The Shadow Of An Old Crisis

Even though Mexico has been considered a country shielded from the worst consequences of the 2008 financial crash, that does not mean that the Mexican economy is invulnerable to the effects of a similar event in the future. This could even apply to a hypothetical collapse localized within Mexico’s real estate and financial markets. 

This week, Inmobiliare published an article by Miguel Tinajero from Nabú Bienes Raíces, which analyses the veracity of these anxieties. It begins by addressing the aforementioned premise that Mexican real estate has “proven throughout history to appear immune to devaluation.” The article reports that the sector is experiencing significant pressure as a result of the ongoing COVID-19 crisis and the outsized increase of the dollar’s value. To understand this impact, Tinajero divides the most important and current real estate markets in Mexico into two categories which he calls the “superior block” and the “in-development block.” The superior block is composed of Mexico’s three largest cities: Mexico City, Guadalajara and Monterrey. The in-development block is composed of Mexico’s fastest-growing real estate markets: Tijuana, Guanajuato-Leon, Queretaro and Merida. 

The superior block might accumulate more capital, but it risks being overvalued because it is not giving buyers the necessary margins of choice. The in-development block, while not close to the superior block in monetary volumes, does present an extremely aggressive increase in prices over the last six years that could also show signs of overvaluation. 

The key variable, according to Tinajero, is what the value of projects currently in development will be, while the markets adjust to the impact of the crisis. Real estate companies might find themselves developing  specific projects that are no longer as valuable as projected by the time of their completion. This might add to a financial system overburdened by debt that will not be payable under the current projections of economic growth. Taking these and more factors into account, Tinajero concludes that there is a definitive risk of a housing bubble in Mexico, but that it will not be equally distributed all over the country. Some cities and market categories will suffer more than others.