Bullish Mexico Housing Market to Drive Architectural Demand

A warming demand for housing in Mexico is predicted to drive growth in the architectural segment of paint and coatings this year, aided in part by a Covid rebound in tourism and by increased government mortgage lending.

The recovery of the economy will bode well for the paint and coatings industry, which includes domestic production of roughly one billion liters (about 265 million gallons) per year. Winners in the Mexico paint manufacturing arena will include PPG-Comex, which dominates the national market.

Mexico’s housing market is becoming robust, relative to the recovering economy. The nationwide housing price index rose by 5.8 percent during 2020, according to the Sociedad Hipotecaria Federal (SHF), Mexico’s federal housing agency.

The SHF Housing Price index uses nominal values and asymmetry test that refers to the product of price and the number of indices that should produce the index.

The price index is created using fixed weights and the deflator is built using current prices to ensure that the prices and quantities are consistent, according to Moody’s credit rating agency.

In contrast to the more rapid housing demand increase, Mexico President Manuel Lopez Obrador predicts a 4.6 percent rise in economic activity this year, while financier Goldman Sachs predicts a 3.8 percent rise and credit risk analyst Moody’s predicts 3.5 percent growth.

The Mexican residential real estate market was valued at $31 billion in 2018, and it is projected to value $60 billion by 2025, with a compound average growth rate of more than 9.9 percent from 2019 to 2025, according to a recent Mordor Intelligence report.

Not only will overall housing investment rise, but the average value of a home is also rising. Fitch Ratings, in its December 2020 Global Housing and Mortgage Outlook said that “We are forecasting home price…growth in the U.S., Mexico, Brazil and Colombia, supported by improved economic prospects with wider vaccine availability later next year.”

Growing Middle Class Expands Housing Demand

The rising middle class in Mexico will help drive the demand for architectural segment products this year. The Gross Domestic Product per capita in Mexico was last recorded at $10,276 in 2019, according to the latest World Bank statistics.

The GDP per capita in Mexico is equivalent to 81 percent of the world’s average, the bank reports.

The middle class in Mexico was estimated to represent almost half of all households, numbering about 16 million in 2019. The group is expected to add 3.8 million more households by 2030, according to SHF.

Government support for housing finance will help drive the housing market this year after a retraction in 2020.

“In 2020, Mexico’s housing starts and inventory levels reached a 10-year low due to another sharp cut in the federal housing subsidy program and the pandemic that triggered a severe recession,” according to credit rating agency S&P Global.

This year, the Programa de Vivienda Social, or social housing program, will have a budget increase of 179 percent to $200 million, compared with 2020, said SHF. The average loan size under the program is about $34,000, the agency indicates.

“Government-owned mortgage lenders – Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit) and Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Fovissste) – are pushing to expand lending and customer base,” S&P reported recently.

“In particular, Infonavit has increased the size of its mortgage loans and widened the range of product offerings. The institute estimates that it could expand its base by up to 40 million borrowers by providing unemployed workers with a housing account access to its lending programs, enabling two unrelated workers to merge their housing funds, and eliminating the limit of two mortgages per worker,” S&P adds.

“The sector should benefit from a modest economic recovery in 2021, mortgage financing availability, and higher housing subsidies than last year. However, the recent resurgence of the pandemic in large urban areas across the country and the rising unemployment could delay the sector’s rebound,” S&P said.

Within the national home purchase and improvement market, U.S. nationals are expected to add to home sales this year.

More than one million Americans live in Mexico, and more than 500,000 own homes in the country, according to a 2019 Forbes report. In the past year, the value of the Mexican peso has depreciated nearly 10 percent against the U.S. dollar, aiding this homebuyer segment.

DIY Market Projected to Rise

As an important element of the total architectural market, the financing demand index for DIY and other remodeling is expected to grow by 4.4 percent this year, representing about 41 percent of the overall housing financing total, according to SHF.

Similarly, housing demand by geography varies substantially in Mexico, SHF reports. In the Mexico City region, the SHF index grew 2.7 percent in 2020; in Guadalajara, it was up 8 percent; in Monterrey 7.1 percent; in Puebla-Tlaxcala 7 percent; and in Querétaro, the index was up 5.9 percent in 2020.

Tourism Recovery to be Key to Growth

Apart from residential housing demand growth, hotel and condominium demand recovery will be key to the overall architectural segment growth.

Over the past year, tourism in Mexico declined by about 50 percent, in keeping with global trends.

However, Mexico is now the world’s seventh most popular tourist destination, producing some $25 billion in revenue from 45 million international visitors, according to CNN, citing 2019 estimates from the National Tourism Business Council (CNET) and the center for tourism research at Universidad Anáhuac.

PPG-Comex to Gain from Architectural Demand

As the largest multinational paint manufacturer in Mexico, PPG-Comex is expected to gain ground this year, according to the PPG 2020 annual report.

“In Latin America, we anticipate slightly better economic conditions in Mexico, most of Central America and South America compared to 2020. We expect continued strong demand for the PPG-Comex architectural coatings business,” the report stated.

Comex produces an average of 1.3 million liters (or 343,000 gallons) of paint and up to 1.5 million liters (or 396,000 gallons) during high demand, the company reported.

Mexico sales slipped for Comex in 2020, but are expected to rebound this year, according to the PPG 2020 annual report.

“Overall, demand in Latin America declined year-over-year driven by lower automotive industry builds and overall softer economic conditions in most countries, including Mexico.

“The overall (Latin American) region’s performance was supported by strong growth in the packaging coatings business. Foreign currency translation was volatile and finished about 10 percent unfavorable compared to 2019, principally driven by weaker currencies, including the Mexican peso and Brazilian real,” the PPG report added.

The Latin America paint season is the strongest in the fourth quarter, according to the report.

To help support government efforts to slow the spread of the Covid virus, Comex donated 75,000 alcohol-based hand sanitizer packets and 14,000 liters of sanitizer gel to the government in 2020, Comex reported.

In Mexico, “the PPG-Comex business added a net of approximately 80 new concessionaire locations” during 2020, the report said.

PPG-Comex reported in 2018 that it operates more than 4,500 stores in Mexico and Central America that are independently owned and operated by nearly 650 concessionaires.

“We…have moved closer to the consumer through our expansive retail network, with our products being used in an estimated 40 million projects annually,” said Henrik Bergström, president, PPG Comex, and PPG vice president, architectural coatings, Latin America, in a 2018 pre-Covid company statement.

Comex added 135 new stores during 2020 to reach a total of 4,869 in the country overall, according to Lydia Fresnedo Perez, a spokesperson for the company. Comex plans to reach 5,000 stores by the end of this year, she noted.