The importance of legal certainty in Real Estate Development

Andres Rodriguez,  August 1, 2024

Alegalis - According to GDP growth figures from the Bank of Guatemala, in 2023, the country’s real estate market activities experienced a growth of 4.2%. This demonstrates that real estate developers are indeed betting on investing in Guatemala, which is largely due to the existing legal certainty. This allows the confirmation of financial model projections and ensures that projects become a reality, along with other factors inherently related to the market.
A real estate project arises from an opportunity, in which planning is undertaken, which involves:

1. The first step is defining the property or plot to be developed;
2. The second step is conducting a market research and, based on this, defining the target market for our project, which will allow us to determine the type of project we are going to develop;
3. The third step is working on the building’s volumetry, which is basically determining what fits within it, in accordance with current regulations; and,
4. The fourth step is to properly create the financial model and, using its financial indicators, determine if the project is attractive for our group of investors or not.

The purpose of beginning this article by generally identifying the steps of planning, in order to determine if there is interest in developing a real estate project, is that the decision to develop it or not is up to the investors. However, if we lose legal certainty, Guatemala will cease to be an investment attraction pole for real estate development, and capital will move to other places where legal certainty does exist.
What is legal certainty? It could be conceptualized as knowing what to expect regarding the current regulation and the interpretative and supervisory actions or powers of the authorities called to ensure compliance. Therefore, legal certainty is intrinsically related to the PRINCIPLE OF LEGALITY, since citizens can do everything that the law does not prohibit; while public officials can only do what the law expressly empowers them to do.
Why do we see legal certainty at risk? Simply because, in many state institutions, authorities do not adhere to the times and procedures to avoid signing the resolutions that are their responsibility, especially when there are high-profile cases or political pressures. For public officials, the job should be simple: if the interested party has met the legal and technical requirements, they should obtain their permits. It does not matter if I don’t like it, if I don’t agree with the project, if some deputies call me to discuss the project, if some councilors question it; the only reason to reject a request is because it does not comply with the law.
The purpose of this article is to invite developers to submit complete files to the Institutions for a given authorization, adhering to the requirements; and, in case of an unfounded or unlawful refusal, to seek immediate advice, since every administrative act is subject to appeal, but there are deadlines for this.
Likewise, as a real estate guild, we must unite because there are cases that have become high-profile where certain institutions have blocked files. Regardless of the actions initiated by the developer, as a guild, we must express ourselves and formally reject such behavior because the next one could be one of us. How much money does real estate development generate? How many jobs does real estate development create? How many families have a new home each year? How many municipalities have benefited from real estate investment within them? Undoubtedly, the real estate guild has great strength; now it’s time to use it.

Andrés Rodríguez, Director of the Real Estate Development Department of Alegalis, specialist in the structuring, planning, development, commercialization, and liquidation of real estate projects of different land uses (residential, commercial, industrial and bone) talks with Latin Counsel regarding importance of legal certainty in real estate development.