Real estate markets in Latin America are poised for growth as mortgage lending increases in the region, especially in Brazil and Peru.
Mortgage lending has significant growth potential throughout Latin America given the steady expansion of GDP per capita incomes and still generally low levels of banking penetration, particularly with respect to housing finance, according to Moody’s Investors Services in New York.
Brazil is the region’s most mature mortgage market where residential property loans represent a mere 3% of GDP versus about 20% for Chile. Peru’s mortgage market is growing, up 47% in the 12 months to the end of March this year, says the Association of Peruvian Banks.
Even in these two countries though, the mortgage markets are low compared with international standards so there is huge room for further growth.
According to Moody’s the current low inflation and interest rates and the increasing appeal of longer tenors both locally and internationally should serve as catalysts for more robust development of the mortgage industry.
The secured nature of residential mortgage assets makes them particularly attractive to banks because of their lower capital consumption. With consumer demand helping to stimulate economic recovery, investments in housing and home finance are likely to play an increasingly important role in the development of the region’s economies, he explained.
One key area will be the introduction of credible legal and regulatory frameworks and transparency overall in real estate markets, especially those seeking to attract foreign buyers. Countries such as Turkey and Bulgaria have attracted a large number of British buyers, for example, but also attracted a lot of headlines about lack of transparency in the buying and lending process due to corruption.
Initially a lot of the growth in countries like Peru is expected to come from the domestic market where buying a property is more affordable than ever before. Peru is one of several Latin American countries seeing results of long term policies designed to stimulate the mortgage market and increase affordable housing. Peruvian governmental institutions like the Fondo MiVivienda and programs like Techo Propio were launched to provide support for affordable low income housing through subsidized interest rates and other credit support aimed at lowering the costs of housing finance.
Liquidity in the Peruvian banking sector, coupled with the credit quality of loan portfolios and governmental actions to lower interest rates largely insulated Peru from the effects of the recent global financial crisis. Continued demand for affordable housing and a housing boom contributed to this month’s decision by the Peruvian central bank to raise interest rates as a preventive measure to avoid overheating of the economy.
Financial institutions such as the International Finance Corporation and the Inter-American Development Bank are providing credit support for the growth of the primary mortgage market in countries such as Brazil, Peru and Mexico by lending to local banks and helping to improve loan origination documentation and techniques.
These markets though are still emerging and buying a property can be a lengthy process and there is no current process to help those who fall behind with mortgage payments.
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