Mexicos proximity to the US and its strong export relationship with the country have placed it under threat from the ongoing debt concerns arising in North America. Investment activity is predicted to slow and it is likely that Mexicos US exports will follow suit, as US growth continues to stagnate. Mexico is also at risk from escalating drug-related violence that is causing a cautious and uncertain investment environment.

However, there are bright spots for Mexicos real estate sector. For example, Colliers International reports that demand for industrial space is being driven by the automotive industry, which is likely to continue to grow. In addition, the whole of Latin America has a comparatively strong outlook for GDP growth over the coming years, which will highlight the regions potential for investors in all sectors. Mexico has a huge housing shortage (somewhere around 9mn families are in need of suitable homes), and the government provides developers with subsidies and buyers with access to mortgages from the state agency Infonavit, which provides up to 70% of the countrys mortgages. One of the house-builders whose focus is on low-income housing is Corporacion GEO. It had a very successful first half of 2011, achieving a 10.6% increase in revenue.

Key Opportunities In The Real Estate Market:

- The Wall Street Journal explained that more than 70% of housing loans granted in H111 were for properties that had energy- and water-efficient features, offering real incentives for developers to build in that fashion.

- The countrys proximity to the US could prove to be an opportunity or a risk for Mexico, as mentioned above. Although Mexicos GDP growth forecast for 2011 has been revised down in recent months to 4.0% y-o-y, it is still favourable compared to the US. This could encourage investors looking for more stable markets into the countrys real estate market.

- Mexicos own REIT, Fibra Uno, started trading in March 2011 and by August had 675,917 square metres of gross leasable area in its Mexican portfolio, across 16 properties, with 90% occupancy. The largest proportion of the property is industrial space.

Key Risks To The Real Estate Market:

- Reuters points out that much of the industry has faced rising costs so far in 2011 and is likely to continue to face them throughout the rest of the year.

- Over-supply of office space, particularly in Mexico City, may continue to depress rents there and dissuade developers from building higher-quality properties.

- Standard & Poors downgrading of Monterrey-based Cemexs credit rating to six levels below investment grade is likely to spark short-term fears among smaller developers.