Making Money in Mexico
Learn what it takes to do business south of the border.
Editor's note: In March 2004, the CCIM Institute hosted its
first-ever trade mission in Monterrey, Mexico, to promote cross-border
business opportunities for members. A variety of U.S. and Mexican
commercial real estate professionals, including the authors, gathered
for two days of presentations, group discussions, and networking. This
article highlights Mexico's property markets and key economic and
political factors that affect commercial real estate opportunities.
real estate transactions are certain to increase as trade agreements,
political reforms, and globalization lower the barriers that separate
the United States and Mexico. To successfully participate in this
promising new market, commercial real estate professionals should
educate themselves about Mexico's property sectors and economic and
political issues that affect the country's business climate.
Property Market Overview
The following summaries offer a glimpse of Mexico's real estate market's major drivers.
Mexico's hotel market is the most robust in Latin America . Typically
properties have been built with foreign capital and about half are
leisure-oriented. In 2003, tourism was the country's third-largest
source of foreign capital, and Mexico 's beaches and resorts continue
to attract foreign tourists, approximately 80 percent of which come
from the United States . The tourism industry employs about 6 percent
of Mexico's workforce, and foreign investment in luxury hotels,
condominiums, and other hospitality-related projects rose 12 percent
Retail. Since 2001,
Mexico's consumer spending has risen 5 percent and consumer imports
have increased 10 percent to 15 percent due to a strong, stable
currency. Large urban populations and solid demographic trends also
support a healthy retail sector.
Wal-Mart established a
presence in Mexico in the mid-1990s and several other U.S. and
international big-box retailers are entering the market, including HEB,
Carrefour, Costco, Price-Smart, Home Depot, Sears, J.C. Penney,
OfficeMax, and Office Depot, among others.
A few large players dominate the distribution and speculative
industrial market. Most of the maquiladoras remain near the U.S./Mexico
border; however, the industry has been transformed in recent years.
Originally formed as Mexico-based manufacturing subsidiaries of U.S.
companies, the plants and products now tend to be from Mexican
companies. Also, there are no import/export duties for eligible
products if the import is temporary. Therefore, once parts are
assembled in Mexico into finished goods for export to the United States
, only the value added in the assembly process is taxed. The U.S. auto
industry is the leading benefactor of maquiladoras followed by durable
In addition, logistically
prominent industrial parks are emerging away from the border and along
Mexico City's outskirts. Mexico City's industrial vacancy rate is
currently about 12 percent, a significant improvement over 2000's 18
Office. While Mexico City is
the primary office market, Monterrey and Guadalajara are strong
secondary markets. Office properties primarily are owner-occupied, and
some sale-leasebacks occur.
As of first-quarter 2004,
vacancy was 20 percent in Mexico City, and hovers around 25 percent in
Santa Fe, the city's largest submarket. Mexico City's vacancy rate will
continue to rise as 3.5 million square feet of office space are added
this year. Despite these high vacancy rates, local private investors
keep constructing new space, further compounding the problem.
office property owners soon may provide U.S. investors with some
purchasing opportunities at below replacement cost. However, the
service sector is a very small part of Mexico's gross domestic product,
and the prospects for expansion in the office sector are remote.
Housing demand is exploding as Mexico's large youth population enters
the job market. In 2000, more than half of Mexico's population was
under age 24; as this segment ages, 10 million people will be added to
the 25- to 50-year-old demographic by 2010.
is a concern for residential development: Will future employment and
income growth be sufficient to allow young families to purchase homes"
Financing for home buyers is another issue. Historically, the primary
residential mortgage market has been inefficient and government
subsidized. Yet, securitization progress is being made, with total
property securitizations expected to reach $1 billion this year.
However, the Mexican secondary market for residential mortgages is in
its infancy, and growth may be constrained due to poor discipline in
the primary market.
Two Mexican lenders are opening
U.S. branches to allow U.S.- based Mexicans to obtain mortgages for
family members still living south of the border. To qualify, borrowers
must provide proof of income and a 20 percent down payment to secure
five- to 20-year mortgages of $20,000 to $50,000. The loans are made in
pesos and generally carry double-digit fixed interest rates.
lacks professional residential real estate companies and broker
training and licensing. Developing these services may improve the
market's efficiency over time, but currently tremendous opportunity
exists for U.S. real estate professionals to service both sides of the
The developer-built housing market also is
fragmented. Only eight major companies build more than 2,000 homes per
year, leaving opportunities for large U.S. builders looking to expand
To be successful in Mexico's real estate
market, investors and brokers must understand the property sectors'
nuances and key political and economic hurdles (see sidebar). Other
considerations include the unavailability of market data, low reporting
standards, and the lack of financial transparency. Market players who
navigate these challenges deftly can expect to earn lucrative returns.
The following resources provided additional information on real estate investment in Mexico.
Analysis Between U.S. and Mexican Commercial Real Estate Transactions
(With Tax Considerations Commentary)," by Patrick W. Martin, in Law and Business Review of the Americas, Fall 2001.
"Legal and Practical Issues Involved with Maquiladora Financing," by Sandra L. Shippey and Patrick W. Martin, Law and Business Review of the Americas, Winter/Spring 2002.
"Prerequisites for a Successful Secondary Mortgage Market: The Role of the Primary Mortgage Market," by Michael J. Lea, Housing Finance International 15, Dec. 2000.
"Understanding Real Estate in Mexico," by Mitch Creekmore, Texas Realtor, May 2001.