Mexico’s Record Foreclosures Impeding Home Ownership: MortgagesJonathan Levin and Ben Bain
Arturo Sandoval, a 25-year-old homeowner in one of Mexico’s low-income developments outside the capital, commutes two hours each way to his job at a Mexico City soap factory.
In the Parque San Mateo community where Sandoval bought his home from builder Desarrolladora Homex SAB for about 350,000 pesos ($29,000), neighbors play soccer in the street between rows of abandoned properties. His commute starts with a van to the station, then a bus into the city. Whenever he works late, he often misses the last van and has to walk the final stretch.
Life in the housing development “isn’t everything they said it would be,” he said.
San Mateo’s deserted homes are evidence of the exodus from commuter towns that sprang up across Mexico during the last six-year presidential administration as a record 3 million government-backed mortgages and housing credits helped turn builders into billionaires. Now, with foreclosures at a record, President Enrique Pena Nieto’s five-month-old government is trying to reverse course on urban sprawl by shifting subsidies to encourage apartment development in cities. Builders that specialized in the old strategy are struggling to adapt.
Urbi Desarrollos Urbanos SAB, based in Mexicali, and Mexico City-based Corp. Geo SAB defaulted on bond payments last month, and both say they’re considering restructuring debt. Urbi’s cash and cash equivalents fell 95 percent to 116 million pesos ($9.5 million) in the first quarter from the end of 2012, while Geo’s cash fell 84 percent to 371.4 million pesos.
Homex, Mexico’s biggest homebuilding company by revenue, sold its stakes in two prisons to avoid following peers into default. Its cash plummeted 86 percent to 322.7 million pesos as of March 31 from the end of last year.
Javier Gayol, a housing analyst at Corporativo GBM SAB, Mexico’s biggest brokerage by volume, said the government’s shift in focus to city development is the right move for homebuyers, even as dwindling cash prompts him to recommend selling Urbi, Geo and Homex stock.
“In terms of the consumer, the client, the society, the best thing you can do is to reorganize the urban sprawl and focus on sustainable growth,” he said in an April 29 telephone interview from Mexico City. “You’re witnessing the unraveling of something that should have been foreseen more than two years ago -- or if you delve deeper, even further back yet.”
Home repossessions more than doubled last year to a record 43,853 from 2011, according to the National Workers’ Housing Fund Institute, or Infonavit, the state-backed lender responsible for about 70 percent of mortgages in Mexico.
The wave of home desertions is making life progressively worse for residents who stay in the community, said Sandoval, the San Mateo resident. While some houses have been turned into makeshift businesses -- nail salons, stationary stores, an Internet cafe -- many other forsaken buildings sit idle, and he worries about the safety of his three-year-old son as criminals move in on unattended property.
A banner strung up between lines of row homes warns of vigilante justice against offenders -- “Parque San Mateo: He who is caught stealing shall be lynched.”
For at least a decade before the industry’s unraveling, Mexican homebuilders had been luring Wall Street money, with at least $3 billion in foreign bond sales and three initial public offerings since 2004, while government representatives joined builders on trips from New York to London in pursuit of funding.
With U.S. home prices at six-year lows in 2009, a Mexican National Housing Commission presentation in New York that year described how Latin America’s second-biggest economy was different. Investors could count on “strong federal government support” for the industry, and their money would help meet a housing deficit of as much as 6 million homes, the slide show said. As the communities multiplied, Homex shares quadrupled.
At its peak share price, the stake of Urbi Chairman and Chief Executive Officer Cuauhtemoc Perez Roman grew to more than $1 billion. The family of Homex Chairman and founder Eustaquio Tomas de Nicolas Gutierrez had a stake that surpassed $1 billion less than four years after the company went public.
“You can’t separate Infonavit or the National Housing Commission from these policies,” Alejandro Nieto Enriquez, head of the government’s housing policy body since President Pena Nieto took office last year, said in an April 29 phone interview from Mexico City. “But that doesn’t mean in any way that the companies didn’t see this coming, that the policy for urban development couldn’t go on like that.”
A spokeswoman with the National Action Party, which ruled Mexico for 12 years before the return last year of the Institutional Revolutionary Party, didn’t respond to a request for comment on the previous administration’s housing policy.
Marena Rubio, a press official for Homex, didn’t respond to an e-mail seeking comment on the company’s operations. A phone call to her office went unanswered. Alejandro Haiducovich, a spokesman for Geo, declined to comment on the company’s cash loss and its possible restructuring.
Urbi is adjusting to “liquidity issues, but I want to make clear that it’s not an issue of insolvency,” David Aguilar, a company spokesman, said in a telephone interview from Mexicali.
Jim Harper, director of corporate research at BCP Securities LLC, said population growth is helping fuel demand for homes that makes it unlikely any of the country’s biggest homebuilders will go out of business, even if they restructure debt and “shrink dramatically.”
“It’s a period of adjustment,” he said in a phone interview from Greenwich, Connecticut. “In the medium- and long-term I’m actually very bullish on the industry.”
While apartment-focused development in cities will help prevent further sprawl, GBM’s Gayol said it’s too late to avoid debt restructuring for the nation’s biggest homebuilders at the expense of investors.
The fallout is also costing homebuilder industry workers like Noemi Rodriguez, 38, and her family. The Homex saleswoman said she’s owed more than 50,000 pesos by the company for commissions earned and has stopped receiving benefits. Homex’s Rubio didn’t respond to attempts to confirm.
She said hers is an example of a nationwide failure by Homex to pay employees that has prompted a rash of lawsuits and walkouts by disgruntled workers. Only about 10 employees still show up, even occasionally, to her office on a busy stretch of highway in Mexico state, just outside the capital, compared with about 50 two months ago, Rodriguez said.
“I don’t know what’s happening,” Rodriguez, who said she hasn’t sued and keeps coming to the office amid promises from administrators and on hopes the Culiacan, Mexico-based company will turn around. “It’s like we’re dogs. No one has told us anything.”
Rodriguez said she and her husband, Alvaro Calva, 45, bought a house in Homex’s La Esmeralda development about 55 kilometers from Mexico’s central plaza. Residents there face water shortages, electricity outages and security concerns due to vacant or unfinished homes, she said. Calva, who along with the couple’s 20-year-old son Gabriel is also a Homex sales representative, said in an interview that the company “can’t fail because it’s so big.”
The Mexico Habita Index of six builders fell to a record low yesterday, with Urbi dropping 78 percent this year, Geo falling 72 percent and Homex retreating 63 percent. Bond prices for all three companies touched historic lows this month.
Urbi, which is facing lawsuits from Barclays Plc, Credit Suisse Group AG and GE Capital over debts and unmet margin calls, hired Rothschild to advise it on the possible restructuring. Geo is working with Fians Capital. Homex says it’s negotiating with lenders over its bank debt and has no plans to restructure.
Billionaire Carlos Slim, the buyer in Homex’s 4 billion peso asset sale last month, is also the majority owner of Grupo Financiero Inbursa SAB, its creditor on 1.8 billion pesos of bank debt outstanding as of the end of 2012.
“Three years ago, these companies already had bad problems,” Gayol said. “Two years ago it looked really serious, and by last year the problem was practically irreparable.”