(Adds comments from company officials)
SAO PAULO, March 24 Cyrela Brazil Reality SA
expects high levels of sales cancellations during the
current first quarter, a sign Brazil's largest homebuilder
continues to struggle with the impact of a multi-year downturn
in domestic construction.
During a conference call on Friday to discuss fourth-quarter
results, Co-Chief Executive Officer Raphael Horn said Cyrela
will focus on lowering inventories as cancellations and the
lack of a government response to the problem continue to hamper
As a result, Horn said Cyrela will not increase the number
of launches this year because the focus will be to reduce
inventories of existing homes.
Last year, the company started 32 projects in core markets,
including São Paulo, Rio de Janeiro, and Minas Gerais.
Cyrela's rate of sales cancellations averaged 30 percent of
deliveries in the fourth quarter, down from about 35 percent in
the prior two quarters, said Paulo Gonçalves, investor relations
officer, in an interview on Friday.
Cancellations tended to be higher in markets in the North
and Northeast of Brazil. As Cyrela has now concluded its
projects in those regions, the rate should fall in absolute
terms over the coming months, he said.
Still, Brazil's bleak economic prospects and lack of clear
rules regarding sales cancellations are likely to affect
Cyrela's ability to generate cash and improve profitability this
A recovery looks likely next year if the government revamps
rules related to home sales contracts that are onerous for the
sector. Stubbornly high mortgage rates and unemployment are
still stifling demand, Cyrela's executives said.
"We still see a very tough year," Horn said, adding the
government's response to the issues affecting the sector has
He said that Brazil has rules for home sales cancellations
that are among the most punishing for homebuilders anywhere in
The government has been trying to broker a deal between
homebuilders and consumer protection groups on new rules for the
sector. The talks have yet to find common ground on key aspects.
Cyrela said it had the highest rate of sales cancellations
in its history for the year when it released fourth-quarter
results, leading to a 68 percent drop in net income and an 11
percent drop in net revenue.
Shares of Cyrela fell 1.38 percent in afternoon trading on
the São Paulo Stock Exchange, to 12.81 reais. The stock is up
almost 26 percent this year.
(Reporting by Ana Mano; Editing by Guillermo Parra-Bernal and