We all remember the famous story of the Titanic, the luxurious ship that sank on its maiden voyage between Southampton, England, and New York after colliding with an iceberg on the night of April 14, 1912. The drama begins with the famous warning from the lookout, “Iceberg ahead!” at a time when its tragic fate was already inevitable, despite earlier precautionary signals from other ships warning the captain of the danger ahead, which he failed to act on in time.

This is where the construction sector in Colombia stands right now: An iceberg ahead!

Despite previous warnings from its industry and many analysts, we are facing a moment close to tragedy—a crisis about to explode as a result of a mix of events that I will now explain:

1. High interest rates:

   These have been artificially raised by the Central Bank’s board to control inflation, which is nearing 13%. While this approach is being applied worldwide after COVID, the immediate result is the increase in the cost of credit, which, for the construction sector, means removing a significant portion of potential buyers from the market due to the lack of sufficient income to afford higher monthly payments.

2. Lack of subsidies:

   The current government’s lack of foresight resulted in no budget allocation this year for housing subsidies, leading to a decline in apartment sales deals.

   It’s worth mentioning that, although belatedly, Minister of Housing Catalina Velazco has reacted and managed to secure some funding, which is now entering the market.

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

   In its early days, the government of Gustavo Petro introduced an additional step for buyers, requiring them to register with SISBEN to be eligible for housing subsidies.

   This led to many people, who were already in the process of purchasing homes, not qualifying under this new requirement, which consequently caused a drop in sales.

The combination of these three factors is leading construction companies into a deep crisis, especially in projects that were pre-sold and had secured financing a year or two ago. Now in the final stages of completion and/or delivery, these companies are being surprised to find that many of their buyers, who had been pre-qualified for subsidies and credit, no longer meet those requirements. This forces them to cancel the transactions, return the down payments, and lose access to both credit and subsidies, causing a liquidity crisis and accumulating unsold inventory.

That’s why we are now talking about the strange term of “negative housing sales” in certain cities in Colombia.

Much like the Titanic’s story, this could have been avoided if the government had acted in time.

Unfortunately, it’s too late now…

I estimate that it will take one to two years to get out of this mess, during which time, unfortunately, we will likely witness several bankruptcies…