Mexico: Real estate expansion
Several factors have contributed to expanding mortgage lending and accessibility, such as increased demand for residential real estate, general salary increases and decreasing mortgage interest rates. The expansion of the mortgage market and the formation of Mexico’s first real estate investment trust (REIT) also bode well for continued growth in the sector.
BBVA Research reported average interest rates for mortgages have indeed fallen, from roughly 17% in 2005 to 14% in 2012. Perhaps the most significant change to the industry has been the deepening of the mortgage market, which more than doubled over the past decade, from 235,000 annual mortgages in 2001 to 578,000 in 2011, according to BBVA Research, an arm of one of Mexico’s largest financial institutions. Mortgage lending increased 6.3% in the first half of 2012 over the same period of 2011, with 287,000 loans reported.
Meanwhile, state-run bodies, such as INFONAVIT (Instituto del Fondo Nacional de la Vivienda para los Trabajadores), FOVISSSTE (Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado) and FONHAPO (Fondo Nacional de Habitaciones Populares) have concentrated on providing low-interest loans and subsidies on housing to aid those who may not qualify for bank-issued mortgages.
INFONAVIT, which celebrated its 40th anniversary in August, has had a significant impact on the industry as the largest mortgage lender in the country, responsible for 76% of market share by number of loans. Víctor Manuel Borrás Setién, the director-general of INFONAVIT, told local press in August, “If the numbers continue performing as they have up to now, in 2017 we are going to practically close the gap on the deficit that existed among workers who for years had not been able to obtain a housing credit.”
In the private sector, the presence and initial success of the country’s first and only REIT, Fibra Uno, established in 2011, is another example of the expansion of the real estate market. In March, Fibra Uno made a second primary offering worth approximately $722m, which was purchased predominantly by domestic investors, who accounted for 56% of the total.
REIT law, established in 2005, requires 70% of Fibra Uno’s assets to be invested in or derived from income-producing real estate. In the first nine months of 2012 Fibra Uno shares increased 24.3% from MXN23.26 ($1.86) per share at the beginning of the year to MXN$28.91 ($2.26) on October 1, while the one-year share value is 31.9%.
Meanwhile, Mexico’s construction sector, which suffered a sharp drop in 2009 as a result of the global financial crisis, has recovered to pre-crisis levels. According to BBVA Research, the construction sector grew to MXN588bn ($45.93bn) in the first quarter of 2012, equalling results from the first quarter of 2008. According to the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía, INEGI), much of the credit for the sector’s recovery is owed to the real estate sector, in particular demand generated from commercial and industrial projects in 2010 and 2011.
Another positive sign for both the real estate and construction sectors is the recovery of private sector investment in the industry, which accounts for 80.7% of total investment in construction, after falling to 58.8% in 2010, according to data from Mexico’s Construction Chamber of Commerce (CMIC).
Mexico’s real estate market has been an important component of the country’s economic recovery following the global downturn. José Antonio Meade, the minister of finance, recently indicated that after seeing national GDP expand by 4.3% through the first half of 2012, the Ministry of Finance’s projection of 3.5% economic growth for the entire year may be conservative, though global economic instability has kept the ministry from officially altering its forecast.
Nevertheless, despite the expansion of its real estate and construction industries over the past decade, Mexico still faces a significant housing shortage. According to the Mexican Association of Real Estate Professionals, the federal district alone requires at least 2m units by 2030 . The Federal Mortgage Society has projected the national extended housing deficit, which includes families who share or inhabit inadequate housing, at 9m people.