Enhancing Social Housing and Financial Inclusion
Social housing and financial inclusion have been two of the most pressing issues for the Colombian government during the last 20 years. Lack of resources, issues with the allocation of risks, problems with the generation of land for the purpose of social projects, an informal economy that is neither taxed nor monitored by any form of government, and high costs of financial services are just some of the causes of the current situation with regard to the qualitative and quantitative social housing deficit.
As part of President Ivan Duque’s government plan, both the Ministry of Finance and Public Credit and the Housing Ministry, issued the Decree 2413 [1] on December 24, 2018. Through this, they established the conditions for the implementation of the lease contract with or without purchase option system, or so called, “Semillero de Propietarios.”
Here, we will present some of the more important points of the new policy [2] and how it will help address the issues mentioned earlier, along with the idea of private investors in these projects.
Objective
The decrees mentioned above intended to articulate both the lease contract with or without purchase option and the family housing allowance in order to grant citizens, with income lower than two current legal monthly minimum wages [3] (or USD 504 approximately), access to a social housing solution.
How It Works
The beneficiaries of the program will choose a housing solution and will sign a lease agreement with or without purchase option. The term of the lease will be 24 months.
In case the lease agreement does not include a purchase option, the contract will be ruled only by the lease agreement provisions and any sum of money will be paid as rent. In those cases that include a purchase option, each payment will be divided as follows: (i) a part will be used to comply with the stipulations of the lease agreement; (ii) the rest of it will be channelled through financial entities in order to enhance both the inclusion of the beneficiaries (considering that most of them do not have any financial service) and educate more citizens about the importance of saving for the future.
According to the financial analysis, after 24 months, the family will have enough money to pay the initial fee to buy the house they have been living in.
Considering the allowance, the government will also contribute a maximum amount of money quivalent to around 180 USD. This allowance makes part of the consideration under the lease contract.
Program Goals
According to the government’s projections, in 2019 alone, this program will assign almost 40,000 subsidies. During the four years of the presidency of Ivan Duque, more than 200,000 subsidies are projected to be assigned.
Opportunities for the Private Sector
After a thorough analysis of the provisions related to “Semillero de Propietarios,” it is evident that there are two big opportunities for the private sector – national and foreign – to participate:
- Operator of housing projects. According to the legal framework, for this program to work, an operator” for the social housing project is required. Within its duties are the following:
(a) receive, analyze and assess the initial information delivered by the applicant to the program [4]; (b) choose, between the applicants, the beneficiary of each of the housing solutions that are art of specific projects, according to the analysis mentioned above; and (c) develop all the activities required for both the signature of the lease contract – and the fulfilment of the obligations that will arise from it – and the recognition of the allowance by the Colombian overnment.
Considering the special conditions of this “operator” and how new the system is, the experience of operators of social housing projects in other jurisdictions will offer an advantage over those recently incorporated for this purpose. - Private investors in real estate projects. Perhaps the most innovative element necessary for this program to work is the involvement of the private sector not only as builders, but also as financers of the real estate projects. Until now, construction companies in Colombia were accustomed to build-to- sell. Nevertheless, in this scheme, they will build to lease, with an expectation of selling the housing solutions after the 24-month period of the lease. This new scenario presents challenges in fields like: (a) financial sector loans; (b) allocation of risk – occupation of the projects; and (c) inventories.
Considering that in some cases, the new rules arguably imply a shift in the construction ompanies’ activities, professional investors in real estate projects will be welcome not only for their experience, but also for the knowledge they have acquired in how to handle the risk linked with a lease project like the one the Colombian government wants to implement.
Program Challenges
During the process of discussion with the private sector, there were two main concerns regarding the proposed program:
- Time frame to show results. While the government invited the private sector to make their rojects eligible for “Semillero de Propietarios” in April 2019, the program was launched on May 7, 2019, with 170 housing solutions located in Bogotá.
Although the Housing Ministry expects to show results as quickly as possible, it is expected that the ig part of government allowances will be allocated 18 months after the program was launched. As happens in other jurisdictions, it is not common for private builders to have an inventory large enough to make a real difference regarding the allocation of allowances. In this sense, in almost 30 months, we will have enough information to assess if the program is fulfilling its objectives. - When talking about a lease contract and the consequences of its termination, Colombian egislation does not include a mechanism fast enough to defend the lessor’s rights regarding getting back the tenure of the housing solution. To address this point, congress just approved a piece of legislation as part of the national development plan, that creates a new procedure. Now, when the lease contract is terminated, the lessor can get back the tenure of the housing solution for a maximum of six months. Once again, effectiveness of this initiative will only be measured after the lease contract expires in 30 months.
As explained, “Semillero de Propietarios” can be seen as an innovative way to address some of the hallenges the Colombian government faces in developing, funding and allocating social ousing. Nevertheless, as result of its structure, assessment of its effectiveness will only be possible after 2021.
Notas al pie
3. minvivienda.gov.co/viceministerios/viceministerio-de- vivienda/programas/semillero-de-propietarios
4. semillerodepropietarios.com.co/Formulario/
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