The Housing Chronicles Blog: Maybe it's time to open a division in Mexico

Sunday, January 20, 2008

Maybe it's time to open a division in Mexico

In 1994, Mexico was a basket case, devaluing its peso and sending millions of residents across the border in search of work in the U.S. However, the past 18 years have been very good to Mexico -- and especially for Mexican real estate. From a story in today's L.A. Times:

Long thrashed by swings in the U.S. economy, Mexico now boasts a thriving housing sector whose record growth leads Latin America -- a sign of increased economic stability and an outlet for investors looking to escape the U.S. downturn.

Giants including the California Public Employees Retirement System, the largest U.S. public pension fund, are already bankrolling projects in Mexico, where they see "more bang for the buck," said Clark McKinley, spokesman for CalPERS, which has invested more than $300 million in Mexican real estate funds.

The trend could even slow emigration from Mexico, by generating millions in jobs and personal savings as a fresh supply of loans gives many their first chance to own a house.

Apparently the good times will continue, as the country's real estate market is ripe for expansion for several reasons:

Behind the boom are six years of economic growth and stability, and a national shortage of 6 million dwellings. While interest rates are falling, just 6 percent of Mexico's 25.7 million homes are financed with mortgages -- compared to about 67 percent in the U.S. Most Mexicans still inherit their homes, buy them with cash, or build them by hand.

That pent-up mortgage demand in a nation of 108 million means lenders can be choosy, enforcing strict standards that held delinquency rates below 4 percent in third quarter-2007, compared to 5.6 percent in the U.S.

"Mexico is in the early stages of expansion," said Juan P. De Mollein, managing director for Latin American structured finance at Standard & Poor's. "There are still plenty of points for evolution because there's still plenty of demand."

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