In an interview with Portfolio, the president of IC Constructora, Rafael Álvarezshares your concerns about declining sales in the construction industry, especially in the VIS sector.
Due to this fall, the company has adjusted its business model to depend less on government subsidies and focus on customer segments that do not depend so much on them and providing credit alternatives.
(See: Lower the start of construction of VIS and non-VIS housing).
How have you seen the housing dynamics compared to previous years?
The results of sales in the country have presented drastic reductions. In the first quarter they fell 50% compared to the first quarter of 2022. This drop has been deeper in the Social Interest Housing (VIS) segment where there are very worrying cases such as Bogotá, where the drop in the month of March compared to with March of the previous year it was 72%, this is a great concern in the sector because the sales that are not made today will be fewer constructions that will be carried out tomorrow.
What factors influenced it?
Due to high interest rates. The credit capacity of our clients has been reduced, which has happened not only in this sector but in other industries such as the automotive industry.
And how have your sales been impacted?
Like the industry we have seen a drop in sales. The VIS segment is the most affected with a comparative reduction of between 30% and 35%.
Also, we have seen a decrease in launches due to the uncertainty that exists about the subsidies.
With this panorama, how do you prepare for the future?
What we are doing is recomposing a bit the projects and the customer segments to which they are directed.
We are not only in Bogotá, we are in Bucaramanga, in El Cafetero and on the Atlantic Coast, that is, in various parts of the country and let’s say that the problems in each of them are diverse.
So let’s say what we’re actually doing is tweaking the customer segmentation a little bit to reduce all of those effects that you mentioned.
(See: Households will have to report their income, according to the Development Plan).
What is the ‘adjust segments’ strategy about?
What we are doing is reducing the dependency of the projects on state subsidies.
That is a fundamental part of what we do. The VIS became very accustomed, in some parts of the country, to government subsidies.
So we attack segments 2 and 3 but that may not need subsidies or may not depend as much on State subsidies and we adjust the models so as not to depend on state subsidies for the financial closings of the projects.
That changes business models and blueprints for some projects.
How many projects were planned with subsidies? Will their participation in VIS decrease?
Yeah. But we are not saying that all the projects are going to be projects without subsidies, because clearly there is a sector of the population that needs help, or needs a state one or compensation funds. Finally, in that part of the clients we are maintaining the dependence on subsidies, but it will be a minority part of the client segment that we are attacking.
We do this by providing financial alternatives so that they can leave that dependence on subsidies with increasing quotas and with the help of third parties that can better handle credit realities.
(See: VIS homebuilders on edge if exemptions are removed.)
What would the segment cake look like?
Our cake is close to 50% VIS and 50% Non-Vis. Of 100% we want between 25% and 35% to be the clients who have a State subsidy and that the other clients have alternatives to finance their home.
What do you think about the changes in the Mi Casa Ya program? Could the new targeting have financial closure?
The compulsory nature of the Sisbén, and there are studies that show it, leaves out a significant number of people, who probably do require state aid.
In the 20 questions Sisbén asks, only one has to do with the income of the person who is enrolling.
There are studies that show that with this structure, 7% of potential clients who will surely be covered by the subsidy are left out, that is, the appearance of subsidies in the previous program is well done, it is an efficient protection of subsidies, so I think that putting so many conditions goes against
particularly the access of a large part of the population to decent housing.
In addition, we see this in the number of units that are yet to be notarized, that today there are about 35,000 to 40,000 units that are almost built without being able to notarize because it depends on a subsidy and people have already contributed the initial fee, that is, He already has all his savings committed and that has been a very important problem these last six months in which the Mi Casa Ya program has been basically suspended.
What is the sales goal for 2023?
Last year we had sales of $180,000 million. Our expectation is that this year we will be between $240,000 million and $250,000 million.
Today, this has a significant dependence on macroeconomic issues and the generation of subsidies, but particularly the most relevant issue at this time is macroeconomic, somewhat associated with interest rates, which we expect to begin to drop towards the last part of the year. .
Also for a year, costs have risen…
This beginning of the year we have been impacted by two fundamental costs. One has to do with concrete, which rose close to 18% nationwide, and two, labor, which rose with the minimum wage, and that has a brilliant impact.
It is true that the increases have been measured as the months go by, but it is also true that we continue with a cost structure for inputs that is much higher than usual.
In this way, entire projects that are being built from 2021 to 2023 have generated quite low returns.
We as builders have a certain level of flexibility, but there is a time when it is more important than anything else to fulfill our clients with the solutions and value promises that we made to them and we have had to generate low returns.
(See: Looking for housing? Find out the values of the subsidies for 2022).
What measures will you take to recover the margin?
We are being much more aggressive about break-even levels for construction, projected price increases in the business models we build have to be much more conservative.
However, a point is reached where the supply curves and begin to require crossing. Clearly, the prices at which the home is being sold mean that the segment of clients to which the project has been directed is probably reduced by 20% or 30%, and if we add the issue of interest rates, even worse.
How will this impact the economy?
There is a change in business models for builders, but I think that in the future we will have to live with an industry that is going to generate negative levels of growth and that is going to have an impact on GDP in the future when those constructions that today days are not being reduced will have to be done or will have to be postponed. It’s something that really worries the entire industry.
How much has the profitability of the projects fallen?
Two or three years ago there was a margin on sales between 10% and 11%. Today, the result of everything that happened is being reduced to 5% or 6%. That is, the effect is practically half the profitability. And the important thing about all this is that these businesses are long-term businesses, in which the change in conditions in a three-year scenario, which is the typical development time of a real estate project, can be dramatic.
He also spoke about a possible drop in demand between 20% and 30%. Is it already being seen?
Yeah. That is already happening. In the past there were years in which we sold close to 240,000 housing units a year, and now it is close to 190,000. The dynamics can significantly deteriorate if measures are not also taken by the Government. There is a good opportunity because the multipliers of the State’s investment in this industry can be 20 times, that is, for every $1 million, $20 million can be generated, which does irrigate the economy.
(See: All VIS subsidies for 2022 have already been allocated).
PAULA ANDREA GALEANO BALAGUERA