Homex Cranks Out Homes For Young Mexican Couples
 Kevin Harlin - Investor's Business Daily
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Demand for new homes keeps growing. And low-income families are finding lower-cost prime-rate mortgages.
Yes, it's a good time to be in the construction business.
But you'll have to look south of the Rio Grande to find this builders' Shangri-La.
Desarrolladora Homex, (HXM) a Mexican firm, is riding a demographic wave and a growing mortgage market to pump out low- and moderate-income housing.
Demand is so high, Homex says it can't build homes fast enough.
"We still have a lot of opportunities to tap the market in this country," said Carlos Moctezuma, head of investor relations. "The first-time buyer, we still have a lot of space to grow."
Based in Culiacan in the northwestern state of Sinaloa, the company builds communities in 29 cities in 18 Mexican states. It built almost 10,000 homes in the first quarter, up 14% from a year ago. About 90% are entry-level units.
It constructed more than 44,000 homes last year, up from almost 32,000 the year before.
But housing demand is growing.
Millions of young couples in Mexico are living with their parents and in-laws. Many are in homes that need major upgrades, the government says. There are more than 700,000 new marriages a year.
The government estimates that builders will have to construct an average of 732,000 homes annually through 2010 to keep pace.
That would bring the housing stock up to 20 million units, from just 12.5 million in 2000, according to the country's National Housing Commission.
Carlos Gutierrez Ruiz, who heads the commission, says the country's youthful demographics should keep the housing demand strong through 2030.
U.S. Market Soft
North of the border, it's a different story. High costs and the meltdown in the subprime lending market have tripped up U.S. builders.
U.S. housing starts fell 2.1% in May, according to the Commerce Department.
Builders such as D.R. Horton, (DHI) Lennar (LEN) and Pulte Homes (PHM) all posted double-digit revenue declines in the last quarter.
The boom in Mexico is mostly in entry-level houses. These pieces of the Mexican dream are tiny by U.S. standards.
Homex's smallest model is about 450 square feet — about the size of a two-car garage. Entry-level homes can cost under $20,000.
To make money, builders such as Homex construct entire communities at the same time. In addition to homes, the firm constructs parks, schools and markets.
The bottleneck in selling the homes used to be financing, Moctezuma says.
But government mortgage subsidies and competition among banks have driven rates down to around 10%, low by historical standards.
Homex thinks public and private lenders will issue 1.3 million mortgage loans by 2010, up from about 640,000 last year.
Santander Investments analyst Gonzalo Fernandez wrote: "In our opinion, as one of the market leaders in the affordable and low-cost segments in the housing market, Homex is in good position to benefit from the expected high availability of financing to individuals in these segments."
To keep up with demand, Homex is trying new building methods.
It has begun to pour concrete into lightweight aluminum molds to build its walls. That shaves days off of the seven-week construction time of a traditional cinder-block home.
And it's increasing density by offering slightly larger apartments in two- and three-story buildings in place of houses. That will push density up to 60 homes per hectare, from about 40 currently.
The average Homex house price climbed 16% in the quarter, mostly due to higher prices in its small middle-income housing sector. Those slightly larger and more expensive homes could contribute more revenue to the company in later years, Moctezuma says, as homeowners look to upgrade.
By 2008, the company hopes to start building vacation homes to lure Mexican-Americans and others.
But demand at the low-income end, and profits there, mean that that market will remain the company's foundation for years.
Earnings
Homex posted earnings per share of 74 cents in the first quarter, up 90% from a year ago. That was 42% above what analysts surveyed by Thomson Financial had expected.
The company says revenue will climb 17% to 20% this year.
Analysts surveyed by Thomson Financial look for earnings of $3.22 per share in 2007, up from $2.11 last year.
There are risks. The banks in Mexico could tighten loan standards. And the administration of new President Felipe Calderon could reverse support for government loans.
There's also a managerial shakeup. Earlier this month, the company's chief executive, David Sanchez-Tembleque, stepped down after just nine months on the job. He and the company said he wanted to pursue other interests.
To replace him, the company reappointed former chief Gerardo de Nicolas Gutierrez.
"Gerardo is an experienced, established leader with exceptional management and operational expertise in the housing development industry," Gary Garrabrant, Homex's vice chairman, said in a statement.
Garrabrant is also CEO of Equity International, a major shareholder. |
Vallarta Weddings
Puerto Vallarta Real Estate | June 2007 
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