Real estate survey 2014: Latin America – Beware LatAm's local potholes
Real estate in Latin America offers big investment opportunities, but the national landscapes vary widely and local expertise is vital for foreign investors when they explore the sector.
|São Paulo skyline: new regulations could push up land values by as much as 40% in SP
For example, it is not surprising this year’s top-ranked real-estate developer in Mexico is commercial-property-focused Mexico Retail Properties, a jump from fourth place in last year’s survey.
Any developer with exposure to the housebuilding sector in Mexico has taken a hit this year from the fallout of the new government’s change in residential housing policy. President Enrique Peña Nieto essentially did a U-turn on housing policy: moving away from the urban sprawl of housing estates based in remote areas to vertical developments in urban locations.
As well as taking a hit on demand for current projects – as potential buyers fear ghost-town developments – the financing of high-rise blocks presents new capital-intensive challenges for homebuilders, and the sector is still working its way through the new financial reality. Therefore, Mexico Retail Properties’ commercial focus has enabled the Mexican subsidiary of US real-estate investment company Black Creek Group to navigate much calmer waters.
Mexican banks have also had to take financial hits as the financial situation of leading housebuilders, such as Geo, Urbi and Homex, have collapsed, exposing their financing partners. Despite BBVA’s large share of this sector in Mexico, it fared better than some other banks, such as Banorte, that have had to write-off loans and make provisions for future losses.
Jones Lang LaSalle is rated as best adviser in Mexico, as well as in Brazil and Argentina. This base of country expertise explains why it also heads the regional rankings. Notably, Colliers International is now ranked first in Colombia and Chile – up from fifth in Chile last year – and rounds out the top five regional advisers, with CBRE, Cushman & Wakefield and Baker & McKenzie.
In Brazil – the largest real-estate market in LatAm– investors are seeing lower returns than in the, admittedly, spectacular past. Commercial and residential real-estate valuations of up-scale neighbourhoods in Rio de Janeiro now compete on a square-metre basis with Tokyo, New York and London. Developers, analysts and financiers alike are discussing if there is room for further price rises.
However, gentrification of lower-middle-class neighbourhoods continues to provide opportunities, while growing cities in the north and the interior also offer growth rates seen in the southeast in recent years for companies that operate nationwide.
In São Paulo, the local government has introduced a new land taxation and planning system to exert greater control on future development that might add costs to new developments. The legislation was passed in July, and it is still too early to judge the implications and the developers’ ability to pass on these costs to the end-user.
However, some analysts predict the legislation could increase land values by up to 40% in up to 80% of the city – a large potential negative for homebuilders concentrated in the city.
Cyrela Brazil Realty is again ranked top Brazilian developer, although its ability to maintain this ranking next year will be carefully watched as it represents the middle-income residential segment that is cooling off most quickly. Low-income-focused builders such as MRV and Direcional might be more in favour in the next 12 months.
Still, Cyrela’s position reflects it has been outperforming its sector in sales velocity and launches, and – importantly for the company’s financial results – it has resorted to less discounting to date than its competitors, in particular Rossi and PDG.
|This dual listing accurately reflects BTG’s position in
the market as financier and investment manager
Itaú Unibanco is the best-ranked bank, and its scale – both depth and breadth – enabled it to reach the summit, increasing one ranking position from last year. The bank’s strength in Brazil – as well as growing operations in other markets, such as Argentina and Paraguay – also make the bank the top-ranked regional player.
The universal banks of BBVA, Santander and HSBC are ranked second, third and fourth respectively. BTG Pactual – the Brazilian financial institution – is ranked fifth best regional bank, as well as leading investment manager. This dual listing accurately reflects BTG’s position in the market as financier and investment manager – the group’s private equity fund has long taken stakes in real-estate companies such as BR Properties – and perhaps gives BTG Pactual the most rounded view on the Brazilian market.
The bank is also expanding fast in the region – with acquisitions in Colombia and Chile, and greenfield operations in Mexico. Although real estate isn’t its core focus, BTG Pactual will be exploring opportunistic ventures to profit from the room for growth in real estate in the Andean countries.