Carlos Pantoja
Lead Partner for the Construction, Tourism and Real Estate Industry at Deloitte
View from the Top

To Use Instead of Own, to Rent Instead of Buy

Thu, 11/01/2018 - 10:58

Q: What is Deloitte’s overview of the Mexican infrastructure industry and its most pressing needs?
A: Mexico most certainly requires a greater investment in infrastructure. Most of the world-class studies and infrastructure rankings place the country around 70th or 80th. These ratings consider roads, rails, ports, airports and other segments of the infrastructure industry. The economic crisis Mexico faced in the last couple of years imposed a budget cut on the industry. As a consequence, many of the NIP projects of the 2013-2018 administration were canceled. The most relevant and visible project at the moment is NAIM, followed by the Mexico City-Toluca Interurban Train and the Lazaro Cárdenas Terminal. In this scenario, the industry requires clear rules and a long-term infrastructure plan that correspond to a deep study on the real impact that projects have and that endorse why they should be prioritized. This requires resources that must be secured by the government as, besides PPPs and other financial mechanisms, it is its responsibility to ensure infrastructure development. The next president should strive to guarantee the resources to implement an infrastructure master plan.
Regarding real estate, Mexico’s population will grow by 12 million by 2025. With a growing middle-class, the demand for housing remains strong. But the reduction of subsidies such as INFONAVIT, higher interest rates and contingencies like earthquakes have people reconsidering what to prioritize. The industry has to learn from its past lessons and aim for clear rules, an urban development master plan for city growth and precise property registries. To make construction processes more clear and efficient, technology is key because it easily allows the identification of construction density levels per area. This is useful in the establishment of fair property tax brackets, for example, which is an important revenue stream for the government. There is also a pressing need for private companies to abide by zoning restrictions.
Q: What financial mechanisms for real estate funding being used abroad could Mexico benefit from?
A: Mexico has taken important steps with the creation of laws that allow institutional financing to reach the infrastructure industry through Fibras, CerPIs and CKDs. These mechanisms must be public and listed on the stock exchange, but I am convinced that privatization through a limited partnership would be very useful, as is done in the rest of the world. This has not happened here yet due to the government’s fear that it will jeopardize workers’ savings and concerns about documentation and inspection of where resources are going. I perceive that Mexico is achieving a maturity level that will allow the creation of limited partnerships. This will give sponsors more access to institutional funding mechanisms according to their track record, the project and investment proposals. Also, this would negate the need to audit these investments through the stock exchange. This is the next step that Mexico should take, which should be viable in the midterm.
Q: What is Deloitte’s forecast for demand in the infrastructure industry?
A: The market often wonders if Mexico’s commercial real estate has become saturated, which I think is not the case as the country has adopted commercial centers as a safe place to go take a walk and spend family time, so there is still demand. Most shopping malls have incorporated movie theaters, amusement parks and restaurants. This makes commercial centers attractive for users, meaning demand for these spaces will remain steady.
Regarding tourism real estate, the industry has experienced a boom. Today, tourism is mostly oriented to the coast, such as the Riviera Maya, but the sector must start taking advantage of other segments such as cultural, religious and medical tourism. I think these niches can catalyze higher spending per tourist. It is not a matter of attracting more tourists but having them stay longer or spend more in the country.