7 October 2008 447 views No Comment

Mexico’s economy took a major hit Monday as the peso dropped 3.9 percent to 11.7115 per dollar, the largest decline since October 1997, according to Bloomberg.com.  Bloomberg also reports that since reaching a six year high on August 4th, the peso has fallen 16%. One of the main causes of the decline is the government bailout of Hypo Real Estate Holding AG in Germany has spread fears that the financial crisis in the United States is spreading to Europe. Mexico’s Bolsa stock index also tumbled as much as 10 percent on Monday.

So what does this mean to Mexico real estate? Global finacial fears means that banks are more adverse to risk and it will likely become more difficult to secure financing for real estate in Mexico. Many individuals who are buying Mexican real estate get financed from US lenders because the interest rates are lower than Mexican lenders. In addition the decline of the stock market means that those wanting to cash out thier retirement portfolios have less cash available or may have to postpone their retirement date. With shrinking home values in the US, there is less credit available from home equity loans. Mexican home buyers could also face difficulty in securing financing since Mexico’s banking sector is about 80% foreign owned. One of the two largest banks in Mexico is Banamex which is owned by the United State’s Citigroup. Banamex and Spain’s BBVA Bancomer, account for 45% of Mexico’s banking sector according to buyusa.gov. The spread of financial fear across the globe means a lot of investors will hold onto their cash and wait to see what happens.

The other way to look at the current situation is that investors may be attracted to cheaper deals available in the Mexico real estate market. The tumble in the value of the Peso against the US dollar means it has become cheaper for US and international investors to buy real estate. This effect could be similar to when the US dollar fell in value and there was an increase in foreign investment in US real estate. Despite the attractiveness of Mexico real estate as an alternative, the fall of the peso and the Mexican stock market are bad signs for the Mexican real estate market.

Sources: Mexican Peso Sinks to Record Low as Financial Crisis Spreads Bloomberg.com

Financial and Insurance Services in Mexico BuyUSA.gov