Gustavo Salazar is confident that his dream of having his own home will now come true. He says that last December the apartment for which he had waited so long was ready, but when he did not obtain the state subsidy for which he had applied, he saw how his hopes got out of hand. “I got really sick,” he says.
Now the longing is back. The construction firm where he had initially reserved a place offered him space on a new project that should be ready in a few months. For this reason he aspires to get government support. “I knew there are resources now and I think I qualify to become a homeowner,” he says.
The hope of this 41-year-old from Bogotá is shared by the different actors in a sector that is going through a difficult time. A few days ago, a report from La Galería Inmobiliaria —a specialized firm that keeps track of the activity— said that In the first half of 2023, new homes sold in the country fell 61 percent compared to the same period last year.
In absolute numbers, the drop is more impressive: from 121,036 units 12 months ago to 46,897 units now. And if the focus is placed only on the segment of social interest —those homes whose value does not exceed 150 monthly minimum wages in the largest capitals—, the decrease is 69 percent, that is, less than a third of the 85,646 units accounted for in the first half of 2022.
Such data seems counterintuitive when compared with what is seen in many urban areas, where a great deal of construction activity persists, both for houses and apartment buildings. But what is now in the process of being finished corresponds to what was negotiated a year or two ago.
So where is the twisted one? The answer is that the cited statistics refer to those who set aside a unit in a project that is barely in plans, not to the deed of the finished property.
That initial interest —backed with money— determines the evolution of the ventures and their subsequent execution. When, once the rigorous filters have been carried out and the initial installments have been received, a certain proportion of buyers is reached, it is possible to affirm that the equilibrium point has been reached.
Reaching the milestone allows the builder to obtain the financing required to return to reality what until then shows a series of models. But above all, it is a way of minimizing the risk for the different actors, by combining their efforts.
Change of model?
In practice, such is the scheme that has been operating in Colombia after the ravages left by the crisis at the end of the last century. Starting the real estate journey with almost all the positions occupied avoids future headaches. Even if the vehicle cancels the trip by not placing the required number of tickets, people recover their money, a rule placed in a trust.
The important thing, of course, is to ensure a high number of potential customers where the profit margin is relatively lower, such as public housing. That is what ended up happening in the middle of the last decade, once a series of official aids were created in order to give the economy a hand.
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As is well known, the building activity incorporates a good number of chains. Apart from solving the problem of homelessness and being essential for social stability, construction generates employment and promotes multiple branches of industry, from cement to finishes.
For this reason, when the country entered a path of low growth, the authorities’ response focused on supporting that sector in which each peso of the national budget spent had a high multiplier. The objective —in simple terms— was to partially dismantle the two biggest obstacles that any citizen who wants to get a roof encounters: getting the down payment and being able to pay the mortgage loan monthly payment.
Without the need to go into a detailed description of what was done, it is enough to point out that these purposes are ensured by the Mi Casa Ya program, aimed at people with incomes of less than four minimum monthly wages. This not only puts a good part of the first payment —which must be at least 30 percent of the value of the home—, but also substantially lowers the interest, which makes the installments cheaper.
Both the final confluence of a significant number of subsidies, together with circumstances such as low inflation that translated into lower financial costs, household funds that will be able to save in confinement and a booming economy made the months of the pandemic until the beginning of last year extraordinary events for housing sales in Colombia. Within a total that came to exceed 250,000 units per year, the VIS category managed to have a portion close to 70 percent of the pie.
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But just as the stars were aligned at a given moment, they would also end up being disordered. The increase in inflation and the blows of the war in Ukraine caused construction materials to rise a lot, something that was helped by the devaluation of the peso against the dollar in the second part of 2022.
This circumstance not only narrowed the builders’ margins, but eventually began to show up in the price of finished units. As if that were not enough, the shortage affected the purchasing power of families, thereby reducing the spending capacity of many.
This first shock of inputs and disposable income is followed by the policy of interest rate hikes promoted by the Banco de la República, in order to contain increases in the family basket. A higher cost of financing reduces the room to take on debt and also hurts builders.
A third element ended up being uncertainty about the Mi Casa Ya program. After the arrival of Gustavo Petro to power, a modification to the criteria was announced so that the reason for projecting was not the order of arrival for those who met the minimum established conditions, but the location in the Sisbén.
What they brought back was to focus public money on those most in need and prevent support from benefiting those who did not deserve it. The problem is that the new rules of the game took time to be understood. To the above it was added that the subsidy plan was underfunded and will still remain to cover a remnant from last year.
Other factors ended up entering the equation, including the loss of consumer confidence and the slowdown in the economy itself. The combination of these elements is expressed in the fact that the appetite for housing has decreased significantly, as confirmed by a study by three researchers from the Financial Stability Department of Banco de la República.
In summary, The problems facing housing in Colombia have to do with both the supply and the demand for new units. There is no single culprit in the situation, but rather a confluence of events and policy failures that have caught the activity in a vicious circle.
Unless there is a quick turnaround, major trouble seems to be just around the corner. Lower sales levels like the current ones imply that fewer projects will reach the break-even point, with which the initiation of works will be reduced and the domino effect will begin to affect employment and the industry.
That things are not looking good is something that can be seen from now on. The categories of cement and concrete show setbacks so far this year, while the number of employed persons in construction fell by 82,000 people in May, according to Dane. For their part, licenses for housing construction in April reached 1.2 million square meters, 40 percent less than in the same month of 2022.
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Similarly, rumors of small and medium-sized building firms in trouble are increasing. Although the quality of the portfolio in the homebuilder segment has not yet shown a significant deterioration, the alarm bells are ringing. So far, the banks have been flexible and made extensions, but they remain uneasy about what may come.
One of the points that causes anxiety is the new subsidy scheme that involves social interest housing. If before the arrival of government support was something considered an administrative process with little mystery, now the matter is more complex, among other things because it requires works that are almost finished.
As one banker points out, «a source of certain payment, which made many people qualify for a mortgage loan, is over.» That is the reason why an alternative mechanism has been proposed to the Government that allows the beneficiaries to be identified from the beginning.
Consulted in this regard, the Minister of Housing, Catalina Velasco, points out that the outlook for popular home buyers is positive. The reason is not only that this year there are resources for 75,000 subsidies, including the 23,000 that come from 2022, but also that the Development Plan guarantees 50,000 a year until 2026.
For its part, a major builder maintains that «we have already hit rock bottom.» According to his vision, to the extent that inflation begins to drop faster, the Banco de la República should reduce the cost of its funds and that will make home financing more affordable. Eventually the cycle will be bullish again and the troubles of now can be forgotten.
However, although the wind will one day blow a favor, the point is to do whatever it takes to get that started sooner rather than later. In this sense, it is definitive to “build trust between the public and private sectors”, according to the president of Camacol, Guillermo Herrera. This evident has deteriorated due to the economic squeeze and resentment on both sides.
Otherwise everyone will lose. On the government side, it will be impossible to meet the goal set to start the construction of one million homes in the current four-year period, something that requires multiple instruments to operate harmoniously, with a little more pragmatism and a little less ideology.
In turn, the private sector faces the risk of considerable losses that could lead to the rupture of the weakest links in the chain: the relatively smaller companies that operate in the regions. It would be a great contradiction for the present administration if the activity ends up being more concentrated in a few builders and the level of competition has already decreased.
But, above all, the biggest victims would be Colombian homes. The figures show that the housing deficit is very high and that it will tend to increase faster if the conditions for a good supply of houses and apartments do not exist.along with vigorous demand from many potential buyers.
Only in this way can the pothole of recent months be short-lived. This demands what a work destined to last a long time requires: good foundations and multiple hands that do the job in a coordinated way, so that dreams like Gustavo Salazar’s and his own house end up becoming a reality for the majority.
Special for EL TIEMPO
On Twitter: @ravilapinto