It is easy to imagine the future when there is a consensus on which businesses operate and how to manage them. Motivated by greed, investors and managers make predictable decisions in proportion to their own capabilities and resources.
Nowadays not only the market is being dominated by fear, but also it is being seriously questioned the way in which businesses are being managed today.
Some day, greed will replace fear in the decision making process of investors and consumers. But because I am not sure when this change of mood is going to happen; it is even more difficult to know or to try to predict how 2009 is going to be like.
Only when this replacement takes place (greed over fear), those businesses in which everybody wants to be involved, will be supported on the following basis: real demand, reputation and management.
It is now time to work on the identification of business opportunities based on real demand and also on the development of teams capable of implementing them successfully.
Before I introduce these markets where I believe there is such demand, I will make an introduction to some of the factors to be considered when doing business in LatAm.
570 Millions LatAm Stories…
In order to understand this region of 570 million inhabitants, we should consider those countries and regions that generally put aside formal frontiers and start building new others.
Even though LatAm’s economy depends on the exports of oil, mining and agriculture commodities, the reception of remittances from emigrants and tourism, the proportion of these businesses is completely different in each country and it is not related to the number of inhabitants.
- Foreign Trade – Mexico exports 2,300 dollars per inhabitant, Argentina 1,650 and Brazil 1,050
- Tourism – Mexico receives one foreign visitors per 5 inhabitants, Argentina per 125 and Brazil per 30
- Remittances – Mexico receives 220 dollars per inhabitant, Brazil and Argentina less than 40
- Savings abroad – Citizens from Argentina have deposited in banks abroad 5,000 dollars per inhabitant, Mexico 640 and Brazil 420
- Residential market – In Mexico 10 welling units are annually built per thousand inhabitants, 7 in Brazil and 2.5 in Argentina (the best record was 5 units per thousand inhabitants in 1998)
- Residential market – Mexico invest 590 dollars per inhabitant in new dwellings, Brazil 380 and Argentina 180.
Residential Market
The annual demand for new residential welling is over 4 million units and the deficit is approximately 24 millions. If LatAm resolves the structural limitations of its market (in some cases ideological) and pose a realistic goal, based on the successful experiences of Chile and Mexico, it could project an annual market of 6 millions units.
Today, the potential demand coincides with the real/effective demand in very few countries, being Chile the best example of a developed market. Unfortunately, this is bad news for those seeking opportunities in that country, because the volume is small and local players are vertically integrated with an extraordinary level of efficiency.
At the other extreme is Argentina, where today there are no minimum legal security conditions in order to develop real estate businesses. This country could have a market of 350,000 units per year, but unfortunately the Government and much of the private sector imagine something smaller.
Between these two extreme examples is Mexico, which everyday is closer to the efficiency of the Chilean market and Brazil, which day is moving away from Argentina.
I will not describe the current situation of the Mexican market because the key players are already doing this in Inmobiliare, but I would like to introduce my opinion about this model. I strongly believe that the Mexican market is the model that other countries should benchmark, where only a million residential units per year is just the base in quantitative and qualitative terms.
The success of Brazil in the process of ending poverty, the competitiveness of its economy and its population projections, allow us to forecast a demand of 2 million residential units. Despite the good results of the last two years, Brazil is still far from the maturity of the Chilean and Mexican markets.
But still, Brazil presents an opportunity for enterprises like Corporacion Geo, Urbi Desarrollos Urbanos or other Mexican developers, who have not only the experience but also the human resources to take part in important projects and in the creation of new cities.
Once again, the history has shown us that it is better to develop projects based on real demand, including families of the lower income segment, instead of dwelling with unrealistic assumptions where apparently wealthy people will always buy in rising prices, as happened in Spain some time ago.
I strongly disagree with the absolute concept of “Risky Market”. In fact, I believe that there are developers who do not have enough experience, and the capacity and the appropriate planning for doing businesses.
Commercial
With different levels of development, all the markets have shown their preferences for the American Shopping Center formats and concepts of the international retail chains.
Chile, with the highest level of development, unable to continue growing in its territory, exports management and capital to Argentina, Colombia and Peru. I could not imagine international players entering Chile’s market.
Even though this time of crisis and the fall in consumption’s levels in 2009, Brazil still has the biggest potential of all of them. It has not only developers and managers with great experience but also international partners. This will encourage the entry of new retailers and provide extra access to financial markets.
Brazilian developers have incorporated international partners over the past two years and also got investors in the capital market for new developments. Still, with a highly competitive market, Brazil is a vast territory where demand grows faster than supply.
Nowadays, the groups most likely to enter and to do business in the Brazilian shopping center market are the Chileans.
During the last years, Mexico has developed many excellent shopping centers, but the market still has much potential for new projects. Despite Brazilian’s developers that have incorporated international partners in order to keep going with the same business plans, the Mexicans have opened the market to international players. In short, Mexico is an international market with or without international partners and Brazil is a Brazilian market with or without international partners.
I personally believe there is an opportunity in Mexico for Chilean developers and investors, because there are more than 30 cities over 300,000 inhabitants among the country and because Chilean people know better than Americans how to do business in this type of markets, specially in time of crisis.
Mexican shopping centers have not yet attracted major European investors and knowing that the crisis and the oversupply in Europe are going to neutralize most of the new projects for several years, I think it is a good time for Mexican developers to seek such partners.
More than 90% of the GLA in Argentina is concentrated in two companies. Having space to triple the offer, this concentration has limited the development of new projects. Therefore, the Argentinean market should have one or two more new developers with the sufficient international knowledge in order to grow in geographical coverage and to incorporate new commercial formats.
During the last ten years the Office Sector has been very active in LatAm, except in Argentina, where since the 2001 crisis no new significant projects have been developed.
The situation in each city is different and surely an important percentage of the stock will be out of market for not being in accordance with the new international sustainability standards.
I believe that there will be many new projects that include offices into the concept of Mixed Use Projects, because this crisis will accelerate the change in the habits of work spaces.
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