Bogotá — The year 2023 has not been the best for housing sales in Colombia so far; in fact, the low results reported have set off alarm bells in the real estate sector, and also in the wider economy, due to the effects that its collapse could bring.
Figures from Coordenada Urbana, from the Colombian Chamber of Construction (Camacol), show that in the first two months of 2023, housing sales totaled 23,100 units, a contraction of 53% compared to the same period of 2022.
The drop in house sales has set alarm bells ringing, as the construction sector is one of the largest generators of jobs in the country, and which makes its good performance key to achieving success in other indices, such as unemployment and household consumption.
In addition, the construction sector is the sixth-most important economic sector in Colombia, representing 5.1% of the country’s GDP.
What explains the drop in house sales in Colombia?
There are at least three main reasons for the drop in house sales in the country, according to explained analyst Sergio Segura:
- The increase in interest rates that make it more expensive to get into debt in general terms and for the purchase of housing
- Consumer confidence is at the lowest levels observed during the pandemic due to the economic and political uncertainty in the country
- A lower state stimulus to homebuyers through subsidies
However, Daniel Vásquez, former president of Fedelonjas, commented that the decrease in housing sales has been occurring since the second half of 2022 as a result of a series of internal and external factors. In the latter, it is worth mentioning that the increase in interest rates, inflation, and exchange rate volatility, and the increase in the price of raw materials, among other reasons, have impacted the sector.
A month ago, the president of Camacol, Guillermo Herrera, said: “the outlook for housing in Colombia, as of February 2023, shows strong signs of deceleration, and there are warning signs that must be addressed in a timely manner”.
Herrera mentioned that “the only way to put the brakes on these alerts is for the private sector and the government to work together to ensure that, through the budgetary addition law, the 3.3 trillion pesos ($743 million) are guaranteed to meet the ‘Mi Casa Ya’ subsidies program that is pending, and the amount projected for the remainder of the year”.
with the entry of the new government in 2022, changes were made to the ‘Mi Casa Ya’ subsidy program, to which previously those earning less than 4 million pesos ($900) per month could apply, but since this year the rules of the game have changed, modifying the criteria for those eligible to access state support.
According to Minvivienda, those households classified between subgroups A1 and C8 will receive a down payment subsidy equivalent to 30 minimum wages, and households between C9 and D20 will be granted a subsidy equivalent to 20 minimum wages.
How can Colombia revive housing sales?
Ana Vera, chief economist of IN ON Capital, told Bloomberg Línea that it is very important “to maintain the aid and subsidies that the government has been giving in terms of housing”.
From Daniel Vásquez’s point of view, “in terms of public policies that can be developed by any government in power, it is evident that the analysis must be disaggregated between new and used housing. On the one hand, it is essential to maintain the subsidy programs that the new housing industry has been developing, but in the case of second-hand property transactions, for several years now the consideration of establishing incentives for the purchase of this type of housing has been proposed”.
On how to stimulate sales of used housing, Vasquez said that a series of conditions can be generated to alleviate the costs associated with this type of housing, as “in the case of the decrease in property taxes or deed values, and especially real estate transactions for purchases and sales of goods would also be interesting”.
For Sergio Segura, it is important to stimulate housing sales because the sector “plays a very important role in the economy by being a countercyclical resource in times of low growth”, such as that that Colombia will experience this year.
“It is important to remember that housing has a multiplier effect on the economy and stimulating the sector generates revenues. In 2008 and 2014 the Colombian government implemented successful housing programs that counteracted declines in economic growth”.
Some recommendations for homebuyers
Interest rates are high and credit will be more expensive now, which is something homebuyers must take into account. However, buyers could acquire a property and later negotiate better credit conditions in terms of rates and terms with another bank or financial entity.
For those who can wait, according to Vásquez, they could “use these months to begin to evaluate all the options that the market presents in both new and used housing to make decisions according to their budgets”.
“The most important thing in a home purchase is to first make an analysis of personal finances, determine what is the debt capacity you have, identify what is the best type of credit that suits your expectations, if it is in pesos, at a fixed installment or variable, and also determine the conditions of the property you want to inhabit, your needs, its location, among others,” he added.