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Mexico Builders Fall to Lowest Since 2009 on Subsidy Delays

Mexican homebuilders fell to their lowest levels in two years on concern delays in government subsidies will lead to inventory backlogs and cash shortages.

The Habita index of six Mexican homebuilders dropped 5.5 percent to 264.28 today, the lowest since April 2009. Desarrolladora Homex SAB, Mexico’s largest homebuilder, dropped 6.8 percent to 31.18 pesos. Urbi Desarrollos Urbanos SAB plunged 6.5 percent to 15.83 pesos.

Under the 2x1 program, aimed at helping low-income families purchase homes, the federal government will provide one peso of subsidy money for every two pesos pledged by local governments. Builders have made investments in new projects to boost sales while expecting subsidy money, and then faced payment delays, said Carlos Hermosillo, an analyst with Grupo Financiero Banorte-Ixe.

“There have been some delays” on the part of the states, Hermosillo said by phone from Mexico City. “You end up getting stuck with a product designed specifically for that niche.”

Homex said in an Oct. 24 statement that delays in the 2x1 program “particularly” affected operations in the third quarter.

The delays have caused a buildup in inventory as cash flow suffers, according to Hermosillo.

Declines This Year

Homebuilders led by Corp. Geo SAB are the worst performers on the benchmark IPC index of 35 Mexican stocks, accounting for four of the measure’s five biggest decliners this year. Geo dropped 61 percent.

While Urbi’s net income jumped 72 percent in the third-quarter, investment in housing projects and land acquisitions pushed free cash flow to equity -- a measure of profit available to shareholders after expenses -- to negative 1.1 billion pesos ($81 million) in the period, from negative 460.5 million pesos a year earlier.

As a result, the company cut its 2011 forecast for the cash flow measure, known as FCFE, to negative 800 million pesos, from an expected range of positive 500-800 million pesos a quarter earlier, Chief Executive Cuauhtemoc Perez said Oct. 25, according to a transcript of the company’s conference call with analysts.

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