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'Every peso invested in housing will generate three pesos in the economy'

Interview - May 29, 2015

Minister Henao talks to Business & Investment about the ambitious and social plans Colombia's government has in order to fight against poverty. Programs like "Mi Casa Ya" or "Vivienda Gratuita" will generate equality amongst the Colombian population.


First, I would like to tell you that although we have already seen the Secretary of State Holguín regarding foreign affairs, we would like to know your point of view on the next Summit of the Americas, which is going to be the first summit that will receive Cuba again, and how important is the fact that president Santos said there cannot be another summit without Cuba again.

That geopolitical context is a context exclusive to the Secretary of State. What I can tell you is that the international policy of Colombia is an open policy, it is a policy with which we want to stop being a country that is internationally isolated and with strong positions in order to become a mediator country, a country with a vision that makes both the internal and the external policies coherent. That vision is a vision of peace, and that peace must be achieved not only by solving the internal conflicts, but also by consolidating good relations with the borders and good commercial relations. I think that is what is going to happen in that Summit of the Americas. The United States has taken a huge step in order to begin working with Cuba and President Juan Manuel Santos has remarked that fact. That is essential for us because we have very stable relations; we have very important relations with both Cuba and the United States. Cuba has been a fundamental ally in the peace process and in the process of opening new markets to help the country-overcome inequality and poverty, to bring technology, to improve the healthcare system. I think this not only benefits Cuba and the United States, but the whole continent; so this is a very important step forward.

President Santos, who attended the Peace Forum in Madrid, stated that although he has always said that a ceasefire is the last step towards peace, all the necessary steps are being taken to reach a ceasefire. Therefore, I would like to know how important you think peace and justice are for Colombia.

To take the steps towards peace means to have a fortified army, to expand the social investments, to make 3.5 million Colombians get out of poverty and 2.6 million Colombians get out of extreme poverty, to be one of the countries with the highest rates of employment compared to the rest of Latin America, to increase the investments in infrastructure. Peace is not achieved by simply signing an agreement; it is achieved by laying the solid foundations over which a common objective may be established, and it’s also constitutional to have a peaceful country. When President Juan Manuel Santos began taking the steps towards peace, as a statesman and as an economist he knows that peace will increase Colombia’s GDP in two points, which will make us discover a new Colombia, rich in biodiversity, rich in hydrocarbon, rich in water sources. That will give Colombia a huge potential not only in exports of raw materials, but also in the development of new tourism offers. This is what achieving a peaceful country means. It isn’t only about reaching an agreement with an illegal organization; a peaceful country is achieved by laying solid foundations for an increased growth of the middle class, increased equality and increased development. That is what the GINI figures are showing us, we have diminished inequality in the country, thirteen main cities in the country have dropped its inequality levels. This is what we want as a country and as part of the government.

In 2015 Colombia is expected to become the second Latin American economy with the highest growth, it could even be number one depending on any eventual amendments. Today it ranks 31st in GDP economy. In this ambitious second term of office of President Santos, where would you like to see Colombia in 2018?

I think what president Santos has done during his first term of office and now in his second term is to achieve an economy protected against external effects. It’s no secret that Europe and the United States have suffered an economic crisis. When you have a difficult international context, even though we maintain good relations with Venezuela, the economic exchange has decreased significantly. Our country has been generating an increased employment rate month after month, and we see our economy growing by at least 4%, as remarked by the Treasury Department. Growing 4% means reducing poverty. We believe in a development plan focused on three main topics: peace, equality and education. Equality is achieved by generating important investment alternatives. The president’s message is that everyone is invited to come and invest in Colombia; that we are working on security to allow continuous investments. As our country is competitively better than others in the region, all this will make our GDP continue growing. We are pleased to see all these American and European companies setting up business in the country, all these real estate investment funds that were not typically seen in the country before. Today, many American real estate investment funds are landing in Colombia with investments worth almost 400 million dollars. This was made possible because Colombia has been managed in an economically responsible manner. From the point of view of the international context, this country is the most respectful, that’s why we have improved our risk qualifications. We will not increase deficit, we take care of our investments, and we make responsible investments that have the following objectives: wealth and employment generation, and more equality.

Moving on to infrastructure and housing, with the new powers vested in Vice President Vargas Lleras and under his motto to carry out, how important is it, from your point of view, the development of infrastructure to give Colombia a leading position in Latin America?

The president created three infrastructures or substructures within the presidency. Minister of Presidency Néstor Humberto Martínez, Minister Counselor of Government and Private Sector María Lorena Gutiérrez, and the vice president who now has functions he hadn’t had before in the sector of infrastructure. The vice president is now responsible for the execution of projects.  First, in order to carry out a project we need planning, which will then lead to the growth results we want. The country has made significant progress in bridging the gap that separated us from fast investments in infrastructure and the vice president has focused on being more efficient in matters related to environmental permits, without endangering the strategic ecosystems and being more efficient in decision-making with better negotiations with the communities for all consultations. This has been very important and has sorted out many processes, including the introduction of legislation swiftly passed by the Congress. I don’t know if there’s a country in the world that is investing as much as Colombia. As many free trade agreements have been signed, we need to upgrade our infrastructure for development. This investment will take almost ten years, but it’s an investment of almost 40 billion pesos in airports, 22 airports. Same thing happen in the housing sector: we needed to show the country and the world that Colombia is capable of building massively. Today, we show the country and the world that we are capable of making the nation’s resources reach the bloodstream of the economy, and that every peso invested in housing will generate three pesos in the economy. This has only been made possible under the vice presidency of Germán Vargas, with the approval of President Juan Manuel Santos. Vargas is a person who devotes his attention to all the internal procedures, which are, at times, the most difficult procedures since sometimes the enemy of the State is the State itself. Our objective was to make these procedures easier and make constructors buy in time, as we hadn’t seen a constructor being sanctioned this rapidly, or required to comply with schedules; this has all been possible with the current president. We are providing legal security but also the potential to demand compliance in time.

Following with housing, it is acknowledged worldwide as a basic right, but in the last few years in Latin America there has been people with no access to housing, so in that sense, Colombia has become a leader in Latin America with its housing plans of 100 thousand free houses, the Vipa plan, and subsidies for housing. It’s a plan that started in 2012 and is now finishing its first stage in 2014, and its second stage will start now under your leadership, which if I’m correct begins in May this year. What are, from your point of view, the main objectives of this second stage?

We don’t only have a housing policy; we want to have a city policy. Our subjects are framed in habitation principles and those principles mean developing more democratic and environmentally sustainable cities, cities with the clear objective to reduce poverty and slum housing. One of the most serious problems of Latin America is slum housing, and we have the potential to become the country with the highest urbanization rates in the region. Therefore, we want to generate policies to guarantee access to housing not only for the upper classes but for every Colombian citizen and make Colombia a more equal country. In a country with high poverty rates like Colombia we have yet a lot to do to achieve equality. We are approaching the most vulnerable people with free programs because we understand those people are not yet bankable, they are people who earn less than the minimum salary and we have to provide housing in favorable conditions. It is an investment we make not only for the benefited family but for the future of the country. We hope that children growing up in these homes will receive better education, better access to public services, better conditions for future employment and better development opportunities. A democracy depends on all of us having the same starting point, and that means equal opportunities. We will not only take care of the most vulnerable people, we are also generating a middle class as a country. Our obsession is to generate a middle class, and it will be generated through access to housing. This is for people who earn between one and two minimum salaries. A middle class is born if you reduce their expenses, so instead of spending half their salaries in housing, they can afford better education, better healthcare services, and better diets. This will improve children’s height and school performance. Therefore, those people who would spend 150 dollars in housing are now spending around 80 dollars a month. This generates capital and reduces expenses. For those people who earn between two and four minimum salaries, the lower-middle class, the new professionals immersing themselves in the market, earning around 1,300 dollars a month, we are developing programs to help them pay a mortgage and the initial payment of their houses. We will give them an important subsidy for them to pay their mortgage month after month, with the intervention of the national government. This will be developed with transparent procedures. We have bid over 4.2 billion pesos in free housing and we didn’t receive a single corruption complaint. The subsidy programs function on the basis of first-come, first-served. We believe bureaucracy is a synonym for corruption, that’s why we abolished the bureaucracy procedures so that people can access a subsidy. Therefore, people can choose their desired project without governmental intervention to guarantee that there’s no relation between the constructor and the national government. This generates clear rules and market transparency. Then, people can go to the bank they prefer and request the loan. This way, it’s first-come first-served. This way our resources are rapidly injected in the economy. With this we hope to reactivate the mining and energy sectors in Colombia, which are now slow due to oil prices, and we hope to generate employment and make 2015 and 2016 good years for the construction sector. 

As mentioned before, Colombia is focused on attracting investment, but it has to be an organized investment with the government’s rules. In that sense, in statements you made on how the sector is being reflected, the housing programs are an example of how to approach the private sector.

What we wanted was to create a contract model with similar rules to the ones in the private sector. This means the following: we have schemes where consultants are chosen based on their experience and their credit capacity. You pay for a house once it’s finished with no initial payments, which can sometimes facilitate corruption. Here, the building contractor is chosen by the economic system. We cannot introduce a contractor with no previous experience because the risk is eminently private, as the house is only paid for once it’s been finished.  Therefore, the bank will not lend money to someone with no experience. Risk is then diversified more appropriately. This generated positive incentives to carry out the projects. Before, it would take three years for programs to be carried out, now it takes between 12 and 18 months, the housing quality improved and so did the parties. We have the best building contractors in the country and they are now interested in investing in housing. Those are incentives for the construction sector. I don’t choose the building contractors or the beneficiaries, but I give them the tools to make the economic decision to invest. That is essential for us, because the development of a country depends on a single recipe, and the name of that recipe is confidence. We are giving confidence to people to make the emerging Colombian middle class acquire purchasing power, which is very important for an active economy; and we are also giving confidence to the building contractors to help them decide the best moment to invest. There have never been so many incentives for economic development. That’s what we are working on, we are making that confidence we generated result in more employment, more land for housing, more industries benefited by our programs, and more Colombian citizens fulfilling their dream to have a house of their own.

In an interview in 2012 we talked with Mr. Cotard from Grupo Bolivar, and he told us that the vision he established when he entered the company was to enrich life with integrity. In that sense, and following with what we talked about regarding the private sector, I would like to know the importance of the private sector’s role to generate equality, and the social role this sector plays.

I strongly believe that you cannot have public policies without help from the private sector. That person you interviewed in 2012 is one of our main partners. Grupo Bolivar has built 10 thousand free houses, with an investment of over 250 million dollars. Now they are building 12 thousand houses in Casa Ahorro, for people who earn between one and two minimum salaries. This means that only this group is working jointly with us with investments exceeding 1 billion pesos, and that money comes from risk that is completely private and they believed in us. That’s just an example. The main national and international building contractors are investing in the country. Companies like Fénix have built 6 thousand free houses and they are building 10 thousand more for investors.  The rules of the game are clear for the market. When you have the best players in the field, when you have players like James and Messi in your team it means that people want to work with you. That’s what we have achieved with our housing policies. People who were not interested in investing in social housing have now changed their minds. That’s why it’s important for us to count with companies such as Construcciones Bolivar. If there’s a problem with housing, problems are solved faster. When we had inexperienced building contractors, the legal entities were born and died for the specific project. Now we are working with legal entities with more than 50 years of experience. Grupo Bolívar has a revenue of 1 billion 200 thousand million pesos a year, and half of it has increased thanks to us.

The financial sector plays an essential role in the growth of the construction sector. The idea is to support the building contractor groups and finance them, and also support individuals who buy a house by giving them mortgage loans, which is increasing in Colombia. In that sense, how do you see the help the financial sector offers and what are the main financial groups that are supporting the sector?

Without the financial sector we wouldn’t be able to do what we are doing. If I call contractors for free housing projects, when a group claims they will build one thousand houses with an investment of 20 million dollars and I adjudicate them the project, the contractors cannot expect me to pay until the houses are finished. The building contractor must approach the financial system. What I can say is that this housing program was entirely financed by the financial system, and that made us hire the best contractors because the banks would not take risks with unreliable contractors. All our banks have been very supportive with us in a specific credit in economy called construction credit. In other programs such as Casa Ahorro, Mi Casa Ya, in subsidized rates we have made progress in mortgage loans. There’s been a 23% increase in mortgage loans in the country. People have realized that with the policies introduced by the national government, for the first time social loan has grown more than non-social loans. That makes our economy a healthy one and it makes us not have housing bubble risks because we are building in a sector with accommodation deficits, because we are protecting the families’ savings. We give purchasing power to people with actual payment capacity, which we are generating through housing loans. Before, banks didn’t try to reach the most vulnerable people because it was not a familiar market. With these programs we are expanding the ground to reach the most vulnerable people. That makes the market regulate itself. When the upper classes reach the top and begin introducing less projects in the market, if you have the incentives you can make contractors stay active, and that has two fundamental accomplishments: social mobility and an active economy.

My next question was precisely about the housing bubble because it’s something we have unfortunately suffered in Spain.

There’s no risk of housing bubble in Colombia because we have a conservative system. First we sell, then we look for contractors and finally we build. We don’t speculate. Moreover, our economic system is also conservative. For a bank to approve a construction loan for contractors they must have a balance of at least 60%. When someone purchases a property the financial system does not lend 100% or 120% of the value like in many housing bubble crisis. Here in Colombia, if people want to buy a house they have to make an initial payment of 20% of the total value, and banks can only lend people amounts that do not exceed 30% of their income. It cannot be made any other way. Therefore, the borrower is someone who can actually pay back. If this were not enough, our financial system is still low in mortgage loans. In housing bubble crisis in countries such as Spain you could see that the participation of mortgage credit in the GDP would sometimes exceed 50%. One single individual would have 3, 4, 5 mortgage loans. Our proportion of mortgage loans in the GDP doesn’t exceed 4.9%. That means we can grow at least by 10 points. And those points will be directed to the most vulnerable sectors because that’s where our policies are directed.  Finally, to show you there’s no housing bubble risk, our credit default is only 2% of the healthiest loan portfolio in the market.

You took the measures before Spain did after the crisis.

That’s what we have been asking for since 1999.

We are learning that now in 2015. As we mentioned before, the construction sector is the sector with the highest growth rates with 26.9 billion, a record figure, and a 7% growth compared to 2013, and it’s expected to reach 10%.

In previous years we had growth rates of 10.3, 12.4, now it’s 7, and we are trying to reach 10 this year.

Beginning the last part of our interview, which focuses on the relations with the United States, as you know, the United States is Colombia’s main commercial partner, 50% of the remittances received by Colombia come from the United States; and within the United States, Miami and South Florida are home of many Colombians. I would like to know your personal point of view and as Minister of what opportunities you see for the market directed to Colombians there and in Miami.

All the opportunities in the world, because Colombia is currently going through an important devaluation process, we probably have the second most devaluated currency, over 25%. That means that every dollar has more value now than it did three months ago. That also means that investing in Colombia is much easier now. Moreover, this virtuous process is very important for us because every dollar that comes from abroad has more value and that means that Colombians living in the United States can invest in Colombia more easily. We also have the possibility to generate a positive industrialization process in the United States, not only in agriculture but also with coffee beans, bananas and flowers. All that will be essential and will make our economy grow rapidly and steadily. It’s going to be an interesting process for us to be able to export other raw materials. Not only hydrocarbons, but also raw materials we can produce, like fabrics; thus making us a more competitive country. I think our relations with the United States as the main commercial partner are essential. One of the most important things we’ve done during the presidency of Juan Manuel Santos has been signing the Free Trade Agreement with the United States, so I think the country is open to international investment. In programs such as housing, water and plumbing we don’t have prerogatives. Here, the national and international investors compete on a same level. This is attracting very important investments, real estate investments. The most important real estate investments funds from the United States are now are now thinking of Colombia as the main investor. Not only in housing programs, they are also interested in hotels, offices, and that’s how we are expanding the business.

You joined the Ministry of Housing at the age of 25 as the Ministry secretary and you soon took over as vice minister and now minister, and very recently you’ve been awarded with the Civil Merit Order of the Council of Bogota for your contributions to the country and more specifically, the capital city. What does this recognition mean for you?

It’s a challenge more than an award. I had the opportunity to reach one of these positions when I was very young; I was the youngest vice minister. These are all challenges to move forward. I believe that the only thing youth gives you is the possibility of taking risks and step aside the conventional path to reach the best results in the economy. That has been possible with the vice president Germán Vargas. Programs like the free housing programs and Mi Casa Ya did not exist in the country; there were no potable water contractors in the country. We wanted this Ministry to be for the economy and for the people. Even though this award means recognition in a complex sector, it is very pleasing for us and we’ll continue working, hopefully for a long time.

My last question is one that you are used to replying as Minister. It is your objective to give people these houses, but I had the opportunity in Antioquia to get to know your more humane side, that even though it’s a weekly event, you are still moved when you deliver the keys. I would like you to explain the feelings you have in such beautiful moments.

I’m a man with strong faith; I’m a person who feels that when you reach a responsibility like this, it’s a historical responsibility that may not come a second time. And I also believe that there are people who didn’t have the opportunities we had to develop in our communities, and in our position we are returning them some of those opportunities. In New Year’s Eve, I don’t know if it happens both in Spain and the United States, people eat 12 grapes to attract good luck, and they ask for health, getting married, having a kid, etc. You have the possibility to project yourself for a year and you have goals you will reach during that year. There are people that due to their vulnerability are not able to plan for a month, a week, or even a day. When a person wakes up and has to go to work to afford food, pay for a place to sleep that night, the fact of being able to give them a house means changing their lives. If you forget the keys in your house you may feel anxious because you cannot get in, but there are people who do not even have a place to get in. I will always feel moved to tears. When you know you are giving someone the possibility to change their future, you are helping them change their lives. That means that what I’ve done as Minister is worth it. That’s why I love doing what I do.