Finance: Cross-border flows boost construction

“Do you want to build in México? We will help you now,” reads the sign that hangs outside the offices of Construmex at the Plaza Mexico shopping mall in Lynwood, a suburb of Los Angeles.

And judging by the small but steady flow of customers one recent Saturday morning, increasing numbers of US-based Mexican migrants want to do just that.

For example, Marcos Murillo and his wife Marta, a couple in their 40s, have come in to finish the details on a $38,000 credit that will allow them to buy materials to build a house in their home village in Michoacán.

And then Arturo Calderón, a 30-year old who manages a liquor store in downtown Los Angeles, arrives to pay an instalment on a $62,000 15-year loan he took out to build a house in his home town of Morelia.

“To be able to do this from here was a great advantage for me,” says Mr Calderón.

Construmex, which is owned by Cemex, the Mexican multinational cement business, is perhaps the most unusual entrant in a growing cross-border mortgage market dominated mainly by Mexican banks and housing finance companies known as Sofoles.

During 2006, 3,000 deals were completed, with migrant workers in the US negotiating Mexican mortgage contracts and then making interest and principal payments from their US earnings

The individual amounts involved are small. Most properties are well under $100,000 but the overall total could become significant. “We first started noticing these flows in the second half of last year,” says Salvador Bonilla, who monitors remittances at the Mexican Central Bank.

Francisco Arana, the manager of a branch that the Su Casita Sofol, one of the most active players, has set up in Denver, Colorado, says that he is completing between 30 and 40 deals a month.

During 2006, Su Casita negotiated 550 mortgages from its office, a barely-furnished basement room and shop front in a gentrified corner of the inner city.

The trend is part of a broader one in Latin America, building on economic stability, lower inflation and the steady decline of local interest rates.

Low-income Mexicans, for example, are now able to take out long-term mortgages – over 20 years or more – to pay for houses worth as little as $20,000.

Similar developments are taking place in Chile, Peru, El Salvador and Ecuador.

Banks in Spain and Italy – which have been faster than their US counterparts to recruit Latin American migrants as customers – were quick to offer mortgage facilities allowing customers to buy properties at home.

Construmex itself started off in 2002 by channelling migrant remittances back in the form of cement and other building materials to family members at home.

In the Mexican market, Cemex had earlier launched a successful scheme, called Patrimonio Hoy, to help low-income families build their own houses more efficiently.

But with its customers getting used to the idea of borrowing larger amounts to buy a house or all the materials to build a house, it has begun to offer credit.

“It was pay-as-you-go before, but over the past two years we have been doing loans. People have got used to it,” says Ramón Cardenas, who runs the Construmex office at Lynwood.

Even so, the development of the cross-border market among Mexican migrants in the US still seems surprising.

Mexicans – like other migrant workers – are among the worst hit in the US sub-prime crisis, having been tempted to borrow amounts that they could have repaid only if US property prices had continued to rise.

Mr Arana concedes that many members of the community have had bad experiences with US financial products.

Stories of overstretched families and repossessed homes abound. “Salesmen have been unscrupulous and it really takes time to persuade them. We have had to educate our customers,” he says.

However, he says that in some ways the US sub-prime problem has generated greater interest in domestic mortgages.

With the community badly burned by its experiences with aggressive US mortgage brokers, many migrants have been only too ready to lower their sights and buy a cheaper property at home.

Uncertainties stemming from the controversy surrounding illegal migration to the US could also have a similar impact.

A downturn in the construction industry, where many migrants work, and increased surveillance by migration authorities, especially in US states that have only recently started to accommodate migrants, has contributed to a drop-off in remittance flows, according to specialists.

But the insecurity could be leading to an increase in demand for Mexican property, as migrants look to return to their home country.

“People are feeling less comfortable,” says Monica González, a saleswoman at Construmex. “Many people are beginning to think about leaving, and when they do, they start looking to buy properties at home.”