Focus: Real Estate

Brick by Brick

Brick by Brick

Jul. 16, 2013

CASH FLOWS

As more houses are being built and purchasing power parity increases, more people are applying for loans. From October 2011 to October 2012, 590,000 mortgage loans were granted, showing a 5% rise on the year before. In financial terms, the value of the loans had also increased in real terms by 8.3%. The dynamics of where the loans are coming from is also changing; public credit institutions, such as Infonavit and Fovissste, showed a drop from issuing 547,000 loans in 2009 to 510,000 in 2012. This has largely been taken up by the commercial banks, with a 16.6% rise in issued loans between 2010 and 2012.

In regard to the commercial side of real estate, companies are experiencing a very healthy investment flow. “The real estate sector has enjoyed a wonderful experience with FDI since 2009, and this has been reflected in the amount of investments and magnitude of the projects that have been built in Mexico," Jorge A. Castañares Moreno, Business Director at Aguirre Newman Mexico, told TBY. This is largely down to real estate investment trusts (REITs). These were first introduced into Mexican legislation in 2004; however, it wasn't until 2011 when they took off as tax reforms allowed REIT certificates to be publicly traded and issued to private investors. A REIT deals with the acquisition or construction of real estate for sale or lease, as well as allowing the rights holders to receive income from the lease or sale of the property. REITs provide an alternative investment opportunity in real estate for investors without having to actually deal directly in property. Since 2011, REITs in Mexico have been able to raise $4.6 billion from both local and foreign investors. In May 2013, Fibra Uno and Reichmann International, a Canadian real estate company, raised $165 million to build a 33-story office and commercial tower in Mexico City's most prestigious boulevard, Paseo de la Reforma. The tower, Torre Diana, will be next to Mexico's current tallest building, Torre Mayor, which is now also co-owned by Fibra Uno and Reichmann International. In June 2013, Fibra Hotel, another REIT, was looking for $400 million to continue expanding its hotel empire. The company has plans to own 100 tourism and business-orientated hotels in the country. It currently operates 35.

Another new form of funding for the Mexican real estate market comes in the form of structured equity securities (CKDs). These came about in Mexico in 2009 and were set up with the main purpose of sourcing funding for Mexican private companies, infrastructure, or real estate projects, and in turn support economic growth. Since 2010, over 30 CKDs have been set up on the Mexican stock exchange (BMV) and have managed to attract $3.8 billion in funding from local and international investors. A large number of these CKDs have invested in real estate projects throughout the country. The IGS Mexico fund, for example, announced in May 2013 that it would purchase Samsung's industrial property, Dai Dong, in Tijuana as well as develop Hitachi's industrial park using a CKD. One of the most significant points about CKDs is that the legislation was changed to allow the state pension fund, Siefores, to make investments in projects, which had previously been banned. According to Castañares Moreno, the pension fund is now able to “invest up to 17% of its assets in long-term real estate projects," and since the fund is worth an estimated $140 billion, this is a significant development.

INDUSTRIAL REAL ESTATE

An area of real estate in Mexico that has experienced a period of revitalization from 2011 to 2012 is the industrial real estate sector. It is also set to peak in 2013 as international companies move their production facilities to Mexico. Mexico's proximity to the US, geographical position between the EU and Asia, low wages, and economic stability have led to the resurgence in demand for industrial space. The rising wage costs and stifling shipping costs in China are also major factors behind why companies are starting to choose Mexico for manufacturing rather than China or other countries in Asia. The automotive sector has been especially active in searching for space as companies such as Ford, GM, Honda, Toyota, Nissan, and Mazda are either expanding their current facilities or setting up new assembly plants in Mexico, with the region of Guanajuato a major beneficiary. The country's 12 free trade agreements (FTAs), giving companies access to 44 different countries, also make Mexico a prime place to set up business. The industrial real estate company, Corporacion Inmobiliaria Vesta, managed to raise $194.7 million in June 2013 using a REIT, attesting to the fact that there is confidence in the market and people are willing to invest. Vesta plans to use the money to expand its current space to cope with demand.

Mexico's real estate sector seems to be a mixed bag at the moment. The housing sector's supply is about to outstretch demand in some segments, while some of the largest housing companies are struggling with cash flow issues. The commercial and industrial sectors, however, are booming and are attracting investment from all over the world.