This content is from: Local Insights

Family housing subsidies applied to Colombian leasing agreements

Francisco UribeJulián Hurtado

In furtherance of the Colombian government's plan to construct one million housing units for low-income families with an investment of approximately COP$6.8 billion (US$3.5 billion), the Government issued Decree 391 of February 16 2012 to regulate the possibility to apply family housing subsidies (FHS) to leasing agreements for housing purchases.

In Colombia, 1.5 million families do not own a home and, according to the government, the number is growing annually by 250,000. Pursuant to the government's plan, this new applicability of the FHS mechanism will provide 16 million people with the possibility to purchase their own home. Accordingly, in the first trimester of the year, plans for the construction of housing solutions for low income families increased by approximately 72%.

The FHS will be awarded to families that have successfully applied for FHS subsidies from the relevant governmental entities, which must approve the grant of the FHS subsidy. Additionally, the relevant beneficiary family must executed a lease agreement with a financial institution authorised to provide FHS services by Colombia's Financial Superintendence. In order to provide FHS services, financial institutions must enter into collaboration agreements with the government entity that will provide the FHS.

According to the Decree, the FHS will be applied to either reduce the rent paid by the family under the relevant lease agreement, or the value of the purchase option contained in such lease agreement (if applicable). In general, the awarded FHS will have a 12 month-term that may be extended for an additional 12 months.

Regarding the funding of the mechanism, the Decree sets forth that the government entity that awards the FHS should transfer the FHS' funds to the financial entity with which the family executed the lease agreement but only with the authorisation of the beneficiary family and only when the execution of the lease agreement has been proven and the family has taken up residence in the relevant housing unit.

In the event that the beneficiary family chooses to apply the FHS to the value of a purchase option in a lease agreement, the transfer shall be made for the exact value of the option, except when the option value exceeds the value of the FHS.

The correct implementation of this mechanism would represent a change of paradigm regarding the use of FHS, and the interest of private investors in projects for the construction of housing solutions for low-income families.

Francisco Uribe and Julián Hurtado

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