Investment Mexico. The Finance Reform is a brake on the real estate sector

The proposal of the Reform Finance presented by the federal government is going to be a brake for the real estate activity, said Carlos Hermosillo deputy director of Fundamental Analysis of Banorte.

This is due to the fact that the proposal includes the application of Value Added Tax (VAT, 16%) on the purchase and rent of buildings, as well as on mortgages, a fact that, in addition to increasing the price of buildings, will decrease purchasing power Of the population.

This can have a direct effect on the dynamism of the sector, since the population (in general) has no way of accrediting the increase of VAT as well as companies do, said the analyst.

In an interview explained that in the case of mortgages, the mechanics of the increase of VAT will represent 16% "extra" at the rate (approximately between 8.45 to 12% per year), while in the scheme of purchase or rental of real estate will be The supply-demand will determine who will absorb the cost.

"It will depend on the strength of the sector, in ideal conditions will end up paying the user. If there is no such balance in supply and demand you can force it to absorb part of the increase, that is, lower the rent so that the total increase is less aggressive than 16%. That will end up beating you, in the flow as a tenant, "he said.

According to the analyst, it is necessary to take an "initial blow, and then begin a recovery" of the population in general, because in theory all the changes that are being made are intended to improve the level of income of the population.