Can Real Estate Transform Mexico’s Cities?

The private sector needs legal certainty regarding projects to continue developing real estate infrastructure in secondary cities, panelists said at the Mexico Infrastructure & Sustainability Summit 2018, as they reflected on the opportunities that smaller cities offer for infrastructure development.

“The trustworthiness and profitability of cities depend not only on the public and private sectors, but on the applicability of concepts as rule of law,” said Javier Valencia, Executive Vice President and Co-Founder of the Mexican Institute of Sustainable Smart Cities (IMCISS), during a panel discussion at the Hotel Marquis Reforma in Mexico City on Wednesday.

Valencia was joined by Juan Manuel Ramírez, Executive Director of Operations of LOMA Desarrollos; Mauricio Ceballos, Director of Fernando Romero Enterprise; Carlos del Río, Partner at Creel, García-Cuéllar, Aiza y Enríquez; and Jack Levy, President of Grupo VEQ.

Del Río mentioned that there are secondary cities like Tijuana, Leon, Merida or Pachuca that in the past five years have provided more legal certainty to investors and real estate developers, which has generated a development boom in these places. “By strengthening the rule of law in these cities and providing more certainty, authorities have generated more efficiency in project execution. Developers know exactly the type of permits they need, the characteristics of the land they buy and what they can or cannot do with those land plots,” del Río said.

For Levy, the efficiency generated by legal certainty in the so-called secondary cities gives them an advantage over primary cities. “We are used to measuring secondary or primary cities in terms of population size and economic output. If we measured them in terms of efficiency and how much legal certainty they provide, secondary cities would be the country’s primary cities.”

Ramírez added that by having a group of citizens working to generate legal certainty creates a virtuous cycle where cities become promoters of their development and compete for investment. “By competing for investment, secondary cities become productive and efficient entities for real estate developers, generating an interesting business opportunity,” he said.

Although secondary cities offer important opportunities, Ceballos warned against sacrificing innovation in development. “Given the flexibility that exists, unfortunately, secondary cities can sometimes become a copy of other cities in the world like Miami.” The solution, he said, is to understand and respect a city’s calling. “Success lies in understanding the nature of these cities and how we can innovate while developing them. Real estate can either promote cities and generate more added value or destroy them.”

Levy added that for secondary cities to continue being models of success, both the government and the private sector need to make sure that growth and development happen in an orderly manner and not let corruption take hold of processes. “Corruption is not a government or private sector problem, it is a human problem. We need to make sure that these practices that have harmed the country are not replicated in these cities.” Ramírez said that the solution could start with the private sector. “If we develop a civic sense and stop this vicious cycle, we can develop a more positive dynamic.” To which Ceballos added: “Secondary cities offer a development opportunity but at the same time great responsibility.”

Despite the uncertainty the infrastructure sector is facing, in the long run the sector will see positive results, Ceballos said. Added Ramírez: “Construction is a pillar of the Mexican economy. Although there will be a bump in the sector during the first months of the next presidential administration, we are sure that it will not be long before the sector bounces back. The first step is to provide certainty to the private sector, then we can start developing.”