Of the 35.2 million homes that exist in Mexico, around 6.8 million households belong to the segments of the population with a higher income level, of which, half of the properties that these segments are located in the metropolitan areas of CDMX, Monterrey, Guadalajara, Querétaro and Puebla.
These homes are classified according to the segmentation determined by the National Housing Commission (CONAVI) and other government and private entities in 2010, where AAA homes are classified as Residential, Residential Plus and Vacation. According to the Mexico Housing Overview carried out by Softec, in these classifications we usually find homes between 90 and 500 square meters that can be luxury apartments or independent houses with high-quality finishes and access to all services and amenities.
Based on the survey carried out by Softec for new housing built by developer companies, during 2021 around 3,100 active projects for AAA housing (Residential, Residential Plus and Vacation) were registered in 41 cities in the Mexican Republic. Regarding the homes sold in these sectors, in 2021 sales were registered for approximately 42,000 AAA homes, which represents a contraction of 7.5% compared to 2020, however, during the last 10 years, the number of homes sold has experienced a compound annual growth rate (“CAGR”) of 8.4%, going from 18,795 homes in 2011 to the aforementioned 42,182 in 2021.
Regarding the evolution of the price per square meter of these segments, in 2011 the average was around $21,700 pesos per meter to reach an average of $43,000 pesos per square meter in 2021. The foregoing assumes a CAGR of 7% which, compared to the average annual inflation for that period, which results in almost 4%, the “real” capital gain or above inflation has been 3% per year in the last eleven years. The foregoing reflects the strength of the Mexican AAA residential market, which despite the increase in housing production in these segments, demand has been strong enough to absorb the new units developed with sustained increases in prices per square meter.
For the next eight years, both CONAVI and Softec estimate that the number of AAA residences that will be added to the market annually will be around 85,000 units, of which 47% will be found in the country’s largest metropolitan areas (around 40,000 units). In this sense, the metropolitan area of Mexico City will concentrate approximately 20,000 units, while Monterrey, Guadalajara, Querétaro and Puebla will add the rest.
If we refer to vacation homes or "second homes" exclusively, the cities that concentrate both the production and the sale of these residences are made up of beach tourist destinations led by the city of Cancun with a market share of 50%, followed by Puerto Vallarta and Mazatlán with 15% and 13%, respectively.
The future of the AAA residential market in Mexico will largely depend on whether the demand for this type of real estate continues to show signs of strengthening derived from certain factors such as economic stability, security in the country’s main metropolitan areas, the attraction of foreign direct investment, as well as access to sources of financing at attractive rates. In the short and medium term, it will be important for Banco de México to be able to control inflation effectively to avoid disincentivizing developers with high construction and labor costs. Stabilizing supply chains for the production and movement of construction materials will be critical to stemming price spikes. From the perspective of supply and particularly the role played by the authorities, it will be important for the governments of the main metropolitan areas to speed up the procedures for permits and declarations of projects that comply with all the requirements demanded by law (let's not forget, for example, that the current government of CDMX stopped all permits the first three years of government). If the above happens, the AAA housing market in Mexico could experience very interesting growth dynamics for the years to come.
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