strength of SRS lies in its sophistication, leveraging artificial intelligence and machine learning to incorporate hundreds of complex rules that capture subtle and meaningful relationships in the rental market. These rules constantly adapt and evolve as new data is processed, allowing SRS to dynamically adjust to emerging patterns.
In summary, SRS represents a revolution in risk assessment in the rental market. By relying on up-to-date data and applying complex machine learning-driven rules, this algorithm not only improves decision accuracy but also offers a smarter, more adaptable approach in an ever-evolving market. Unlike conventional methods that stay on the surface, SRS dives into the torrent of data to provide an accurate and up-to-date view of the situation.
Real world impact: a case study
A testimonial from one of our clients demonstrates the tangible value of using our SRS, in conjunction with traditional policies. This client, who used both methodologies to evaluate rental applications, came to us with a disturbing observation: the number of application rejections was increasing markedly. While his traditional policy indicated that applications were appropriate, SRS consistently recommended rejection due to significantly high risk.
This scenario generated deep initial concern, since both methodologies seemed to contradict each other. However, upon closer analysis, we revealed the true essence of SRS’s power. This algorithm was detecting complex and subtle patterns in the data, patterns that were invisible to traditional policies. These patterns pointed to clear and growing risks in leasing applications that might have otherwise gone unnoticed.
Following SRS recommendations, our client made the decision to reject applications that had been previously approved under his traditional policy. Although this initially seemed like an unusual step, it turned out to be the right choice. By heeding SRS alerts, the client is avoiding potentially massive financial losses that could have materialized if they had ignored the underlying risks.
This testimony convincingly illustrates how SRS not only complements, but also significantly enhances risk assessment strategies in the rental market. By leveraging machine learning and complex rules, SRS stands out as an essential tool to protect financial interests and stability in an ever-changing market.
Conclusion
At this crucial moment in the residential rental market in Colombia, it is clear that traditional metrics are missing complex risks that could have serious financial consequences. However, amidst the uncertainty, our innovative solution, the SRS algorithm, emerges as a reliable, data-driven tool that can revitalize traditional risk assessment policies.
SRS not only adapts to current times, but also anticipates coming challenges by detecting complex patterns and risks that escape conventional vision. This technology represents an essential safety net in a volatile and changing market.
The conclusion is clear: don’t wait until it’s too late. Integrating SRS into your risk assessment strategy is a critical decision to protect your business against looming financial risks in the residential rental market. Today, more than ever, it is essential to take proactive measures to ensure the strength and stability of your business in a constantly evolving market.