(Dow Jones) July 6, 2010 – Mexican home-construction company Urbi Desarrollos Urbanos SAB said Tuesday that it has reached an agreement with Aureos Latin America Fund to boost its rent-to-buy option for home sales, aimed at potential buyers of low-income houses who aren’t otherwise eligible for traditional mortgage loans.
Urbi said that under the scheme, ALAF, as the private equity fund run by Aureos Capital Ltd. is known, will finance the initial stage of sales made through the rent-to-buy program.
Potential home buyers who don’t have access to mortgages through government-run housing funds Infonavit or Fovissste, or access to bank loans, can obtain a home and have six months to pay the first 10% of its value as a down payment. If that goal is met, the buyer qualifies for a mortgage loan from government housing development bank Sociedad Hipotecaria Federal, or SHF, covering the remaining 90%.
Urbi, based in the northwestern city of Mexicali, said sales through the accord with ALAF are expected to be equivalent to 12% to 15% of its projected revenue over the next four years. The agreement will complement its existing rent-to-buy program–Alternativa Urbi–which is expected to account for an additional 12% of revenue. Urbi sold 42,100 homes in 2009, generating revenue of 13 billion pesos ($1 billion).
Instead of Urbi keeping the homes in inventory for the six-month period, Aureos will pay Urbi and be the deed-holder through a trust until the buyer receives a mortgage loan. That will allow the company to increase its sales without further pressuring its working capital needs, Investor Relations Director Antonio Jorge said in a telephone interview. Urbi has limited its existing rent-to-buy program to 2 billion pesos ($154 million).
The agreement doesn’t mean the company is changing its guidance for 2010–Urbi is targeting 10% revenue growth this year–but it could help raise sales in the future, Jorge added.
Aureos said in a press release that the financing scheme “represents an excellent opportunity to invest in the low-income sector in a more efficient and profitable way. It also broadens the opportunity for foreign investors to enter a sector that generally has been dominated by domestic investors.”
The rent-to-buy option targets a large segment of the population made up of workers who have regular income but aren’t on payrolls, and therefore lack traditional housing benefits or access to bank loans.
The National Statistics Institute estimates that 12.5 million people are employed or work in the informal economy, out of a total workforce of about 46 million. That makes a large market for home builders to tap.
The government-run Infonavit, the country’s largest mortgage lender, also seeks to extend benefits to workers in informal employment. Infonavit said Tuesday it’s committing MXN500 million for up to 2,000 home loans to domestic workers, of which it said there are as many as 1.7 million in the country. The program would allow employers to register workers such as cooks, maids, or drivers with Infonavit on a voluntary basis, making monthly contributions on their behalf.
By Anthony Harrup, Dow Jones Newswires