The last time Mexico’s finances made global headlines was due to a massive devaluation of the peso and severe economic hardship. Under the stewardship of outgoing President Vicente Fox, the news is better, although without as many headlines. Finances have stabilised and the economy has grown. And the situation for low to middle income Mexicans has improved, thanks to the increased availability of mortgages, lower interest rates and a renewed commitment to home ownership by the government.

 

With the recent confirmation of Fox’s successor, fellow National Action Party member Felipe Calderon, as president-elect, many observers expect that the six years of stability during Fox’s tenure will continue, says Evelyn Jabiles, Managing Director of the Synovate office in Mexico City. That’s good news for prospective homeowners. “This is the longest period of stability in loans and rates Mexico has ever had,” Jabiles says. “Six years is a long time for this country.”

 

From 1995 to 2000, it was nearly impossible for Mexicans to borrow from banks. The devaluation of the peso in December 1994 caused already high interest rates to skyrocket between 50 to 120%. Mexicans who wanted their own homes couldn’t afford a mortgage and were forced to continue living with their families or rent accommodation. Home construction plummeted.

 

“There were just four or five big construction companies building low-income housing,” explains Francisco Rabago, a real estate developer in Mexico City who has been in the business for 25 years. “They were the only ones who could afford to do it.”

Priming the pump

 

A major contributing factor to the resurgent housing market has been the government’s intention to boost home ownership. When Fox was elected in 2000, the government created the Sociedad Hipotecaria Federal (SHF), a programme that helped Mexicans obtain loans to buy homes.

 

The loans are marketed and issued by SOFOLs – niche financial institutions that don’t take deposits. Under the programme, people can borrow between US$40,000 and $200,000 at interest rates of eight to 10% and that are fixed for 20 years.

 

SHF loans target middle-class Mexicans and Rabago estimates about 15 million of the country’s 106 million residents are eligible to receive them. There are also special incentives for government employees, such as lower interest rates and more favourable terms. These incentives also apply to people who can prove they have been employed for the past ten years.

 

Since 2000, about one and a half million Mexicans have taken advantage of these loans, estimates Rabago. He says most of the recipients are double-income couples between the ages of 28 and 45 who make a combined salary of around US$3,500 a month.

Moving on up

 

Since the formation of the SHF in 2000, seven million homes have been built in Mexico, says Jabiles. However, five-and-a-half million were built for the poor through INFONAVIT, the national housing agency for low-income families.

 

Introduced in 1972, INFONAVIT was designed to help workers buy homes costing between US$20,000 and $40,000. Under the programme, employers contribute 5% of their payroll to the fund. INFONAVIT uses the contributions to award 30-year mortgage loans.

 

But INFONAVIT is undergoing reforms designed to make it more profitable. Until six months ago, INFONAVIT loans were issued by SOFOLs and paid back to the government. However, many recipients did not make good on their loans, so the government is turning the loans over to banks in an attempt to recoup the money.

 

“There was no way for the government to recover those loans,” Rabago says, “so it became the responsibility of the taxpayers to take care of them.” INFONAVIT has financed one-third of the affordable housing market in Mexico since its inception, and became responsible for nearly half of it after the peso was devalued in 1994.

 

The move towards less government financial responsibility has other consequences. Before 2000, someone defaulting on their mortgage payments had five years before the banks could repossess the house. Now, a house can be repossessed in just five months. Despite this, Jabiles says that the Mexican economy is good and unemployment is low, so very few of these loans go into default. “It’s very rare that people cannot pay”.

 

Beyond this, INFONAVIT has plans to broaden its remit, including extending loans to the many workers who earn money in the informal economy (tips, unreported wages), according to a report by the Wharton School of Pennsylvania. INFONAVIT has set a target of giving 750,000 new loans in 2006, up from 500,000 last year.

 

The outside interest

 

Thanks to the push towards middle and lower income home ownership, banks are beginning to offer attractive mortgage packages to would-be homeowners. Last month the Mexican arm of Scotiabank, Canada’s second largest bank, announced it was offering mortgages with no down payment – the first such mortgages offered in Mexico.

 

 

Scotiabank Inverlat’s new mortgage product will be covered by insurance provided by Genworth Financial Inc, an American company that provides mortgages in the United States and 12 other countries. This comes after Mexico’s congress passed legislation earlier this year that, for the first time, allows for mortgage insurance. Ricardo Garcia Conde, head of mortgages at Scotiabank, says he expects the bank will provide US$300 million worth of mortgages with no down payment over the next year.

 

Jabiles predicts that in Mexico, people will be clamouring for homes – and government loans – for some time to come. “People can access these loans quickly,” she says. “They are well managed, but most importantly, the market is safe.”

Safe indeed. Construction companies on the Mexico Stock Exchange registered annual returns of more than 44% in 2005. What a difference a decade makes.