Real Estate Outlook - Mexico

BBVA Research

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Date Published 2014
Primary Author BBVA Research
Other Authors
Country Mexico


In 2013 we saw the construction sector come to a sharp halt. This was due to its two main components performing negatively over the year. Residential construction has been falling for a long time, with house building being well below levels seen during the previous economic cycle. Civil works have also been on a downward path. Infrastructure spending suffered from the lag in public expenditure, although this normalized by the end of the year; however, this is not comparable with 2012, which was unusual because of elections. Nevertheless, structural reforms should promote investment and provide a larger budget to achieve the ambitious infrastructure plan, leading to a recovery in civlworks. However, the outlook is less promising for building works, which will still have to wait. Mortgage lending in 2013 may have been down in both quantity and volume terms. Public institutions are continuing to adjust their mortgage loans downwards. On the other hand, banks recorded modest -but positive- progress. This is the result of normalization of lending following the building boom, and also a wider range of housing options for consumers. Loans for refurbishment and self-construction continue gaining ground on home purchase loans. More competition has led to improve bank lending conditions enabling consumers to purchase higher value properties, as well as co-financing with public institutions. These effects are reflected in the value of residential assets, where the least popular types of housing have appreciated by less than the national average. Estimates of housing market and mortgage lending potential based on the housing deficit overdo expectations. Therefore, the challenge now is to acquire better knowledge of effective demand from other sources. BBVA Research is collaborating in this work to understand the characteristics of demand for bank mortgage lending. In this issue, we analyze how this will be influenced by loan costs and by income for workers. Fierce competition between the banks has driven interest rates to historic lows, and accessibility has increased, but finance conditions and risk suggest that it will be difficult to maintain this trend. Any boost to the market will have to come from the income side, i.e. from more, and better paid jobs. The performance of the real-estate sector is marked by new housing construction, particularly for social housing, which has the largest market share. Recently, the number of new residential building projects has been well short of the peak seen in earlier years. A return to the good times does not seem to be on the cards; new housing is tending more towards normalization and will have to improve to be a viable option compared to others that are currently strong, such as existing housing and refurbishment of the existing housing stock. Sustainable growth in the sector will be based on promoting demand as, without this, support for builders will be ineffective if there is no one to buy their products. Finally, we assess Infonavit’s 2014-2018 Financial Plan. We highlight the change in its mortgage lending model, with lending moving from having a quantitative to a qualitative goal. This strategy is consistent with the National Housing Policy, where orderly and sustainable growth for the sector takes priority over growth for its own sake. In this regard, quality of life and offering financial solutions consistent with the life cycle of customers will set the standards. On this occasion, the Institute’s challenge is the quality of credit for its beneficiaries, not quantity. This could set a trend for the market in general.

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