Mexico is the world’s 11th-largest economy, with solid macroeconomic fundamentals derived from prudent government finances, moderate external deficit, low inflation and a flexible exchange rate regime. In recent years, Mexico has increased its productivity, which has been translated into gains in external competitiveness. Besides, the country is now experiencing favourable demographic dynamics, represented by a growing workforce and a falling dependency ratio.
After decades of structural reform stagnation, Mexico has found the path to reignite the process. The current administration, under President Enrique Peña Nieto’s leadership, has proposed a profound economic transformation through structural reforms in sectors such as energy, financials, economic competition, labour, telecommunications, education and fiscal reforms, among others.
Therefore, Mexico is currently experiencing a series of deep structural changes that will turn it into a more productive, competitive and dynamic country. These reforms will have a long-term impact on economic growth, while reducing inequality and increasing the opportunities of those most underprivileged.
Laying down foundations
On April 28 2014, Peña Nieto presented the National Infrastructure Programme (PNI) 2014-18, in the terms set out in the National Development Plan (PND) 2013-18. The objectives of the PNI are clear and very important: to boost the economic activity, increase competitiveness, create well-paid jobs and productivity and, consequently, promote economic growth. The rationale of this programme is that the reforms by themselves are not in sufficient condition to grow; they must be complemented with a robust infrastructure programme that fosters private and public investments in strategic sectors of the economy.
Housing sector as a percentage of Mexican GDP
The PNI identified six strategic sectors in the economy that, through infrastructure investments, will raise the country’s economic growth capacity. Overall, it is expected that the PNI, strengthened by Mexico’s recent structural reforms, will contribute with an additional two percent (approximately) of economic growth towards the end of the current administration, and create around 350,000 additional jobs per year. It is important to highlight that for the first time in history the housing sector, which represents around 3.5 percent of total GDP, and urban development, were considered one of the six strategic sectors in the PNI. This fact reflects its importance over the economy, and its relevance as a growth enhancer.
The housing sector has undergone a major transformation as well. As part of this change, the federal government outlined the New National Housing Policy, framed by the constitutional right to adequate housing, enhancing background settings in the institutional design of the sector and the housing development model. In this context, the Institute of the National Housing Fund for Workers (Infonavit) has gained a leading role in the housing sector’s transformation.
The institute is more than a mortgage lender, it has established itself as one of the largest mortgage providers in the world. It was the first financial institution in terms of portfolio management, and the fourth largest in loan origination. With more than 70 percent of market share in the Mexican mortgage market, it is the largest player in terms of assets (with a loan portfolio of almost $70bn). It is also the largest pension-fund manager in Mexico with 23 percent of total assets (managing around $60bn).
The financial soundness of Infonavit has enabled it to increase the equity level during recent years. Therefore, its long-term financial stability endorses its dual function in the future to offer sustainable housing solutions, which increase workers’ quality of life and will increase the pension fund returns.
Hence, it is a fundamental tool for public policy implementation that will strengthen the Mexican Government’s impact of social and economic reforms.
In the past, Infonavit faced a trade-off between expanding the housing supply and sustainability. Before the year 2000, Mexico had a substantial housing deficit. In terms of mortgage origination, from 2001 to 2012, Infonavit managed to significantly reduce the percentage of right holders’ homes in deficit. During that period, the institute originated more loans than it had done in the previous 28 years – five million compared to two million respectively.
At first, the previous housing model effectively gave individuals housing access, but later began to promote unsustainable developments far from city centres with high transportation costs and with a precarious supply of public services. In essence, the model focused on massive and inflexible financing solutions and a limited return to the Housing Savings Account.
In 2013, Infonavit actively proposed a transit from an ‘increasing the number of credits’ model to one that prioritises the Mexican quality of life, through sustainable, economic and social development. Thanks to the enormous will and decisive participation, Infonavit undertook this far-reaching change to benefit its more than 16 million right holders, through the redesign of its strategy.
Infonavit has adapted its model to the new sector’s needs. It adjusted its planning and operation dynamics in order to continue giving competitive returns and prove sustainable housing funding. In line with Mexico’s structural reforms, Infonavit, hand in hand with the federal government, developed a new strategy that promotes sustainable urban development and sets the stage for achieving three main qualities in the housing funded by the institute: quality of housing, quality of the environment and quality of the social fabric of the community in which it is located.
This way, the institute has contributed to the overall well-being and net-worth of workers by: encouraging housing solutions that will improve the quality of life through regional sustainable development; providing appropriate financial solutions throughout the workers’ lifecycle to meet their housing needs (new credit products); paying efficient returns to the Housing Savings Account to significantly contribute to the quality of life when workers retire; and finally, by providing information and advice on the savings, financial solutions and choice of housing alternatives to constitute the workers’ net-worth.
It is important to remark that the regional sustainable development and the need of appropriate financial services are two of the most important challenges that Infonavit faces today.
Regarding the regional sustainable development, the institute has made huge efforts to enhance it. In terms of housing solutions that will improve the quality of life through environmental sustainability, as of July 2014, the institute has granted more than 1.6 million credits under the Green Mortgage scheme. This programme consists of allowing an additional amount of credit to an Infonavit loan, when the acquired home is equipped with eco-technologies that generate savings in household expenditure. In 2013, the Green Mortgage scheme contributed to the reduction of more than 257,000 tons of carbon dioxide emissions, equivalent to planting more than 766,000 trees. It also saved more than $60m dollars in household expenditures (electricity, water and gas etc.).
Besides the Green Mortgage scheme, Infonavit developed a mortgage product that incorporates the payment of property taxes and maintenance fee together with the monthly credit payment. This ensures the preservation and betterment of workers’ homes.
Regarding the provision of appropriate financial solutions throughout the workers’ lifecycle to meet their housing needs, Infonavit implemented a credit denominated in pesos. From May 2013, the institute’s product portfolio was complemented with the entry of the loan in pesos, for beneficiaries with incomes exceeding 5.5 times the minimum wage. In 2014, this product will be significantly expanded, offering affiliated workers better loan origination conditions, similar to private banks.
In addition, and according to international best practices, Infonavit has increased its transparency and improved its risk management processes as key elements to success. With a more effective finance, accountability and risk management, the institute reduces primary risks when conducting its core activities, including credit, market liquidity and operational risk. The latter, provides a stronger position, with a greater deal of financial strength and human capital.
Thanks to the aforementioned, Infonavit will be able to offer a mortgage model that fits the new market trends in the Mexican housing sector. As the structure of the housing sector has changed, the current administration will emphasise its efforts on three fronts:
- Economic domain: encourage permanence and growth in net worth over time, as ensuring optimal conditions to attract private investments;
- Environmental dimension: drive the creation and promotion of conditions that support a rational and efficient use of natural resources;
- Social domain: promote community elements that seek to uphold the common good.
The present administration has set ambitious goals in financial and mortgage matters. The strategic initiatives that Infonavit has implemented will yield positive outcomes in terms of improving quality of life and achieving a more prosperous country, with greater opportunities and greater economic and social welfare.
The housing sector has been identified as a strategic means to foster economic growth, in a context of a deep transformational change. Infonavit is a cornerstone of this process, where Mexico will meet the standards to ensure sustained and inclusive growth and competitiveness.