urnas real estate

June 12th, 2024

Sales Department

10 days after the presidential elections were held in Mexico, today we are going to explore a topic that is trending nationally and internationally: the results of the 2024 elections in Mexico and its influence on the business and the real estate market. Read on to break down this event and get key facts you won’t want to miss!

Results of the 2024 elections and their context

The 2024 elections have undoubtedly been a true turning point for Mexico. For many aspects: massive political campaigns, controversial debates, proposals from candidates with divided opinions and the inclusion of women in politics as candidates for the presidency of the republic, to name a few. Last June 2, the elections of the Mexican Republic were held. Voting as Mexicans is a responsibility and a right that we must exercise and I am glad to have been part and see how people were committed to exercising their vote and wanting to see a positive change in the country. 

These elections resulted in a decisive victory for the MORENA party and its candidate Claudia Sheinbaum, who obtained an impressive 59.35% of the votes, now the country is preparing for a series of significant changes.  

 

Before delving into the topic, it is important to highlight a couple of elements: the first is that this would be the first time in the history of Mexico that a woman will be head of state, which is applaudable in a country where politics has historically been always a “men’s issue”. This represents a great achievement for the women of the country, since we will be represented by one and we have great expectations of changes and improvements.

 

Another important fact is that in addition to having 24 governorships in the 32 states of the country, MORENA managed to have a qualified majority in the Congress of the Union where they will occupy between 76 and 88 seats of the 128 that make up the Chamber of Senators. Why is this relevant? Because to make modifications to the Political Constitution of the United Mexican States, it is necessary to have 85 of the 128 seats (said qualified majority).

 

Now you may wonder: What does this mean for the country’s economy? How will these decisions affect business and the real estate market in Mexico? What advantages and disadvantages can we obtain? Let’s break it down.

Impact on the business sector

Let’s start with the business and corporate sector in Mexico. There are both positive expectations and concerns.

Positive effects

Foreign direct investment: With tax incentives to attract foreign investment, a 27% year-on-year increase in FDI is expected. This could mean more than $36 billion in 2024!

 

As Rogelio Ramírez de la O, current Secretary of the Treasury, commented, this projection of an increase in FDI responds mainly to the fact that foreign companies have given their vote of confidence to the country, not only at the government level but also from an economic perspective. Companies from all over the world are looking to Mexico to establish operations and take advantage of the benefits of our country.

 

According to Dolores Islas, CEO of SILMÉXICO, her conversations with key industry leaders and market research lead her to anticipate that India, Brazil and Mexico will benefit from a strong flow of capital, with interesting prospects for higher returns once once interest rates begin to fall. Of course, this activity would be carried out by the type of capital managed by players with higher risk appetites directly linked to countries that could be exposed to political, economic and monetary instabilities, not to mention potentially daunting levels of bureaucracy.

 

The first reason for the prominence of these three markets has been the significant decline in the attractiveness of many key competitors due to the significant challenges faced by the former BRICS powers: China, Russia and South Africa.

 

Foreign investor interest in China hit its lowest level in three years in 2024, with a significant decline in interest in the country’s real estate as a result of the real estate crisis exposed by the Evergrande and Country Garden scandals. 

 

China faces serious economic freedom challenges in an environment already considered unfavorable for international players. Demographic decline, slower GDP growth, worsening geopolitical tensions and the structural crisis of the real estate market certainly exclude it from consideration, contrasting sharply with its previous status as an investor darling.

 

Even before the full-scale invasion of Ukraine, Russia was already a question mark for many global investors looking for opportunities in emerging markets, but with the war still ongoing two years later and new sanctions imposed regularly, Putin’s country It’s no longer in the picture at all.

 

Although the property market in South Africa has proven to be resilient, we still do not see investors viewing the country as a particularly viable option at present, due to factors such as unemployment exceeding 32% and rising, the continued lack of electricity supply and a economy that grew only 0.1% in the last quarter.

 

With these competitors falling behind, new contenders are emerging from the Global South to take their place.

 

The recently released Kearney FDI Confidence Index 2024 offers more insight into why India, Brazil and Mexico are poised for big opportunities, with Brazil (19th) and Mexico (21st) returning to the list of the world’s 25 most attractive countries for investment after being absent last year, while India is slightly ahead in 18th place.

 

Focusing exclusively on emerging markets further clarifies the picture, placing India, Brazil and Mexico in fourth, fifth and sixth place respectively. And with responses showing that 88% of respondents plan to increase their investments in the next three years these prospects are certainly worth considering in more detail.

Why India?

India has the fastest growing economy in the world, with projections indicating that it will reach a GDP of USD 5 trillion in the next three years to become the third largest economy in the world, while expectations for 2030 could take it to USD 7 billion.

The view that India will receive a lot of attention from foreign investors in the coming years is supported by the latest announcement from Blackstone – which already has USD 1 trillion in AUM globally, including USD 50 billion in India alone – about its plan to invest Additional USD 25 billion over the next 5 years.

Blackstone COO John Gray, who has already had meetings and private conversations with GRI Club members, said India will remain its third-largest investment destination, behind only the US and UK.

Why Brazil?

Brazil presents attractive investment opportunities with its geopolitical neutrality, diverse options beyond the Rio-São Paulo axis, mature real estate investment cycles and a growing REIT industry that encourages market liquidity, along with economic indicators that should be attractive to certain investors in search of higher returns.

 

Foreign direct investment remains robust, driven by greater stability and opportunities in Brazil’s services sector and rising commodity prices, with forecasts indicating higher levels compared to the previous year.

Factors such as rising consumer confidence, strong GDP expansion, and government initiatives focused on affordable housing and urban renewal projects contribute to a positive outlook for the residential and commercial real estate sectors.

Rising real estate prices, especially in urban areas and tourist destinations, coupled with inventory shortages, indicate strong potential for investors to take advantage of Brazil’s dynamic market and contribute to its economic growth. However, challenges such as failure to meet government fiscal targets, institutional tensions, and pending fiscal reforms require attention.

Why Mexico?

Of these three emerging markets, Mexico stands out for its strategic geographic position and favorable trade agreements, such as NAFTA, which facilitate trade with the United States and attract important nearshoring opportunities.

Mexico has undergone major transformations, evolving from a period of recurring crisis to becoming a global economic and commercial leader, with a GDP close to USD 2 trillion. Despite clear economic disparities between the northern and southern regions, the country’s current federal administration aims to address these imbalances through strategic infrastructure initiatives.

Along with the growth of nearshoring in the country, recent administrations have focused on promoting large infrastructure projects to reduce economic disparities and boost development, underscoring Mexico’s potential to become a crucial hub in global logistics.

Foreign direct investment inflows to Mexico have reached a record level, surpassing USD 36 billion by the end of 2023. This represents a 27% increase over the previous year and serves as a strong indicator of the growing confidence of international investors in the country following government initiatives to boost competition and reduce bureaucratic slowdowns for such groups.

Although offering less scalability, Mexico has a sophisticated real estate industry, especially in REITs, that arguably surpasses both Brazil and India. However, potential concerns include political uncertainty with the departure of the current president and questions about energy and infrastructure readiness for further development.

Infrastructure development: With an announced investment of 200 billion pesos in infrastructure, we are seeing projects that will improve connectivity and logistics efficiency, benefiting local and foreign companies. Among the continuity proposals made by the President-Elect during her campaign are: investment in the railway structure, modernization and improvement of access connectivity to rural areas and investment in port infrastructure, the goal being to turn the country into a power in the item. 

If all these proposals are carried out, they would undoubtedly have a positive effect on attracting investments in all the areas where these improvements will be carried out.

Negative effects:

Tax reforms: But not everything is rosy. The new president has the challenge of fulfilling her campaign promises of keeping active and even improving all existing social programs. According to economists, analysts and former high-ranking officials in Mexico, the solution to achieve this is some type of tax reform that would increase tax revenues. 

It is necessary to remember that President López Obrador opened his wallet in his last year in office to finish emblematic infrastructure projects and cover an increase in welfare programs for the poorest. The above led to a deficit of 5.9% of GDP in 2024. This situation would force the incoming administration to maintain a spending limit or risk affecting Mexico’s credit solvency.

Impact on the real estate market

 

Now, let’s talk about the impact of this new six-year term on the real estate market. Here we also have a mix of positive news and challenges.

  • NEARSHORING AND ONSHORING: The relocation of industrial operations to Mexico, known as Nearshoring, is driving demand for real estate, especially in the North of the Country, attracting foreign investment in areas such as automotive, aerospace and medical, in addition to providing thousands of jobs , thus increasing the industrial development of Mexico and activating the country’s economy. 
  • REGULATORY AND ECONOMIC CHALLENGES: The 2024 elections are generating uncertainty regarding possible changes in economic and regulatory policies that could affect the sector, as we mentioned before. In addition, inflation and high interest rates are making financing more expensive, which could slow down some investments, also taking into account the strengthening that the Mexican peso is gaining in the economic market. 
  • VERTICALIZATION AND SUSTAINABILITY: One of the proposals that I like from our new president is fiscal and regulatory incentives to promote the construction of sustainable and ecological homes. This will generate growth in the construction of sustainable homes, using renewable energy and sustainable materials. Which allows us to understand that awareness of caring for our planet and environment in the construction and development of housing is increasing and I trust that this new government will give more scope to these new real estate trends.
  • TRANSPARENCY AND REGULATION: It is proposed to improve transparency in the real estate market by creating a public registry of real estate properties and transactions, this due to the so-called “Dispossession Cartel.” In addition, they seek to strengthen regulations to prevent speculation and ensure that real estate developments comply with environmental and construction standards, which seems to me to be a quite promising strategy for those who want to invest in Mexico with complete certainty.

Positive effects

Affordable housing: Access to decent housing is a priority of the new government. With subsidy programs and accessible financing, it is expected to benefit more than 500,000 families in the next three years. 

The proposal to achieve the above is to carry out a constitutional reform to expand the functions of Infonavit, so that they can now be in charge of building homes and workers can acquire them in a simpler way and at a more accessible price. A great opportunity to boost the social housing market!

Negative effects

Increase in interest rates: The Bank of Mexico has increased interest rates to control inflation, which makes mortgage loans more expensive. It is estimated that mortgage rates could rise up to 8% annually, reducing purchasing power.

 

Strict regulation: New environmental and urban regulations, although necessary for sustainable development, can slow down the approval of real estate projects, extending approval times by up to 25%.

 

Appreciation of the Mexican peso: A crucial aspect to consider is the appreciation of the Mexican peso against the US dollar. While a strong currency may seem like a positive sign, for foreign investors this means higher costs when investing in the Mexican real estate market. A stronger peso makes investments less attractive, decreasing the flow of foreign capital into the real estate sector. 

 

Regarding the constitutional reforms that will be promoted in Congress, especially those related to the Judiciary that have alarmed investors and business leaders in Mexico, the Mexican peso recorded its worst week in four years due to investors’ fears about the majority of the ruling coalition in Congress, since they consider that the reform of the Judiciary proposed by President Andrés Manuel López Obrador (AMLO) could be approved.

Conclusion

We really have high expectations with the arrival of this new six-year term led by a woman who we trust will know how to represent us very well. In summary, the results of the 2024 elections in Mexico present a complex panorama for business and the real estate market. Although there are great investment and development opportunities, we also face significant challenges in terms of regulation, taxation and the appreciation of the Mexican peso. It will be crucial for investors and developers to remain informed and adaptive to take advantage of opportunities and mitigate risks in this dynamic economic environment.

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