 |
GUATEMALAN REAL ESTATE PROGNOSIS FOR 2002
IN VIEW OF RECENT ECONOMIC INDICATORS
 By: Sara Lois Siegal Bergenfeld - Attorney and Consultant for Real Estate Investment and Development, Strategic Alliances and Government
Relations, President of the Guatemalan Real Estate and Appraisers Association - AGBRV (January 9, 2002)
Guatemala is often thought of as the Gateway to Central America because of its key location, and as such has spearheaded or taken active participation in many interesting commercial advances in regional unity. The latest news tells us that the actual Ministry of Economy might be transformed into the Ministry of Commerce, with a mandate to increment international commerce, and a more realistic and competitive position for Guatemala within the region. Central American integration issues are a priority and would include a free trade zone and negotiation blocks for future Free Trade Agreements with Developed countries.
Globalization efforts have already catapulted important commercial initiatives into the region, with solid advances via Guatemala’s participation in the signing of the Free Trade Agreement with Mexico, and the new Generalized Preference System with the European Community that entered into effect the 1st of January 2002, and will be applicable between 2002 and 2004, with many favorable import duty reductions. Still in the works are the negotiation of free trade agreements, with Chile and Canada, including the FTAA between the United States of America and the Central American Countries, and ALCA, an agreement that will unify the entire American Continent commercially by 2005. Intimately related to these agreements is Bio diversity studies, and efforts towards controlling Climate Changes and the protection of Natural Reserves, which will cast a more favorable light upon the country for successful international dealings. Additionally, the private sector has recently formed National Commission for Forest Certification, which is linked with the international Forest Stewardship Council, based in Mexico, with the objective of fomenting the use of our national forest reserves in an efficient, productive and sustainable fashion, thus bringing fresh revenues into the marketplace, and providing new opportunities for marginal communities, Tourism and Commerce.
Plan Puebla-Panama, was introduced by the President of Mexico last June, and is geared towards the development of the region and the elimination of poverty, incrimination of commerce and the construction of a logistic corridor or international highway, electrical interconnections, and the construction of oil ducts etc. This initiative includes the southern part of Mexico, Central America and Belize. Guatemala has presented its first project for participation in this ambitious program, in a document entitled “ Regional Transformation Agenda for Central America for the Twenty First Century”, which has been supported by the Inter-American Development Bank, IDB, the World Bank and the European Union, all of whom have representatives forming part of a Consulting Group that is overseeing investment in the region for integration and developmental advancement.
Oscar Santamaria, President of the Central American Integration System - SIECA, states that Central Americas most important goal is to attract more foreign investment, and considers that we will be seeing changes that could go so far as eventual monetary integration following the example of the European Union. Efforts are already in the works for developing an effective common market and duty system, a common free trade zone and the integration of agricultural markets, all of which, according to this expert, should necessarily precede monetary integration.
If we see the fruition of all of these initiatives, which have been designed to create opportunity and income, they are positive signs for our economy, and as such would necessarily affect Real Estate activity in the future in an important and very positive way. The big question is how far along in the future?
After 23 months of FRG politics, Guatemala has been faced with many several negative factors that have caused commerce and production to suffer, with some industries looking other more attractive alternatives.
Carlos Arias Bouscayrol, President of VESTEX the Clothing and Textile Commission, considers that the recuperation of the North American market after the 9-11 attacks is vital for Guatemalans and foreigners that have resources invested here in this industry.
All of the above and other problems have been reflected in a slowdown and depreciation in actual Real Property sales and rentals, especially commercial Real Estate, with notable price cuts in the housing and commercial property market place.
According to Edgar Barquín the Financial Administration Intendance within the Banking Systems Superintendence, overseeing all private financial institutions, this sector closed the year with earnings of over Q308.90 million due to more efficiency and prudent lending policies. However higher than affordable interest rates (17.9%- 22% in Quetzals and 8.84 – 16% in US Dollars) have remained effective here, even though international interest rates over the past two years have fallen markedly, and to date there are no fiscal considerations for first time home buyers, nor capital gains incentives for second home or other real property purchases, a consideration that would definitely serve to effectively stimulate the Real Estate market, in this writers opinion.
According to studies realized by the Rafael Landivar University 22 Departments in the country report poverty levels that fluctuate from 33% to 87%, with extreme poverty levels in these same areas measuring 14% to 61%. In total, more than 54% of Guatemala’s population is considered poor and 23% to 27% are considered as extremely poor, a situation that has been exacerbated by the drought and loss of jobs resulting from a 44.5% decline in coffee exports. According to these figures the remaining 23% of the approximately 11.5 million total populations might have access to capital investment, and the majority of these individuals are not credit worthy according to current Banking Standards.
Public Sector support for subsidized housing contracts was an unsuccessful endeavor and Construction contracts were not honored. Complicated by the buyer pullback as a result of a weakened economy.
Government road construction and maintenance contracts totaling over Q1.400 million have yet to be paid, with companies affected sustaining the debt for over 6 months. The FRG is considering the emission of Q1, 200 million in Treasury Bonds in order to cancel this debt to the Contractors affected contractors, which according to Congressman Leonel Soto Arango, pending agreement with the Minister of Finance, Eduardo Weyman, is an issue that could be on the floor of Congress for discussion in March 2002. That is still three months away, and in the meantime expenses generated by these companies keep mounting and cannot be met.
On the positive side, on January 8th Habitat For Humanity announced that it plans to invest Q22.5 million for the construction of 15,000 new low cost homes (Q15, 000.00 each) during 2002, according to Jose Alfredo Polanco, Director of the institution
As the New Year commences the exchange rate is being maintained between 7.90 and 8.15 per US Dollar thus far, a trend which authorities claim will probably continue throughout the year.
The decline in the real “purchase value” of the Quetzal over and above the devaluations realized to date has stimulated the use of the US Dollar in most property transaction, especially since the passing of legislation authorizing the official use of all foreign currencies.
International monetary reserves ascend to Q2, 389.6 million. Plan Puebla Panama is projected to bring US$240 million for a Central American electrical interconnection project, and US$63.4 million is available for the construction of a Central American road corridor. The Minister of Finance estimates that US $60 million is needed for the project over various fiscal periods. These and other capital infusions could push the present Bearish Real Estate Market into an about face.
We believe that the future of a healthy Real Estate ambience is intimately related to all of the above factors, that in synthesis are:
- The reactivation of our local economy with concrete political initiatives towards that end.
- The improvement of the import-export ratio which was notably depressed during 2001, compared to prior years.
- Instilling confidence regarding the use of public funds coupled with incentives for real estate investors and developers.
- Providing accessible interest rates especially for middle class first time homeowners.
- Maintaining real estate and construction costs orderly and in harmony with real market value according to the financial reality of consumers.
We also believe that the immediate future some of the following phenomenon could have a positive impact on our markets:
- Lower interest rates for loans available internationally could motivate foreign investors to look for new capital growth alternatives in developing countries. Low interest rates earned on savings and stock market declines make Real Property investments more attractive because transactions are protected legally and are safe in Guatemala, with relatively low property taxes compared to other countries.
- “Bargains” available in Guatemala now, make medium and long-term Real Estate investments a target for smart money, knowing that market will turn around, as it always does.
- Attracting retirees looking to stretch their savings and income while enjoying higher living standards in accessible elderly friendly housing. We believe that Guatemala has much to offer this community and is good opportunity for visionary developers.
- Large housing deficits in Guatemala make land purchases in the right places attractive for middle to long-term earnings.
- Demographics continue to rise, as does the need for housing.
- New monetary laws past by Congress during 2001 make it safe for investment in US Dollars without having to currency conversion as a risk factor
- Effects of 9-11-2001 caused a decline in the tourism market, but many believe that as the threats and perceived danger of terrorist attacks declines, this sector will once again become healthy, causing the need for more sophisticated and accessible facilities available for travelers.
The Guatemalan Association of Real Estate and Appraisers was recently constituted setting these Objectives:
- To support efficiency amongst Real Estate Professionals and locate products that are useful to members and Allied Associations according to individual and company memberships needs, at discounted prices,
- To offer truthful and modern alternatives and information regarding the National and International Real Estate marketplace.
- To foment the unification of Real Estate Market standards, working towards an international homologation of acceptable practices and ethics applicable to professionals and appraisers, as well as consumers, by organizing activities that will consolidate this sector in all of its facets in a secure and positive manner.
- Vigilance regarding security, legal and social factors that could have an impact on the real estate market and affect international investor capital.
To this end several Strategic Alliances were realized during 2001, which include:
- The “National Association of Realtors”, NAR, which is the largest Association in the world for Real Estate Professionals, offering benefits to AGBRV members, which include the possibility of using the famous NAR Realtor symbol and being taken into consideration as part of the “The Certified International Property Specialists Network” – CIPS, which is the international arm of NAR,
- AGBRV has taken leadership in the Region by being the only Central American Real Estate Association that is a founding members of the International Consortium of Real Estate Associations – ICREA, with leading Real Estate Associations representing 23 countries and a total of over one point five million individuals as members, along with a strategic alliance with Homestore.com for the development of a dynamic web page that will open up interesting opportunities for AGBRV members in the near future such as:
*Participation in a world wide multiple listing service.
*Access to technical assistance for secure international transactions.
*A standardized Ethics Code for all member associations.
*An international Arbitrage network, to serve professionals and their clients.
*The largest Data Bank in the world for Real Estate opportunities and networking in this sector.
*An e-commerce network with interesting discounts on brand name products that are important for modern business practices and investment advancement.
Local strategic alliances have also been formed that will benefit members and offer business opportunities to its Allies. These alliances include: AMCHAM, ETELEX, MARRIOTT, MEXICANA AIR LINES, THE MERCHANTS ASSOCIATION, AND OTHERS.
It is this writer’s opinion that Real Estate will necessarily see an increase in value and capital growth due to the insertion of Guatemala in the world of international business and finance, and considers that if foreigners are attracted to our soil, exposing them to the inherent and relatively unspoiled beauty of the country mixed with other incentives, we will see increased interest land acquisition for Residential, Commercial and Tourism infrastructure. If retirement investing is exploited senior citizens would also need subsidiary commercial and health geared installations, opening up additional opportunities.
In our world, post September 11, 2001, predictions about any particular market are complex at best. In moments of great challenge the need to survive and thrive makes us search for new and creative alternatives in order to achieve success, with proactive and constructive actions necessary in order to inspire confidence. Guatemala has many potentials, a wealth of resources, and interesting Real Estate advantages. This alone, however, does not assure prosperity. It is professional teamwork that will make the difference, in conjunction with Public Sector transparency, an effective healthy system of Justice that protects investors and provides security, a safe environment and other convincing factors that will inspire foreign and local investors into believing that Guatemala is by far the best option on the isthmus.
To Guatemalan Country Profile. |
