Master Primer Presentation Septiembre 2012

8/13/2019 Master Primer Presentation Septiembre 2012

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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


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: 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



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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


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


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: 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


10 Exchange rate FIX as of July 31 2012, 13.2833


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

Master Primer Presentation Septiembre 2012

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