Laura Romero’s four-year-old son attends pre-school and her husband works at a Mexico City soda maker, so location was a top priority as they shopped for a home in the Western Hemisphere’s most populous metropolitan area.
That’s why they shunned new developments. “You find better locations” in the existing home market, Romero, a 38-year-old homemaker, said by phone from the Mexican capital.
“It was better priced than a new home, and we’ve had the opportunity to remodel and make it the way we wanted.”
Mexicans are reversing course on more than a decade of urban sprawl in their capital city, choosing closer-in used properties as lending growth accompanies an economy that’s expanding at twice the pace of the U.S. Mortgages on existing homes climbed to 34 percent of the total in June, up from 27 percent in 2011 and 22 percent in 2007, according to data tracked by Infonavit, the nation’s biggest housing lender, responsible for about 75 percent of all home loans.
That’s sustaining lending in Mexico even as it exacerbates the slump for builders. Home construction companies were two of the three worst-performing stocks this year on the nation’s benchmark IPC (MEXBOL) stock index.
Urbi Desarrollos Urbanos SAB, the third-largest by sales, has plummeted 61 percent, while Desarrolladora Homex SAB and Corp. Geo SAB, the first and second-largest, have retreated 36 percent and 18 percent this year, respectively.
Increasingly Attractive
Reducing the cost and time of commuting makes better- located existing homes increasingly attractive, said Carlos Hermosillo, an equity analyst covering builders for Grupo Financiero Banorte SAB.
“At the end of the day it’s a very competitive product,” Hermosillo said by phone from Mexico City. Existing homes are “in more central urban areas than what a new home offers you. They also have other advantages including services and total space, despite the fact that it might not be in perfect condition,” he said.
Romero, whose family paid 2.2 million pesos ($168,000) for a 3-bedroom, 200-square meter (2,152-square foot) house in Satelite, a middle-class neighborhood in the northern metro area, said that if they had bought a new home, they would have had to settle for an apartment in a more remote suburb. “I have shopping centers and schools nearby,” Romero said.
The existing home “gave us room to be able to put enough money into the home so that it ended up exactly the way we wanted it.” At Romero’s home, a terrace overlooks her garden and the main bedroom is equipped with a private bathroom and dressing area.
Urban Growth
Mexican towns are pouring into one another, with the Mexico City metropolitan area expanding in area by 3.6 times between 1980 and 2010, according to a 2011 report from the Social Development Ministry. In the same period, the population increased just 1.4 times to 20.1 million people.
The central Mexican cities of Queretaro and Toluca multiplied in area by 16 times and 26 times, respectively, in the past 30 years, according to the government.
The housing boom of the 2000s spawned three initial public offerings by builders in 2003 and 2004 and a subsequent industrywide rally that ended in 2007’s collapse.
The Habita (HABITA) index of six Mexican homebuilders has dropped 80 percent in the five years through yesterday. The gauge rose 0.5 percent at 8:42 a.m. in Mexico City trading.
Demand Decline
The increasing availability of previously-owned home options is supporting consumers even as builders struggle from a decline in demand, said Ariel Cano, head of Mexico’s National Housing Commission.
“The need for a home doesn’t exclusively imply the need for a new property,” Cano said in a July 31 phone interview from Mexico City. “For developers, that might imply an adjustment of their growth expectations.
That’s the main micro problem for these companies.” All three of Mexico’s biggest homebuilders posted negative free cash flow to equity in the first half of the year, a sign that the businesses are spending money faster than they’re taking it in, said Banorte’s Hermosillo. Free cash flow to equity measures cash left for equity holders after costs, investments and debt payments.
Gerardo Copca, an analyst with research company Metanalisis SA, said it’s unlikely existing home sales will continue taking market share from the new market because of the shortage of housing.
Housing Shortage
Mexico’s government estimates a housing deficit of nine million families without a home or living in substandard conditions.
The increase in existing home sales is “temporary,” Copca said by phone from Mexico City. “The housing deficit in Mexico is still high, even if there’s more offer today.”
Mexican mortgage lending climbed 6.3 percent in the first half of 2012 to 287,000 credits, according to data compiled by the local unit of Banco Bilbao Vizcaya Argentaria SA. (BBVA) Creditors provided 114.8 billion pesos ($8.75 billion) in mortgages in the period, according to BBVA Bancomer, as the Mexico City-based unit is known.
The Mexican economy will grow 3.8 percent in 2012, almost double the 2.2 percent pace for the U.S., according to the median forecasts in separate Bloomberg surveys.
The nation’s central bank has held the key rate a record low 4.5 percent since 2009. Developer Urbi’s Chief Financial Officer Selene Avalos said the company is considering ways to turn the growing used housing market into an “opportunity,” including by helping resell abandoned homes in its communities.
‘Community Problem’
Those homes “should be put back on the market,” Avalos said in an interview yesterday at Bloomberg’s Mexico City office. “An unoccupied home is a problem for the community.”
Benchmark dollar borrowing costs for Homex, Corp. Geo and Urbi have jumped an average of 127 basis points, or 1.27 percentage point, in the past two months. Yields on Urbi’s dollar bonds due in 2020 soared 217 basis points in the period, the most of the three.
Homebuyers in Mexico will keep shifting preference to existing properties until the country increases the availability of services outside its cities, Alfredo Viegas, a managing director for emerging markets at Knight Capital Group Inc. (KCG), said by phone from Greenwich, Connecticut.
“What we’re seeing here is just simply the fact of buyer revolt against moving that far away from their places of employment,” Viegas said. “You probably need a more significant upgrade in the infrastructure to allow the suburbs and exurbs to flourish, because the infrastructure’s not exactly up to par.”
bloomberg.com
That’s why they shunned new developments. “You find better locations” in the existing home market, Romero, a 38-year-old homemaker, said by phone from the Mexican capital.
“It was better priced than a new home, and we’ve had the opportunity to remodel and make it the way we wanted.”
Mexicans are reversing course on more than a decade of urban sprawl in their capital city, choosing closer-in used properties as lending growth accompanies an economy that’s expanding at twice the pace of the U.S. Mortgages on existing homes climbed to 34 percent of the total in June, up from 27 percent in 2011 and 22 percent in 2007, according to data tracked by Infonavit, the nation’s biggest housing lender, responsible for about 75 percent of all home loans.
That’s sustaining lending in Mexico even as it exacerbates the slump for builders. Home construction companies were two of the three worst-performing stocks this year on the nation’s benchmark IPC (MEXBOL) stock index.
Urbi Desarrollos Urbanos SAB, the third-largest by sales, has plummeted 61 percent, while Desarrolladora Homex SAB and Corp. Geo SAB, the first and second-largest, have retreated 36 percent and 18 percent this year, respectively.
Increasingly Attractive
Reducing the cost and time of commuting makes better- located existing homes increasingly attractive, said Carlos Hermosillo, an equity analyst covering builders for Grupo Financiero Banorte SAB.
“At the end of the day it’s a very competitive product,” Hermosillo said by phone from Mexico City. Existing homes are “in more central urban areas than what a new home offers you. They also have other advantages including services and total space, despite the fact that it might not be in perfect condition,” he said.
Romero, whose family paid 2.2 million pesos ($168,000) for a 3-bedroom, 200-square meter (2,152-square foot) house in Satelite, a middle-class neighborhood in the northern metro area, said that if they had bought a new home, they would have had to settle for an apartment in a more remote suburb. “I have shopping centers and schools nearby,” Romero said.
The existing home “gave us room to be able to put enough money into the home so that it ended up exactly the way we wanted it.” At Romero’s home, a terrace overlooks her garden and the main bedroom is equipped with a private bathroom and dressing area.
Urban Growth
Mexican towns are pouring into one another, with the Mexico City metropolitan area expanding in area by 3.6 times between 1980 and 2010, according to a 2011 report from the Social Development Ministry. In the same period, the population increased just 1.4 times to 20.1 million people.
The central Mexican cities of Queretaro and Toluca multiplied in area by 16 times and 26 times, respectively, in the past 30 years, according to the government.
The housing boom of the 2000s spawned three initial public offerings by builders in 2003 and 2004 and a subsequent industrywide rally that ended in 2007’s collapse.
The Habita (HABITA) index of six Mexican homebuilders has dropped 80 percent in the five years through yesterday. The gauge rose 0.5 percent at 8:42 a.m. in Mexico City trading.
Demand Decline
The increasing availability of previously-owned home options is supporting consumers even as builders struggle from a decline in demand, said Ariel Cano, head of Mexico’s National Housing Commission.
“The need for a home doesn’t exclusively imply the need for a new property,” Cano said in a July 31 phone interview from Mexico City. “For developers, that might imply an adjustment of their growth expectations.
That’s the main micro problem for these companies.” All three of Mexico’s biggest homebuilders posted negative free cash flow to equity in the first half of the year, a sign that the businesses are spending money faster than they’re taking it in, said Banorte’s Hermosillo. Free cash flow to equity measures cash left for equity holders after costs, investments and debt payments.
Gerardo Copca, an analyst with research company Metanalisis SA, said it’s unlikely existing home sales will continue taking market share from the new market because of the shortage of housing.
Housing Shortage
Mexico’s government estimates a housing deficit of nine million families without a home or living in substandard conditions.
The increase in existing home sales is “temporary,” Copca said by phone from Mexico City. “The housing deficit in Mexico is still high, even if there’s more offer today.”
Mexican mortgage lending climbed 6.3 percent in the first half of 2012 to 287,000 credits, according to data compiled by the local unit of Banco Bilbao Vizcaya Argentaria SA. (BBVA) Creditors provided 114.8 billion pesos ($8.75 billion) in mortgages in the period, according to BBVA Bancomer, as the Mexico City-based unit is known.
The Mexican economy will grow 3.8 percent in 2012, almost double the 2.2 percent pace for the U.S., according to the median forecasts in separate Bloomberg surveys.
The nation’s central bank has held the key rate a record low 4.5 percent since 2009. Developer Urbi’s Chief Financial Officer Selene Avalos said the company is considering ways to turn the growing used housing market into an “opportunity,” including by helping resell abandoned homes in its communities.
‘Community Problem’
Those homes “should be put back on the market,” Avalos said in an interview yesterday at Bloomberg’s Mexico City office. “An unoccupied home is a problem for the community.”
Benchmark dollar borrowing costs for Homex, Corp. Geo and Urbi have jumped an average of 127 basis points, or 1.27 percentage point, in the past two months. Yields on Urbi’s dollar bonds due in 2020 soared 217 basis points in the period, the most of the three.
Homebuyers in Mexico will keep shifting preference to existing properties until the country increases the availability of services outside its cities, Alfredo Viegas, a managing director for emerging markets at Knight Capital Group Inc. (KCG), said by phone from Greenwich, Connecticut.
“What we’re seeing here is just simply the fact of buyer revolt against moving that far away from their places of employment,” Viegas said. “You probably need a more significant upgrade in the infrastructure to allow the suburbs and exurbs to flourish, because the infrastructure’s not exactly up to par.”
bloomberg.com
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