The real-estate sector in Mexico is one of the most affected sectors during 2020. Without a doubt, this economic sector turns out to be a thermometer of the Mexican economy given that it touches upon several areas and activities, such as services, hospitality, retail, and more.
Looking at the bright side, I observe a positive difference from the 2009 crisis. The real estate sector was the cause to some extent (or largely) of the 2009 financial crisis. Now, we see the real estate sector as a possible or great solution to this economic crisis, mainly because the benchmark rate is very low in developed countries, such as the U.S., Japan, among others, rates are negative or zero. In my view, this implies that there is an “appetite” to carry out real estate investment schemes with some security.
Mexican Reference Interests Rates
When the reference interest rate is at 4% levels (i.e. what you receive for your money by just staying in the bank), the profitability that a property can give is simply not comparable. Of course, the profitability is different depending on the type of property or industry. However, the actual reference rate levels make real estate investment very attractive in Mexico.
The COVID-19 pandemic definitely has had an effect on the real estate sector, but one should consider how to further democratize this sort of investment to a wider market. A person or family with one million pesos cannot access real estate investment. However, said person or family can have a “ticket” through some financial vehicles, such as an income pool, allowing him or her to have returns linked to the profitability of real estate.
Tourism and Hospitality Real Estate Sector
COVID had a great negative impact on tourism and the hospitality sectors, along with retail or commerce and, thus, real estate. The decline in consumption was the main cause of this negative effect. The other real estate sectors with perhaps a less harsh impact are housing and, then, offices and industrial.
Leasing Sector in Mexico
The recovery is expected to be very slow simply because of the decline in services and, evidently, unemployment. Although the leasing sector and industrial buildings were least impacted, fewer offices and industrial land will continue to be leased.
Unlike the above, commerce or retail real estate, such as restaurants, may recover quicker as they reopen their doors. People expect to return to normality, as far as possible, to have life experiences, returning to the malls or plazas.
Housing Sector in Mexico
In the housing sector, the residential market is a very captive market. Namely, houses located in the large cities of Mexico, such as Tijuana, Querétaro, the Bajío area, Guadalajara, or Monterrey that are worth between 1.5 million to three million pesos.
Emerging Mexican Cities and Real Estate
Unfortunately, Mexico City has set a brake to real estate development and its authorizations. This has caused investors to turn to see these emerging or growing cities, like Tijuana, Guadalajara, and Monterrey, that have had very significant economic development.
The real estate industry must look for financial instruments that are available for these “emerging” real estate markets, i.e. the 1.5 million pesos houses. Real estate developers should consider vertical projects that allow offering an affordable verticalization to the real estate investor.
We must not forget that the new generations, millennials and generation z, are the economically active segment of the population in Mexico. Baby boomers and generation x are no longer as productive.
We have to look for the schemes that allow reaching this market. Millennials are leasing 65% of the houses available for rent. This situation gives us a parameter to identify what they are looking for, what they are buying, and above all how to access that market.
The issue of income is attractive. A real estate developer can establish investment schemes that allow to capture the capital and offer a more affordable “ticket.” In turn, the developer will be able to yield profits, allowing housing access to this segment of the population that has some liquidity and that is located in these price ranges. Moreover, the mortgage rate is attractive and affordable, currently, between 7%-8%.
Finally, one should note that we consider that there could be a significant recovery in the real estate sector, particularly areas related to leisurely. Needless to say, the buyer’s market has to definitively take advantage of these opportunities, especially when interest rates are so low and, thus, creating strong profitability conditions.
How to do business in Mexico?
The Mexican Legal Guide
How to create a company in Mexico?
Under this section, Doing Business Mexico explains the 12 steps to create a company in Mexico, including the basic legal features of the two most relevant types of companies as well as other possible business structures.
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Do Foreign Investment Restrictions Apply in Mexico?
As a general rule, all sectors of the economy are open to foreign investors unless otherwise provided in Mexico’s Foreign Investment Law. Although through the years sectors have been liberalized, Mexico has still foreign investment restrictions in place that are applicable to specific activities as well as restrictions on land ownership.
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International Trade in Mexico
Being a WTO member and having 13 Free Trade Agreements, Mexico is a country that is open to international trade. In this guide, topics such as tariffs, preferential tariffs, import restrictions, customs procedures, Free Trade Agreements like USMCA, among other matters, are reviewed.
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The IMMEX Program and the Mexican Manufacturing Industry
The export-oriented manufacturing industry, also known as the maquiladora industry, represents one of the most important pillars of the Mexican economy. The IMMEX program is, to a great extent, used by companies within the manufacturing industry. In this guide, Doing Business in Mexico provides a general overview on the IMMEX program.
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Taxation in Mexico
What are Mexico’s main taxes? What is the corporate income tax rate or Mexico’s VAT? When a foreigner creates a permanent establishment in Mexico, or is considered a resident for Mexican tax purposes? In this guide, Doing Business in Mexico explores the common questions that a foreigner has about Mexican Taxes.
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Labor in Mexico
What is Mexico’s labor environment? What is the minimum wage? What about the effects of the United States-Mexico-Canada Agreements (USMCA) on unions and collective bargaining? In this guide, Doing Business in Mexico explores the common employment topics that a foreigner has about Labor in Mexico .
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