RIO DE JANEIRO, BRAZIL – The drop in income of a large number of Brazilians, due to the coronavirus crisis, has rekindled fears within the real estate market of facing once again an old problem in the sector: abrogation, jargon used by consumers to return property purchased on instalment plans before construction has begun.
This was the nightmare of developers and owners of newly constructed real estate during the recession that started in 2014, when the sector reported record levels in the number of properties returned to the builders.
Now, in the face of the pandemic, consumers have begun to seek out building companies in order to renegotiate terms of payment for properties. Requests for cancellation of the agreements are still few in number. However, companies acknowledge that if the crisis continues, there is potential for abrogations to increase.
After suffering a 25 percent pay cut due to the coronavirus crisis, economist Alex Agostini, of Austin Rating, is among those who requested a contract revision. He asked the Eztec construction company to defer the April and May installments.
“The company where I work has reduced wages as a means to preserve jobs. The financial market is in chaos, and operations have decreased,” Agostini says. “So I requested a revision of my contract. I don’t want to take advantage of the situation. It’s a preventive measure,” he explains. The answer he received by e-mail was that the payment flow is maintained for now, but his case will be analyzed.
“So far, the problem has not deepened. But the worse the crisis, the worse this problem will be”, says Emilio Fugazza, Eztec’s Investor Relations director.
The company has received consumer demands to defer installments and spread out the remaining instalments on the unpaid balance, among other measures.
Eztec’s plan is to meet these demands, provided that consumers can prove that they have lost income. But, with all the home office support teams, the construction company has been unable to meet the recent requests. “We still need some time to get these renegotiations going,” Fugazza said.
Profiles
Trisul’s president, Jorge Cury, says he has identified two aspects. Clients of high-end properties (costing above R$650,000 or US$130,000) are seeking to renegotiate payments, while those at medium level (between R$250,000 and R$650,000) have started asking to cancel (abrogate) the contracts.
“The sample is small, as the crisis came only two weeks ago, but the trend is for these contractual dissolutions to increase. The middle class has been recovering, but many people are going to lose jobs and self-employed professionals are going to lose income,” Cury says.
“We’re going to find a restructuring. And we’ll do it free of fines and interest, because we’re interested in keeping the sale going.”
At Setin, the number of abrogations is still minimal, but renegotiations have already begun. “It was small in March, but in April renegotiations may reach as much as ten percent of the client portfolio,” says Antônio Setin, the building company’s owner.
He says there is concern in identifying legitimate demands. “This time, we understand that people will be really affected. Let’s provide them with room to act on their situation. In the crisis that began in 2014, 80 percent of Setin’s abrogations were made by speculators who bought up to five apartments during the project phase, and decided to break the deal when they failed to make the expected return,” he says.
Source: InfoMoney