“Everyone remembers the famous story of the Titanic, the luxurious ship that sank on its maiden voyage from Southhampton, England to New York when it collided with an iceberg on the night of April 14, 1912. The drama begins with the famous warning from the deck lookout, ‘Iceberg in sight,’ at a moment when its tragic outcome was already imminent, despite previous cautionary signals from other ships that had alerted the captain to the danger on the route, which he had failed to modify in time.

This is how the construction sector in Colombia currently stands: with an iceberg in sight!

Despite previous warnings from its industry and many analysts, we find ourselves on the verge of a crisis, in this case, a crisis that is about to erupt due to a combination of events that I will now explain:”

1. High Interest Rates:

Elevated interest rates, artificially increased by the Board of the Bank of the Republic, are aimed at curbing inflation, which is approaching 13%. While this prescription is being applied worldwide after the Covid-19 pandemic, the initial result is the increased cost of credit. In the case of the construction sector, this removes a significant portion of potential buyers from the market due to a lack of sufficient income to afford the higher monthly installments.

2. Lack of Subsidies:

The current government’s oversight led to the failure to allocate a budget for housing subsidies in the general budget for this year. This has resulted in declines in apartment sales.

It’s worth noting that, albeit belatedly, Minister of Housing Catalina Velazco has reacted and obtained additional funding that is now entering the market.

3. New Registration with SISBEN (System for Identifying Potential Beneficiaries of Social Programs):**

The new government under Gustavo Petro, in its early stages, added an additional step for homebuyers, which involves registering and qualifying with the SISBEN to access housing subsidies.

This resulted in many people who were already involved in the home buying process not meeting this new requirement, leading to a drop in sales.

The combination of these three factors is pushing construction companies into a deep crisis, especially in projects that were pre-sold and achieved financial closure one or two years ago, and are now in the final stages of completion and delivery. They are discovering that many of their buyers, despite initially being pre-qualified for subsidies and credit, no longer meet these requirements. This obliges the construction companies to compensate the buyers, refund the initial deposit, and leaves them unable to access the credit and subsidy, causing a severe liquidity crisis and an accumulation of inventory to resell.

This is why there is talk of the unusual term “negative home sales” in certain cities in Colombia.

Just like in the Titanic story, this situation could have been avoided if the government had acted in a timely manner.

Unfortunately, it’s already too late…

I estimate it will take one to two years to get out of this mess, during which we unfortunately have to expect several bankruptcies.