Elections represent a turning point in any country, and Mexico is no exception. After an electoral process, new policies emerge, priorities are redefined and new economic perspectives are established that can significantly influence the real estate market.
In this post-electoral context, Mexico presents itself as a fertile scenario for investors seeking to take advantage of emerging opportunities. In this article we offer a detailed analysis of how upcoming political and economic changes may impact the real estate sector.
Increase of the dollar against the Mexican peso
Upward revisions for the estimated exchange rate in 2024 and 2025. The most recent Citibanamex survey showed that economists expect the Mexican peso to close 2024 at a level of 18.7 pesos per dollar, up from 18.00 a fortnight ago and the highest level of the last 9 fortnights. For 2025, the median forecast increased to 19.30 pesos per dollar from 18.87 in its previous survey and equaling its maximum since this variable began to be asked in January.
The increase in the dollar against the Mexican peso can have a significant impact on Mexican export companies, depending on their business model and exposure to the international market. On the other hand, some companies that do not benefit from the increase in the dollar are those that import inputs or finished products from abroad and see their production costs increase, which could negatively affect their profitability.
In general, three main groups of companies that benefit from this type of change can be identified:
1 Exporting companies:
Increase in income: By receiving payments in dollars, export companies see their income in pesos increase when the dollar appreciates. This is because, for each unit of product or service exported, they receive more pesos.
Greater profitability: Increased income in pesos, combined with production costs that are generally maintained in pesos, can translate into greater profitability for export companies.
Examples:
- Mining companies: Peñoles, Grupo México, Frisco
- Agroindustrial companies: Gruma, Bimbo, Maseca
- Company in the automotive manufacturing sector: Grupo Tremex, Industrias Automotrices Puebla (IAP), Nemak
- Company in the aerospace manufacturing sector: Mexicali Aerospace, Aeronáutica Industrial de Chihuahua (AICH), GEMA México
- Company in the appliance manufacturing sector: Mabe México, Whirlpool México, LG Electronics México
- Consumer products companies: Jose Cuervo, Tequila Herradura, Cervecería Modelo
- Government: Higher income from the sale of Oil
- International service companies
2 Companies with debt/equity issuance listed on the New York Stock Exchange:
Companies that have dollar-denominated debt/equity issues benefit when the peso depreciates against the dollar. This can improve your financial situation and allocate resources for investments or the distribution of dividends.
Examples:
- Telecommunications companies: América Móvil, Televisa
- Infrastructure companies: Cemex, Grupo México
- Consumer companies: FEMSA, Alpek
3 Mexican companies that rent their properties in dollars:
The impact of the increase in the dollar on Mexican companies that rent their properties in dollars is mixed, and depends on various factors, such as the type of client they have, the market segment in which they operate and their coverage strategies (mainly industrial parks , offices and hotels).
Possible benefits:
- Greater income in pesos: By receiving income/income in dollars, companies benefit when the dollar appreciates against the peso. This translates into greater income in pesos, which can improve your profitability.
- Protection against inflation: The value of the dollar tends to be more stable than that of the peso, so renting in dollars can help protect companies from inflation.
Possible risks:
- Reduction in demand: If the increase in the dollar is significant, it could discourage demand for rentals from potential clients, especially those who do not have income in dollars.
- Difficulty finding tenants: Finding tenants willing to pay in dollars can be more difficult, especially in areas where the majority of income is in pesos.
- Currency risk: If the dollar suddenly depreciates against the peso, companies could have losses if they have to convert their income to pesos.
Hedging strategies to mitigate the risks associated with renting in dollars, companies can implement some strategies, such as:
- Negotiate adjustment clauses: Include clauses in rental contracts that allow rent to be adjusted based on the exchange rate.
- Offer discounts for payment in pesos: Encourage tenants to pay in pesos by offering a discount for currency conversion.
- Diversify the rental currency: Do not depend solely on rentals in dollars and diversify the portfolio with properties that are rented in pesos.
Nearshoring in Mexico: Navigating towards an Economic and Technological Future
Nearshoring in Mexico has proven to be an effective strategy for companies seeking to leverage the benefits of geographic proximity to the United States and a favorable environment for collaboration and technological innovation, while managing competitive costs and risk mitigation.
In the last 10 years, Nearshoring in Mexico has had a positive impact, consolidating itself as a key player in the global digital economy, yielding results such as:
Growth of the IT and Services Sector:
- According to data from the Mexican Association of the Information Technology Industry (AMITI), the IT sector in Mexico grew at a compound annual rate of 11.6% between 2011 and 2021.
Employment generation:
- According to data from the National Institute of Statistics and Geography (INEGI), employment in business services and IT in Mexico has shown significant growth. For example, in 2021, the IT sector was estimated to employ more than 1.2 million people.
Attraction of Foreign Investments:
- The financial, business and technology services sector is one of the main recipients of FDI in Mexico. In the first quarter of 2024, 25% of FDI went to this sector.
Regional Development:
- Cities such as Mexico City, Monterrey, Guadalajara, Querétaro and Tijuana have emerged as important centers for the IT and service industry, with the creation of technological clusters and specialized industrial parks.
Contribution to GDP:
- The business and IT services sector represents approximately 4.6% of Mexico’s total GDP.
Diversification of Clients and Markets:
- Mexican companies operating in the services and IT sector have diversified their clients and markets, serving not only the United States, but also Europe, Latin America and other regions of the world.
Social programs
Well-designed and implemented social programs can generate benefits both for the country in general and for entrepreneurs. It is important to highlight that these benefits are neither immediate nor automatic, and require sustained commitment from the government, the private sector and civil society.
Main benefits for the country:
- Reducing poverty and inequality: Social programs can help reduce poverty levels by providing direct support to the most vulnerable sectors of the population. This not only improves the living conditions of millions of people, but also reduces economic and social disparities, promoting greater social cohesion.
- Improving human capital: By investing in education, health and social development, social programs contribute to improving the country’s human capital. This is crucial for sustained long-term economic growth, as a more educated and healthy population is more likely to contribute positively to the economy.
- Economic stimulus: Social programs can act as an economic stimulus by increasing domestic demand for essential goods and services, benefiting local and regional businesses. This can generate additional economic opportunities and strengthen business activity in various sectors.
For entrepreneurs:
- Access to new markets and clients: Social programs can open new markets for products and services aimed at beneficiaries of these programs. This represents an opportunity for companies to expand their customer base and diversify their product lines.
- Improving reputation and social responsibility: Participating in the implementation or support of social programs can improve the corporate image of companies, strengthening their reputation and increasing customer and employee loyalty. Companies that demonstrate a genuine commitment to social well-being tend to be viewed favorably by the community and consumers.
- Innovation and product development: The demand generated by social programs can stimulate business innovation by motivating the development of products and services adapted to the specific needs of beneficiaries. This not only improves the competitiveness of companies, but also contributes to the general well-being of society.
Company performance in Mexico
The companies listed on the Mexican Stock Exchange (BMV) have exhibited good performance during the last six years, far surpassing the vicissitudes of the national political panorama. This success is largely due to two key factors: globalization and the competitive advantages that these companies have developed.
In terms of market capitalization, there are companies listed in Mexico that have experienced a 44 percent increase, without considering dividends.
When comparing the performance of the Mexican market with that of other emerging markets around the world, Mexico is positioned as the third best country during the last six years, only behind Taiwan and India. This achievement is a testament to the strength and resilience of the Mexican business sector.
The real estate panorama in post-election Mexico is emerging with significant opportunities for investors.
Taking advantage of these emerging trends requires a deep understanding of the market and an ability to adapt to economic and technological changes.
At CREA Soluciones, find the perfect ally you need for your investment project. We are real estate specialists who add value through real estate market studies, feasibility studies, appraisals, among others.
For more information, write to us through the contact form, to the email info@creasoluciones.com.mx or call us at 5552778044 where our specialists will be happy to assist you.
