Stopping subsidies from Mi Casa would already increase cases of insolvency of construction companies

The announcement made this week to stop the allocation of new housing subsidies from the Mi Casa Ya program could trigger the number of insolvency applications from companies in the construction sector.

(Read: Are the Mi Casa Ya housing subsidies over? Government suspends its allocation).

And this decision not only affects more than forty thousand families who were waiting for the subsidy to be able to have their own home, but it would also put in check dozens of construction companies that are carrying out housing projects, and it gives a blow to others that were coming. already in difficulties.

According to figures, During 2024, the number of construction companies in insolvency proceedings grew by nearly 20%, exceeding 540, which constitutes another historical record for the sector. Hence the fear that the elimination of subsidies could increase the number of bankrupt construction companies and destroy a significant number of jobs.

For Fernando Bustos, an expert in insolvency and business recovery processes, the brake on the allocation of subsidies directly impacts the business fabric and could destroy hundreds of companies and thousands of jobs.

(Read: Compensation funds, firm with housing subsidies despite the suspension of Mi Casa Ya).

“On the one hand, families lose, of course; but jobs and the business fabric will be affected. The direct impact will be on the construction sector, which was already going through great difficulties. The country has been recording record numbers of bankrupt construction companies, and the largest drop in demand for housing units, which has lost almost 15 years of growth. The labor-intensive construction sector had already lost more than 50,000 jobs so far this year, a number that will surely grow with the elimination of subsidies.said the expert.

Bustos explains that currently hundreds of housing construction projects are stopped due to financial difficulties, mainly due to the increase in the costs of materials and salaries, observed steadily in recent years.

“Construction companies promote their projects and agree on sales prices during preconstruction, around three years before finishing the project. Increases in material costs, financial costs and salaries have prevented housing units from being built and sold at the initially agreed price; This is the reason why hundreds of projects, throughout the country, have been left half-built. Although construction companies have been looking for alternatives, renegotiating with banks and financiers, the projects remain on hold. Even if the financial difficulties are resolved, if there are no programs that stimulate demand, the housing units will not be sold, and the costs and interests will end up consuming the projects again, causing the definitive loss of projects already advanced..

For Bustos, more construction companies will end up insolvent, due to the reduction in demand for housing caused by the elimination of subsidies. “Both construction companies that were in difficulties, as well as those that have completed their projects satisfactorily, will be affected, since, in most cases, the projects are financed with bank loans, whose interest is incurred and must be attended to in a timely manner. “With the loss of subsidies, the projects will take much longer to sell and they will have to assume interest that is normally equivalent to the value of one or two apartments monthly.”.

(Also: Are the Mi Casa Ya housing subsidies over? Government suspends its allocation).

Bustos explains that on the other hand there is the problem of withdrawals: since it is not possible to build and sell the housing units at the initially agreed price, buyers who have already contributed resources for the purchase of their home will end up in a withdrawn contractual relationship, which can generate fines and additional cost overruns for the construction company, aggravating the situation and increasing the risk of bankruptcy.

What can construction companies do?

“No viable business should be lost. Business reorganization processes are powerful and effective tools that companies of all sizes have to face the crisis, renegotiate their obligations and reformulate their businesses to regain financial balance. Currently, construction companies have alternatives and special provisions within the insolvency processes, designed so that they can continue the development of their businesses, reorganize their liabilities and overcome the crisis, preserving autonomy in decision-making and the administration of assets. business. It is necessary for companies to obtain advice and have a thorough understanding of the alternatives, which protect them from collection or execution demands, while they find alternatives and negotiate with their financiers and buyers. Time is key. The early start of negotiations reduces costs and offers greater possibilities of recovery for the company.”he concluded.