SAO PAULO, Feb 20 (Reuters) - Brazil's housing starts fell sharply in December following several months of improvement, an industry group said on Monday, indicating a still fickle pickup in real estate activity as the economy edges closer to a recovery.
The widely followed Abrainc-Fipe index showed a 21.5 percent drop in housing starts in December from a year earlier, the group known as Abrainc and research institute Fipe said in a report.
Still, it rose 9 percent in 2016, suggesting a potential rebound as interest rates fall toward single digits, boosting the outlook for home lending.
The so-called VSO indicator, which gauges sales as a share of total units available for purchase, slipped 0.6 percentage point to 7.6 percent, indicating available inventory would cover 13.2 months' worth of demand, according to the report.
Overall sales cancellations fell 14.3 percent to 3,080 contracts, the fourth straight month of declines.
That drop suggests homebuilders may be turning the page on months of high cancellations that weighed on profits throughout 2016.
Seeking to ease that burden, the Brazilian government is expected to propose an overhaul of the rules governing sales cancellations, potentially imposing a fine on home buyers who decide not to go ahead with purchases.
Currently, there are no Brazilian industry standards for how much, if any, of a down payment should be returned to buyers, and litigation has sometimes favored buyers over construction companies.
Under one of the proposals under discussion, the fine could be limited to 10 percent of the value of the house.
After meeting with construction industry representatives in São Paulo, Brazilian Planning Minister Dyogo de Oliveira told reporters there has been no decision yet on the matter. He declined to say when the government would send the new legislation to Congress.
The Abrainc-Fipe indicator, launched in August 2015, is the first national index for the real estate sector, compiling data provided by 20 of 34 Abrainc associate members operating in Brazil. (Reporting by Ana Mano; Editing by Meredith Mazzilli)