Three Years After Housing Implosion, Mexico Risks Suffering Another Mess Nacha Cattan - Bloomberg
go to original July 16, 2016

Megalopolis - Nezahualcoyotl (Oscar Ruiz)

Three years after Mexico’s housing crisis wiped out $4 billion in stocks and bonds, the industry risks suffering another downturn.

That’s because President Enrique Pena Nieto has close to doubled subsidies for low-income housing in the past two years. Moody’s Investors Service analyst Francisco Vazquez said that has encouraged developers to go on a construction spree even as a sluggish economy saps demand for new homes. Much of the new building is also taking place in the outskirts of major cities where few services are available, he said.

Pena Nieto himself roiled the housing market shortly after taking office in 2012. He said his government would use its subsidies program to steer construction closer to city centers at a time when some homeowners in far-flung developments were being left with no basic services. Vazquez warns that the overbuilding threatens to hurt Mexico’s residential mortgage-backed securities market, where default rates remain above the 4 percent level they reached during the 2013 meltdown.

“Mexico’s housing policy faces a huge challenge,” Robert Rauch, who oversees $6.3 billion of assets at Gramercy Fund Management LLC in Greenwich, Connecticut, said in an email. Homebuilders are constructing “units that are significantly cheaper to build but remain far outside the main city centers.”

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