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PRIMER PRESENTATION
MEXICAN HOUSING
INDUSTRY
June 2012, Mexico City
CORPORACIN GEO
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Outline
Mexican Housing Fundamentals: Demand Mexican Housing Fundamentals: Supply
Population Demographics
What is INFONAVIT?
What is FOVISSSTE? How the titling of houses work
Sociedad Hipotecaria Federal (SHF)
Comisin Nacional de Vivienda (CONAVI)
Commercial Banks and SOFOLs
Mexican VS. The World
2
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Mexican Housing Fundamentals:
Demand
Demand for houses as of 2011 is 16.9 million houses
In 2011, there is a housing deficit of approximately 9.0 million houses + 600k incremental per year
More than 50% of the population that is contemplated in the deficit earns no more than 5.5 times the monthly
minimum wage (5.5 x $147 = USD 808)2
The increasing housing deficit ensures there will be enough market for the Mexican housing industryin the years to come
3
Housing deficit + Demographics for the next 20 years will represent a market of 20 mn more homesAn opportunity for long-term growth
Source: CONAVI, SHF, 2012
2 Exchange rate FIX as of December 31st 2011, $12.8093
16,949,697
8,023,097
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
2006 2007 2008 2009 2010 2011
HousingUnits
Housing Deficit
Average Cumulative Housing needs Average Cumulative Mortgages + Subsidies
2011
Housing
Deficit
8,926,600
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Demographics:
Todays youth: Tomorrows homeowner
In the last population census there was 112 million people, of which 40% was between 10-34 years.This gives way to a considerable demand of housing for the next 20 years Source: INEGI
(Population Statistics Institution)
4
Assuming that homebuyers are generally between 25 and 50 years old and that, on average, there are4.5 people per house, by the year 2030 the domestic need for a house would amount to about 11million homes Source: GEO, SOFTEC
Source: CONAPO, GEO
85 & above
80-84
75-79
70-74
65-69
60-64
55-59
50-5445-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
% of total population
AgeRange
Demographic Pyramid 2010
Men
Women
6 5 4 3 2 1 0 1 2 3 4 5 6
40%
Source: INEGI
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Mexican Housing Fundamentals: Supply
An opportunity for large homebuilders to gain market share given the decreasing supply of houses
5
As of 2012, there is an estimate of 28 million houses in
Mexico
Highly fragmented industry: more than 70% of the market
share among small and medium homebuilders
Homebuilders can be divided into two groups:
Large: Those who build more than 500 houses in a year
1. Have access to market funding
2. Strong brand recognition3. Geographical diversification
4. Economies of scale
Small & Medium (S&Med): Those who build no more
than 500 houses
1. Limited access to funding
2. Small marketing campaign, if any
3. Lack of technological advantages
4. No economies of scale
Housing starts in 2012 have decreased significantly
compared to 2010 and 2009. See graph on the right
The housing industry is highly fragmented due to geographically scattered developments in Mexico
Source: INFONAVIT
Source: CONAVI, 2012
Source: CONAVI
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Numberof
housesstarted
Housing Starts 2012 vs. 2011 vs. 2010
2010 Acum 2011 Acum 2012 Acum
- 16% - 2012 vs. 2011
- 31% - 2012 vs. 2010
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70%
16%
11%
4%
INFONAVIT
Banks & Sofols
FOVISSSTE
Others
0
100,000
200,000
300,000
400,000
500,000
600,000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
What is INFONAVIT?
Autonomous, efficient institution where the Federal Government, the employers and the private workers are equally
represented. It focuses on providing affordable entry level mortgages to low-income families
Among the largest mortgage institutions in the Americas (in terms of number of loans originated) In 2011, it granted70% of the 786k mortgages given in Mexico
Eligible mortgage applicants are determined by a scoring system (116 points) and have the opportunity to choose the
house they want to buy according to their purchasing power and personal preference
6
Institution with USD 51 billion Assets Under Management 3
Mexican Mortgage Market-share in 2011
The National Housing Mortgage Institute for Private Workers
3 As of June 30, 2012 using the exchange rate FIX of the same date, 13.4084
Source: CONAVI, 2011
No. of INFONAVIT Mortgages 1994 - 2011
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INFONAVITs breakdown of affiliates
As of June 2012, it has a total of 17.0
million affiliates and are composed in
the following manner:
Only 3.3 million have made use of
their loan
5.1 million have not used their loanbut are eligible to acquire one
8.6 million private workers do not
currently qualify for a loan with
INFONAVIT
INFONAVITs 2012 goal is to provide
490,000 mortgages (without MBS).
The ratio of eligible affiliates tomortgages offered is 5.1 mn / 0.480
mn 11 affiliates
7
In 2011, for every mortgage INFONAVIT grants there are 11 affiliates who are waiting in line to acquirea loan but remain unattended
Source: INFONAVIT, 2012
INFONAVITs clients are affiliated to the institution and must fulfill a sum of 116 points to be able toqualify for a mortgage. These points add up based on age and salary, amount in each workers
individual account at INFONAVIT and time of continuous quotation as a private worker
3.3
5.1
8.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Junio 2012
Millionofaffiliates
Affiliates INFONAVIT
Affiliates who do not qualify yet
Eligible affiliates
Workers with a mortgage
Total affiliates: 17.0 million
Potential
market
niche
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244,000
136,000
60,000
50,000
-
96,000
192,000
288,000
384,000
480,000
1
"Apoyo Infonavit" Program
More than 11 TMW
From 4 to 11 TMW
Less than 4 TMW
INFONAVIT 2012E Mortgage Granting per Segment
its sources of funding and its execution
The sources of funding are unique to the Mexican housing industry:
1. Contributions: Employers have the legal obligation to pay and
deposit 5% of the monthly salary of private workers in the workersindividual account at INFONAVIT
2. Mortgage payments: Collection done by monthly payroll discountsmeaning minimum default risk
3. Market financing: Mortgage-Backed Securities (MBS)1. Total issued since 2004-2011: USD 6.2 billion according to INFONAVIT4
2. As of June 2012 INFONAVIT has issued USD 746 million4
3. Rated mxAAA/AAA(mex)/Aaa.mx by Standard and Poors, Fitch and Moodys
8
Reliable, low-risk institution with solid fundamentals
Inflation-adjusted mortgages targeted for low-income private
workers Rates between 4% - 9% depending on the
mortgage type
Non performing loans (NPLs): 5.4% of the total portfolio as of
June 2012 according to INFONAVIT
4 Exchange rate FIX as of June 30, 2012. 13.40845 This goal excludes the mortgages provided by the MBS resources
2012 Goal: Provide 490,000 mortgages5
As of July 2012, it has achieved 67.9% of its goal
Source: CONAVI, 2012
Source: INFONAVIT, 2012 Segments in times minimum wage
35%
54%
7%
4%
Sources of Funding 2012E
Contributions
Mortgage payments
Market funding
Other
Total financing: USD 10 billion4
Source: INFONAVIT, 2012
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What about INFONAVITs long term plans?
This shows the potential growth of mortgages granted by INFONAVIT in the lower income segment ofthe population in the following 5 years, backed up by internal (contributions and mortgage
payments) and external funding (market)
Goal 2012-2016: Grant approximately 2.7 million mortgages in the following 5 years
9
2012-2016 Goal by Segment
Source: INFONAVIT, 2012
Market funding (USD million)
$781 $781 $781 $781 $781
440,000 460,000 470,000 480,000490,000
50,00060,000 70,000
80,000 90,000
-
100,000
200,000
300,000
400,000
500,000
600,000
2012 2013 2014 2015 2016
Mortga
ges
2012-2016 Supply of Loans
Internally-funded Market-funded
57.8%29.3%
12.9%
Below 4.00
above 4.00, Infonavit Total and Cofinavit below 11.00
Cofinavit AG, Infonavit Total AG
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What is FOVISSSTE?
10
Born in 1972, it is a government-controlled fund that provides accessible housing credits to the workers employed
by the government
Only in the period 2006-2012, FOVISSSTE will provide the equivalent of 70% the number of loans granted during the
last 34 years.
In 2011, for every mortgage FOVISSSTE grants there are 15 affiliates who are waiting in line to acquirea loan but remain unattended
Source: FOVISSSTE
Housing Fund for the Security and Social Services Institute of Government Workers
-
5,000
10,000
15,000
20,000
25,000
30,000
-
200
400
600
800
1,000
1,200
1,400
1,600
72 -76 76 -8 2 8 2-8 8 88 -94 9 4-0 0 00 -06 2 00 7 20 08 20 09 2 01 0 20 11 20 12 e
USDmillion
ThousandLoansGrante
d
Loans Granted and their Amount
Accumulated Loans Accumulated USD
Aggresivegrantingbegins
34 years 6 years
800
2,000
-
500
1,000
1,500
2,000
2,500
3,000
Thousandofaffiliates
Affiliates FOVISSSTE
Affiliates not attended yet
Government workers with
a mortgage
Total: 2,800 thousand
Potential
market
niche
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1,000
45,000
3,000
20,000
1,000
-
9,500
19,000
28,50038,000
47,500
57,000
66,500
76,000
Mort
gages
FOVISSSTE 2012E Mortgage Granting per Segment
Pensiona2 (retired affiliates)
Alia2 Plus y Respalda2 above 6.00
Partner/spouse 4.00 - 5.99
Traditional 2.00 - 3.99
With subsidies Up to 1.99
FOVISSSTEs 2012 Outlook
11
FOVISSSTE specializes in granting mortgages to the affordable segments
The mechanisms used to collect contributions and mortgage
payments are similar to those of INFONAVITs :
1. FOVISSSTE receives the contributions paid by the Government
employer 5% of workers base salary
2. Collects mortgage payments by retaining a fixed 30% of the
workers base salary directly from payroll
3. Additional funding through Mortgage-Backed Securities
(MBS)
2012 Goal: Provide 70,000 mortgages
As of July 2012, it has achieved 53.9% of its goal
FOVISSSTEs main goals for 2012:
Consolidate and improve each and every operational process with a clearstrategic plan that links regional demand and supply
Tap the financial markets through MBS to enhance the supply of
mortgages to the Mexican public workers
Improve the business relationships with additional participants of the
financial markets
Source: CONAVI, 2012
Source: FOVISSSTE, 2012
Source: FOVISSSTE, 2012 Segments in times min. wage
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
-
20,000
40,000
60,000
80,000
100,000
120,000
2000-2006 2007 2008 2009 2010 2011 2012E
USDmillion
Numberofloans
2000-2012E Operations
Loans USD effect
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General overview of how the process works
12
Sensitive to: 1. Inflation2. Employment
3. Government support
Resilient to: 1. Interest rates
2. Bank competition
A INFONAVIT: Client must accumulate 116 points
FOVISSSTE: Determined by a raffleB Housing institutions are cash-neutralC Homebuilders are paid on a first-come first-serve basis
Homebuilder
registers the house
Housing inst. valuesthe house and
approves it
Enrolls theconsumer into
the system
Authorizesthe financial
resources
Issues retentionwaiver so that the
employer can begindiscounting the
mortgage payments
Titling ofthe house
Pays the totalvalue of thehouse to the
homebuilder C
Housing Institution Housing Institution Housing Institution
Homebuilder &
Housing Institution &
Consumer Housing Institution B
Demands ahouse
Homebuilder offersvarious products
and prices
Housing institutionassesses the
creditworthiness ofthe consumer A
Reports thepurchasing powerof the consumer
Consumer Consumer & Homebuilder
Homebuilder & Housing
Institution Housing Institution
Source: GEO, INFONAVIT and Scotia Capital
At the same time, the process detailed below takes place:
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SHF supports the industry with financing
Sociedad Hipotecaria Federal(SHF), Mexicos Federal Housing Bank
Second-tier bank that provides funds and
guarantees to financial intermediaries (i.e.
SOFOLs)
In pursuit of its goal to develop the primary
and secondary housing markets SHF, 1)
Focuses on the bottom of the pyramid, byfunding low-income housing production, 2)
supports the MBS market, by acting as the
market maker and taking positions in the
primary issues and 3) Provides liquidity to the
market, particularly to SOFOLs and
SOFOMs, when needed
Recently, SHF created Crediferente, newscheme to provide a housing solution to
those families unafilliated to INFONAVIT or
FOVISSSTE. The 2012 estimated demand for
Crediferente is 20k loans.
13
SHF is clearly focused on attending the lower-segments housing needs through accessible funding
Source: SHF, 2012
Financial Intermediaries
Homebuilders People who request a mortgage
Financial resourcesMortgages
Mortgage payments
Payment
Funds and guarantees
Payment of funds and
guarantees
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while CONAVI acts as the supervisor
Comisin Nacional de Vivienda (CONAVI), the National Housing Commission
Created in 2001, it supervises the correct and
effective implementation of Mexicos housing goals
in pursuit of sustainable developments
Intermediary between the public, social and private
sectors of the economy regarding housing and
funding mechanisms
Provide subsidies through Esta es tu Casa (this is
your house) program to the lower income families
(2.6 times the minimum wage)
14
Through the granting of subsidies and the active role as institutional intermediary, CONAVI is a vitalplayer in the Mexican housing industry
2012 Goal: Provide 181,000 subsidies
As of July 2012, it has achieved 89.4% of its goal
10 Exchange rate FIX as of July 31 2012, 13.2833
Source: CONAVI, 2012
492 128
0 620
USD effect
USD million10
161,820 19,180
0 181,000
Subsidies
Number of Subsidies
2012 Goals
What's
leftProgress as of July 2012
What's
leftProgress as of July 2012
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The Mexican Housing Industry is the Safest
Place to Invest
16
The Housing Industry in Mexico benefits from unique fundamentals, solid housing institutions and
prudent government policies that differentiate it from the rest of the world
Mexico offers a safer environment for the development of the housing market as well as attractivefundamentals that will enhance the participation of the industry in the overall progress of the country
13 The LTV ratio is for housing that cost more than MXN 1 million or USD 75,282 using an exchange rateFIX as of July 31st 2012, of 13.2833
Source: GEO, 2012
Mexico Countries with housing crises (i.e. USA, UK, Spain)
Interest rates Fixed Variable
Loan to Value Ratio (%)Pre-crisis 90% USA (90-100%)
Post-crisis 70% USA (80%)
Secondary market for mortgages No Yes
Housing prices Subject to inflation (nobubbles)
Subject to interest rates and speculation
Mortgage origination standards Strict Lenient
Mortgage penetration (% of GDP) 6% USA (60%)
Potential risks High unemployment Low interest rates
Down payment 20% USA (5-20%)
Average NPL's 6% USA (10%)Mortgages Non toxic Sub-prime
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MEXICAN HOUSING INDUSTRYPRIMER PRESENTATION