By Raquel Picornell, co-edited by Promexico
2014 showcased the housing industry's recovery with the comeback of multiple housing developers and improved results, with the larger companies facing problems linked to the housing bust, undergoing prearranged bankruptcy proceedings. Last month, President Enrique Peña Nieto announced a series of measures to boost access to home ownership as part of his National Housing Policy. The president aims to lift housing that will trigger Mex$370 billion (close to USD $25 billion) in investment in the construction of 500,000 homes and the implementation of 1 million actions. The project will benefit over 6 million Mexicans, from a 9.7 million housing gap. “The construction industry experienced a great recovery in 2014. Alone it generated over 135,800 formal jobs, five times more than in 2013, when 25,400 were created,” Peña Nieto said.
Figures from the Mexican Social Security Institute show that the Housing Register had inventoried over 560,000 homes at the end of 2014, 34 percent more than in 2013. "And well over the goal we had for 2014, which was 450,000 dwellings," claims Peña Nieto. "That is, we went further and managed to build 560,000 homes for Mexicans. This is undoubtedly positive data that encourage us to continue to reduce the housing deficit of approximately 9.7 million homes."
Government and private-sector representatives alike agree that 2015 will be the year of consolidation for housing in Mexico, in light of new official figures that indicate the end of the two-year crisis. Uplifting news for the housing sector—badly shaken since 2010—is ever more welcome amid the global collapse of oil prices, which have prompted large cuts in public spending, threatening major projects. On January 30, Finance Minister Luis Videgaray announced cuts of about Mex$8.5 billion (US$574 million), about .7 percent of Mexico’s gross domestic product. About a third of the Mexican government’s budget comes from oil revenue, and the price-per-barrel of Mexican crude has fallen in recent months from about Mex$100 to Mex$38. Videgaray said the “adjustments” were preventive and responsible, aimed to protect “stability and the economy of Mexican families.” Federal transport, communications, water, and agriculture were the sectors subjected to the largest cuts, but Videgaray said housing and agriculture subsidies would not be affected, although pensions for the elderly would be reduced.
Jorge Carlos Ramírez Marín, Minister of the newly created Agrarian, Territorial and Urban Development (SEDATU) Ministry, emphasized that Videgaray’s announcement confirms that the government is working to expand decent housing for Mexican families, especially those with the lowest income.
Many in the business community, especially in housing, welcomed the cuts as necessary and timely. “The important thing now, in addition to this austerity program, is to enact parallel public policies to give incentive to sustainable economic growth,” according to the representative for the National Chamber of Industry Development and Promotion of Housing (CANADEVI). Fernando Abusaid Quinard, president of CANADEVI, added that the sector will fare better in 2015 than in 2014, because important companies are progressing with their projects.
Minister of SEDATU Ramírez Marín said, "Since we know how important it is to have a decent house, this government has prioritized reforming and changing housing and urban development in Mexico." These changes will "enable us to reduce the housing backlog and let Mexicans enjoy better located, better built, more sustainable homes, with better spaces for sharing with the family." He said that the sector also plays a strategic role in creating jobs and attracting investment, which improves the country’s economic activity.
“This year housing will grow even further. Support will reach the most needed, such as single mothers, youth, and the disabled. Measures are in place to facilitate access to housing, offering better housing at lower costs, and grants to reach new sectors such as the armed forces. In addition, new fiscal incentives have been created so that important sectors have better liquidity conditions to build more homes at a lower cost.” Ramírez Marín adds that, in keeping with President Peña Nieto’s instructions, "the government is now building decent homes for all Mexicans."
Fernando Abusaid Quinard, president of CANADEVI, says the implemented measures “reinforce our confidence in the country’s progress.” He said that CANADEVI “has found a strategic partner in President Enrique Peña Nieto to achieve development and growth of both the housing sector and the national economy. Housing developers are working to meet the high demand, which they are confident will be triggered by the structural reforms approved last year.” He added that the government’s capacity for dialogue has facilitated important measures and policies to boost demand, such as extending the subsidy to up to five minimum salaries for right-holders.
Housing developers believe 2015 will be a good year for the sector with many players seeing double-digit growth, as is the case of VINTE. Sergio Leal, general director of the company, claims his growth in 2014 was assisted by the public-sector incentives. He said: “SEDATU managed to act as a cohesive agent between the private sector, i.e. banks and housing developers.”
José Reyes Baeza Terrazas, spokesperson for the Housing Fund for State Workers (FOVISSSTE), has been responsible for generating financing and credit, modernizing many of the fund’s processes, updating funding products, and consolidating its internal administration. Reporting investment of Mex$36,276 (US$2.4 million) and 81,900 loan arrangements by December 2014, Baeza Terrazas qualified 2014 as extraordinary. “Certainly 2014 represents a great recovery year for housing, and 2015, during which we will launch new products in pesos without sweepstakes, will be a great consolidation year.”
An alliance between commercial banks and the Federal Mortgage Society, affiliated with FOVISSSTE, now enables applicants to obtain home loans immediately, rather than having to go through draws as in the past. Baeza Terrazas confirmed that as of June, members from FOVISSSTE and the Housing Fund for Private Workers (INFONAVIT) will finally be able to use the balance in their housing accounts for a mortgage with the financial institution of their choice.
In line with Merrill Lynch’s analysis, which places Mexico as the leader in real-estate and housing growth in Latin America and sixth worldwide, Paloma Silva, general director of the National Housing Commission, claims the sector’s recovery offers a much brighter outlook for developers, investors, and analysts. “The evolution of the housing sector in 2014 reversed the negative trend of the past two years, significantly contributing to economic growth and job creation around the nation. The gross domestic product (GDP) of the housing sector accounted for over 10 percent of the total GDP of the country and 47.7 percent of the construction sector GDP,” Silva added. “In fact general business confidence is on a high, with the Housing Register reaching in December 2014, 83,300 units, the highest level since August 2007. Silva concluded by noting that the government will continue to support housing with clear guidelines and resources to meet the ongoing demand.
The housing sector’s evolution has reversed the negative trend of the past two years, significantly contributing to job creation, economic growth, and potentially improving social cohesion.
Throughout 2014, construction has been a major engine of economic growth, growing nearly 7 percent annually—making it the second-highest activity within the industry, behind only the automobile sector, with 9.2 percent.
Currently, the market offers better solutions to promptly address housing deficits in each state and municipality, but many of them still depend on federal subsidies.
The coordination of the Agrarian, Territorial and Urban Development Secretariat (SEDATU) through CONAVI and the National Housing Organisms (ONAVIS) has been decisive for the achievement of better results.
SEDATU, in coordination with ONAVIS, has created schemes to address the housing needs of the Mexican families, ensuring that housing solutions are close to services, job sources, education and health equipment, transport, and connectivity. The ONAVIS took a number of measures to develop the housing industry in 2014:
CONAVI (National Housing Commission):
- increase subsidies to up to five times the minimum monthly wage (SMGV)
- subsidies for home improvement, housing for rent, and improvement of housing units
- housing products for youth and heads of families
- self-production of rural housing
- housing for the Army
- subsidies for legal property regularization
- subsidies for state and municipal workers
- incentives for formalization (RIF/RISS)
SHF (Federal Mortgage Society):
- syndicated loans
- guarantees for certified-developments emissions
INFONAVIT (Housing Fund for Private Workers):
- increase maximum amount of credit to Mex$850,000
- grant loans in pesos
FOVISSSTE (Housing Fund for State Workers):
- new product in pesos without sweepstakes
Furthermore, 2014 saw the launch of the National Platform for Housing Information and Indicators (SNIIV), with information for proper planning, implementation, and monitoring of the Housing Policy.
Government officials, members of civil society, and entrepreneurs convened in 2014 for a series of conferences on the housing industry entitled “México la Casa de Todos.” Eighteen conferences took place across the country.
Growth took place across a number of sectors in 2014:
- Housing revenue accounted for over 10 percent of national GDP, and47.7 percent of construction-sector GDP.
- The sector employed about three million people, and impacted seventy-eight industries.
- Mexico’s housing sector has significant growth potential, more so than in other countries such as Spain (18.5 percent of GDP as of 2005) and France (22.5 percent of GDP as of 2012).
- The housing sector’s evolution in 2014 reversed the negative trend of the past two years, significantly contributing to economic growth and job creation.
- By October, construction grew was 6.8 percent, the second-highest growth rate in the industry behind only the automobile sector with 9.2 percent.
- The sector ended the year with strong momentum: it is expected that the number of actions implemented had risen to about 1.1 million, and that investment (including construction financing) accumulated around Mex$350 billion (close to US$24 billion). The subsidy program’s budget increased 53 percent, compared to 2013 in the number of housing solutions supported.
The National Housing Organisms met their goals, and results in 2014 are translated as follows:
Including construction financing, the ONAVIS and Commercial Banking reported an annualized investment of about 350 billion pesos in financing of housing actions; this figure represents a growth 15.4% higher than the investment made in 2013.
As part of the Results of 2014 it is important to highlight that the Program of Financing Schemes and Federal Housing Subsidy was totally exercised.
The subsidy has been optimized to trigger further actions and promote the participation of the private sector:
- Traditional Subsidy
- Counter guarantees
- Housing for Rent Program
- Rural Housing
- Neighborhoods Recovery
The number of pledged actions (210,522) was exceeded by 18% during 2014, and by 53% compared to those made in 2013. The mix of benefits has changed considerably:
- There is more subsidy for inter urban housing.
- Vulnerable sectors were supported: Heads of families, young people, Army.
- Resources were multiplied thanks to the combination of the federal subsidy with the person’s savings, the funding granted and local subsidies.
- New modes than the existing ones were supported. 82% of the subsidies supported families with incomes below 2.6 SMGV.
The Agreement of Coordinate Housing Actions results of 2014:
- On March the 6th, 2014 the Agreement of Coordinate Housing Actions was signed with CONAGO. This agreement formalizes the sum of efforts to help reduce housing deficit and provide decent housing for Mexican families.
- 29 Mexican states signed the contract to provide housing solutions to families unaffiliated to Housing Institutions. With this agreement, there were 86,000 housing actions pledged, with an investment of 1.7 billion pesos (USD115 million).
The construction sector continued its recovery, after registering an annual decline of 7.68% in October 2013, the General Indicator of Economic Activity (IGAE) of the construction industry showed a recovery of 5.41% in October 2014, higher than the Economy as a set. In particular the building subsector of the Industrial Activity showed an annual growth of about 7.0%.
What are the results on boosting job creation?
Reduced economic activity slowed job creation—and caused some losses—during the third quarter of 2013.
By November 2014, the construction sector recorded 138,500 new workers affiliated to the Mexican Social Security Institution (IMSS), representing a 10.3 percent increase—about one sixth of the total formal jobs created in the country—from the last year.
Was the housing supply reactivated in 2014?
- The Housing Register reached 412,300 units in 2014, 35.2 percent above the record low of 305,000 units observed in 2013. In December 2014, 83,300 units were registered, the highest level since August 2007.
- Construction ended the year with 60 percent growth. Since May 2014, the monthly construction rate has grown by more than 26,000 units, and 89,000 new units were recorded in December—unprecedented since these indicators were recorded as of 2009.
- The number of homes (completed and under construction) increased 34.2 percent from 2013.
CONAVI 2015: More actions with fewer resources.
- Estimates show that housing-sector investment will grow about 5 percent in 2015.
- CONAVI will increase the number of actions by promoting non-traditional methods and coordinating schemes with states.
- Today, there are innovative tools that provide timely and sufficient information to make housing an attractive and reliable sector for private investors, according to Rating Agencies reports.
- The population pyramid, the household formation, and the housing deficit indicate that the demand for housing solutions will continue to grow in years to come.
- Managing this trend will require clear rules, innovation, and cooperation between sectors to improve equipment, infrastructure, and connectivity.
- The Housing Law already contemplates a valuable instrument for the participation of all Secretaries through the Inter-Ministerial Commission of Housing, therefore it is important that this Commission arranges sessions periodically to further develop the sector.
The Institute of the National Housing Fund for Workers (Infonavit) was founded in 1972 as an autonomous organization. Its institutional leadership is equally represented by workers, employers, and members of government. Infonavit was created with a unique and meaningful purpose: to provide suitable housing for every Mexican worker.
The institute has built a solid reputation as one of the world’s largest mortgage providers, and is Mexico's most important mortgage originator, with a loan portfolio of nearly $70 billion. Simultaneously, Infonavit has become the nation’s largest manager of retirement savings with a portfolio of over $50 billion that represents a market share of 22 percent.
Infonavit’s influence on Mexico's housing sector makes the institution relevant during the implementation of the new National Housing Policy in close coordination with the Ministry of Finance, the Ministry of Agrarian, Territorial and Urban Development, and other national housing agencies. The policy's main goal is to make sustainable and affordable housing available to all Mexicans.
Infonavit’s institutional strategy focuses on the pursuit of improved welfare to its right-holders by offering better located and higher quality housing solutions, and a modern, flexible, and robust system to manage their savings. The institute's new executive management has proposed a new paradigm for Mexico’s housing landscape, moving from a model based on quantity metrics to one that focuses on quality, widens the housing options available to right-holders, improves the market value of financed properties, and translates into better quality of life for credit holders—a model with stronger institutional coordination between government, private, and social sectors.
The institute undertook a set of important financial innovations to meet these goals. For example, it recently increased the maximum mortgage amount by 76 percent, from Mex$483,000 (US$32,600) to Mex$850,000 (US$57,400). Additionally, in 2015, all mortgages will be denominated in Mexican pesos (previously they were denominated in minimum wages), creating better credit conditions for our right-holders; this product allows for faster repayment and for higher purchasing power for low-income families, offering a fixed rate throughout the repayment period of the loan.
Additionally, for the first time, Infonavit requires housing builders to hire a quality insurance provider to protect home owners against waterproofing failures and other damages that result from the construction process, in order to maintain the value of houses acquired by our right-holders. Moreover, Infonavit has been committed to the federal government’s guidelines on city limits to contain urban sprawl, which has significantly reduced dwellings registered outside the urban borders. These actions contribute to reducing transportation costs, improving quality of life, and enabling higher productivity conditions in our communities.
To strengthen municipalities’ tax collection and protect property value, Infonavit launched the Mortgage with Services initiative, allowing automatic collection of property taxes and maintenance fees as part of the loan payment. Also, to increase access to housing and other social security benefits, the institute is supporting the federal government’s program, Crezcamos Juntos (Growing Together), a public strategy that aims to encourage formal economic activity.
Infonavit’s operating and financial management is currently scored with Moody’s SQ1- rating as primary servicer of residential mortgage loans. This financial strength, and our focus on value creation for our right-holders and their families, has led us to take the necessary steps to strengthen our capacity to offer efficient and stable returns. Thus, last year, we launched a flexible and modern investment framework, approved by the board, voluntarily adopted the regulations required by the National Banking and Securities Commission (CNBV), providing more robust accounting and risk-management guidelines, and started to implement a faster and more reliable property-value appraisal system.
Infonavit, interested in developing rental and secondary markets, will promote reliable financial innovations to provide liquidity to real-estate developers focused on property leasing, aiming to boost the availability of investment vehicles that support properties managed by professional administrators. Accordingly, Infonavit has recently launched the road map to develop the first mortgage real estate investment trust (REIT) in Mexico. In 2015, Infonavit expects to originate 505,000 housing solutions—350,000 mortgages and 155,000 home improvements—equivalent to $7.9 billion.
Infonavit’s strategic actions and commitment to President Enrique Peña Nieto’s National Housing Policy will continue to transform Mexico’s urban and housing development, improving the quality of life of its communities and supporting Mexican workers’ dream to offer a suitable home to their families.
Mexican cities have been growing rapidly, but the quality of development has varied. Problems with the construction of new housing have included poorly planned neighborhoods, low-quality materials, and a lack of local-government oversight to ensure that the homes complied with code. Between 2010 and 2012, the sector collapsed, as important developers, namely Geo, Urbi, and Homex, encountered serious liquidity problems. As a result, commercial banks stopped lending even to solvent developers.
SHF was created in 2001 to provide credit and guarantees for banks, mortgage issuers and other financial organizations to encourage their participation in the construction, purchase, and refurbishment of the low-income housing market.
Since December 2012, when Jesús Alberto Cano Vélez took over the management of the Federal Mortgage Society (SHF), the development bank embarked on a completely new strategy.
Following failed attempts to restructure the bank’s participation with guarantees, it was decided that developers would be directly financed through syndicated loans. General Director Cano Vélez explains this was an unprecedented measure for SHF: “The lack of financing had been negatively affecting housing production and consequently the GDP and it was necessary for the bank to assume its role as a development detonator for the sector.”
In parallel, SHF struck a strategic alliance with FOVISSSTE that helped launch the Mexican mortgage market. Between 2013 and 2014, SHF granted the fund two lines of credit valued in Mex$6,000 million (US$400 million), allowing it to increase its goals by approximately fifteen thousand actions per year. Additionally, a timely payment guarantee was designed to enable better conditions for the fund’s securitization program.
Through these actions, Cano Vélez confirmed that “SHF reached a direct and induced credit balance of Mex$263,000 (US$17.5 billion), a 16 percent increase from 2013 and a 38 percent increase from 2012.”
Recent investment announcements from leading banks reveal their confidence in the housing sector has returned. BBVA Bancomer and Banorte have announced investments for housing purchase and construction for this year that mount to Mex$65,000 (US$4.3 billion).
The sector trusts other announcements will follow. Cano Vélez celebrates the lending comeback to developers. "If financings flow, our role will be to support the sector through second-tier lending and guarantees, however we do hold the tools so that in case of a credit contraction we can react accordingly."
"Our strategy for 2015 remains ambitious. In addition to the syndicated loans we will adjust our products to continue making them attractive to the market."
SHF is working closer with the Housing Fund for Private Workers (INFONAVIT) in a program to support home ownership among state and municipal workers, and with CONAVI, to promote labor formality though mortgage incentives.