Post on 14-Jul-2020
Overall economic situation in LatinAmerica (1997-2006)
Source: IFO World Economic Survey
2006200520042003200220012000199919981997
8
7
6
5
4
3
2
Diffusion index
Latin America’s GDP growth
200720062005200420032002200120001999199819971996
5
4
3
2
1
0
-1
Percent change year ago
Source: IFO World Economic Survey
Latin America’s real GDP
Source: Economic Intelligence Unit
200720062005200420032002200120001999199819971996
2600
2400
2200
2000
1800
1600
US$billions
Source: World Resources Institute
42.9
171.4
60.8 56.7
0
25
50
75
100
125
150
175
200
Africa Asia Eastern
Europe
Latin
America
BOP Spending on Housing 331.8 Billion
Latin America Poverty
• 205 million people below the poverty line =38.5 percent of the total population
• 79 million people = 14.7% of the totalpopulation living in extreme poverty
2006
Latin America private equity at a glanceUS$ millions, 2005 and 2006
$63$141Private Equity Funds Raised
$1,320$1,538Private Equity Investments
$575$1,966Net Returns to LPs
2006 (1H)
2005
$858$1,494Net Returns to LPs
$595$1,069Private Equity Investments
$1,272
Total
$1,000Private Equity Funds Raised
Ex-Brazil
Source: Emerging Markets Private Equity Quarterly Review, Q4, 2006
Private equity investments by countryUS$ millions
$512$76Chile
$270$176Mexico
$170$0Uruguay
$0$14Central America
$26$15Andean
$36$0Caribbean
$218$474Brazil
$261
2005
$156Argentina
1H2006
Source: Venture Equity, Latin America
Scorecard of investment climates 2005
54.4
58.8
58.8
69.1
76.5
79.4
92.6
Score
Jamaica
Uruguay
El Salvador
Argentina
Colombia
Peru
Costa Rica
39.7Taiwan
38.2Mexico
41.2Brazil
52.9U.K.
41.2Spain
42.6Chile
47.1
Score
Israel
Source: Latin American Venture Capital Association
Development of Secondary Mortgage Market
Source: Inter-American Development Bank, Reforming Latin American Housing Markets
U.S. mortgage backed securitiesUS$ billions
Source: Federal Reserve
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
GSE Non-GSE
10th Milken Institute Annual Global Conference Los Angeles, April 24 2007
Using Capital Markets to IncreaseAccess to Housing:
Making it a Reality in Mexico
The Mexican mortgage industry has grown briskly over thelast 6 years. While SHF (a government agency) was the onlysource of funds for privately – originated mortgages between1995 and 2002, the fast pace of growth since 2003 has beensupported by funding other than SHF.
Source: SHF and CONAFOVISource: SHF and CONAFOVI
Number of Mortgages Originated by
Sofoles and Banks
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Ho
us
es
2001 2002 2003 2004 2005 2006
Funded by SHF Not Funded by SHF
Cumulative Annual Growth Rate : 27.3%
The RMBS market, just born on Dec-2003, should become themain source of funds for mortgages sometime in 2009. TheseRMBS are issued out of privately-managed SPVs, and carry aspread over government securities of approximately 90 basispoints.
Accumulated Amount of RMBS Issued by Private Lender
(Expressed in USD millions)
$4,427
$54 $304$564
$1,700
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2003 2004 2005 2006 2007
*Exchange rate used for conversion = 11 MXP/USD.Source: Source: SociedadSociedad HipotecariaHipotecaria Federal Federal
All of these securities are enhanced by Mortgage Insurance and/or Financial
Guarantee Insurance (full-wrap). At first, these were provided by SHF and the
FC, but since 2006 four private credit-insurance firms have been active in the
market.
2,749 2,8591,721
9,055
3,832
4,337
0
2,000
4,000
6,000
8,000
10,000
12,000
2004 2005 2006 2007*
Full Wrap MI + Partial Enhancement
*January – March 2007
Annual Amount of RMBS Issued (million pesos)
Source: Source: SociedadSociedad HipotecariaHipotecaria Federal Federal
371 555Minimum Monthly Income
111 166Monthly Payment
620 1,000Total Up-Front Payment
15,500 20,000House Value
Examples of Affordability under the Subsidy Program
(Figures in USD)
This system is now the base of an ambitious subsidy program
that should cater to relatively low income households to be
served by private lenders.
The successful experience on mortgages is also now trying to
be replicated on housing microfinance programs.Source: Source: SociedadSociedad HipotecariaHipotecaria Federal Federal
• Milken ConferenceMarch 2007
This material is provided for informational purposes and is not intended to be a formal research report. This presentation is delivered solely as reference material.
Latin America has experienced consecutive years ofeconomic prosperity and political stability since 2002…
Real GDP growth (%)
Source: Central Bank, INE, IMF and Credit Suisse
1.4%
3.9%
1.9% 2.3%3.0%
4.9%
0.5%1.3%
4.8%
2.8%4.2%
0.8%
-0.2%
9.2%8.5%
-4.4%
8.8% 9.0%
3.4%4.2%
6.3%6.2%
2.2%
5.3%4.9%
3.9%
7.0%
1.9%1.5%
2001 2002 2003 2004 2005 2006E
Brazil Mex Arg Chile Colombia
CPI Inflation rate (%)
Source: Central Bank, INE, IMF, and Credit Suisse
1.1%
12.5%
5.7%
3.1%
7.6%9.3%
7.7%
4.0%4.1%
3.3%5.2%
5.7%4.4%
12.3%
9.9%
-1.5%
3.7%
6.1%
2.6% 2.6%3.7%
2.4%2.8%
4.9%5.5%6.5%
4.5%
7.0%7.7%
2001 2002 2003 2004 2005 2006E
Brazil Mex Arg Chile Colombia
• GDP Growth
• Brazil, Argentina, Chile, Mexico and Colombia GDPs haverecovered since the ’02 bottom boosted by the high commodityprices, exports, private consumption, and investment
• Controlled inflation• High levels of inflation experienced in 2002 have come down
significantly in most Latin American countries
12.5%
-10.9%
…resulting in a 3 year bull market and lower countryrisk premium among Latin American countries
Latin American Indices Country Risk Premiums (EMBI Spread over US Treasury)
• Bull Market• Local Latin American Stock Exchanges have appreciated over 300% since 2002,
significantly outperforming most international stock markets creating significantwealth among investors and local companies
• Country Risk Premium• Improved economic fundamentals and stability have led to re-ratings of the Latam
countries and cheaper financing
100%
200%
300%
400%
500%
Dec-02 Oct-03 Aug-04 Jul-05 May-06 Apr-07
Mexbol
IPSA
Bovespa
Merval
FTSE 100
S&P 500
0
250
500
750
1000
1250
1500
1750
2000
Dec-02 Oct-03 Aug-04 Jul-05 May-06 Apr-07
Brazil
Colombia
Latin America
Mexico
Chile
Source: Bloomberg
Note: IPSA=Santiago Stock Exchange
Source: JPMorgan
Note: based on the weighted average of bonds outstanding
SOT
Latin America 166bps
Brazil 160bps
Mexico 90bps
Chile 82bps
Colombia 152bps
However, the standard of living bypeople in poverty has not improved with theeconomic boom in the region
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
1980 1990 1997 1999 2002 2004 2005 2006E
Extreme Poor Other poor
Latin America: Poverty Rates (%) Income inequality (Gini coefficient)
Source: ECLAC United Nations Economic Commission for Latin
America and the Caribbean(2006)
Note: Population-weighted average for 19 countries
Source: ElCLAC and De Ferranti et al.
Note: Population-weighted averages, For Latin American countries,
1990=available observation closest to 1990, 1999=available
observation closest to 1999, 2005= most recent available
observation
40
50
60
70
Central America South America & Mexico Latin America
1990 1999 2005
Credit expansion in the regionhas been slow to develop
• Ability to Foreclose• Banks ability to foreclose on houses has been very
cumbersome due to the bureaucratic process inLatin American countries
• Legality of property rights• Due to the informal nature of acquiring a house by
most lower class citizens, they are unable leveragethe deed to their house to obtain credit
• Lack of credit scoring information• The lack of available credit over the past decades
have left many without the opportunity to developcredit history
Household credit levels remain atlow levels even with robust economic growth throughout the region
Household Credit (As % of GDP) Market Loan Penetration (As % of GDP)
Source: IMF and Merrill Lynch, 2006Source: IMF and Merrill Lynch
Note: As of Dec 2005
The mortgage market in LatinAmerica is still significantlyunderdeveloped compared to other nations
2%2%2%2%3%4%5%7%
9%10%11%12%
14%17%
30%32%33%
34%
39%42%
51%
82%84%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
UK
Aust
ralia
Germ
any
Taiw
an
Hong K
ong
South
Afr
ica
Japan
Sin
gapore
Mala
ysi
a
Thailand
Chil
e
Hungra
y
Czech
Chin
a
Mexic
o
Pola
nd
Bulg
ari
a
Kaza
khst
an
Colo
mbia
Peru
Indonesi
a
Bra
zil
Arg
enti
na
• Low Mortgage Loan penetration• Latin American countries remain one of the most under
penetrated regions Globally
Mortgage Loan as % of GDP
Source: UBS Pactual
The current Brazilian and Mexicangovernments have taken significant strives to promotefinancing to the lower class for home ownership
Mexico – mortgage supply by government provides(loans 000s) Brazilian Mortgage Origination (R$ Bn.)
Source: Central Bank, ABECIP, UBS Pactual
605542
60
180
138
100
36
2004 2005 2006E 2007E
Infonavit Fovissste Sofoles
305
376435
512
• Mexican sponsored entities
• Infonavit and Fovissste providing mortgages
• Sofoles, nonbank mortgage originators with funding from the Federal MortgageSociety
• Brazilian funds
• FGTS (Fundo de Garantia do Tempo de Servico) and SBPE (savings accounts)
Source: Conafovi, SHF, Banorte and Credit Suisse
FGTS, a mandatory fund created t support employees that, SBPE=compulsory allocation of part of the fund used for the housing sector
econviews
Presentation at the Presentation at the MilkenMilken Conference: Conference:
The Argentine Mortgage MarketThe Argentine Mortgage Market
April 2007April 2007
MIGUEL A. KIGUELMIGUEL A. KIGUEL
Overview
• The Argentine Mortgage market is small.
• The supply of funds is concentrated on short termfinancial instruments.
• The Unpleasant Gap: Wages in Pesos, Real EstatePrices in Dollars.
• Some policy measures to foster the mortgagemarket in Argentina.
Mortgage Market Size
The level of the financialintermediation activity as a whole fellafter the crisis, and the recovery is gradual
Deposits and credit to the private sector
As % of GDP
0%
5%
10%
15%
20%
25%
30%
35%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Total deposits
Credit to the privatesector
Source: Econviews based on BCRA
Figure 1. Mortgage Loans as % of GDP
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: BHSA
The size of the mortgage market in Argentinafell by almost 60% in the aftermath of the crisis
Mortgages are a Very Small Share of
New Bank Lending
Credit to Private Sector
var. YoY - in million pesos
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000O
ve
rdra
fts
Do
cu
me
nts
Mo
rtg
ag
es
Ple
dg
e
loa
ns
Pe
rso
na
l
Cre
dit
ca
rds
Oth
ers
2005
2006
The Argentine mortgage market
remains among the small ones in the region
Mortgage Loans as % of GDP
As of 2005
65%
46%40%
16%12% 12%
5% 4% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
US UE
Can
ada
Chi
le
Col
ombi
a
Chi
na
Bra
zil
Mex
ico
Arg
entin
a
Per
u
Source: BHSA
The supply of funds goes to short term loans
The Increase in Financial Trusts
Issuance is Driven by Short Term Loans
Financial trusts issuance
AR$, billion
1,63
5,12
7,62
0
1
2
3
4
5
6
7
8
2004 2005 2006
Source: Gainvest
Figure 5. Financial trusts by type of underlying assets
1st. Semester 2006 issuance
Personal and
consumer
loans
45%
Guaranteed
loans
32%
Leasing
2%Comercial
loans
3%
Credit card
coupons
14%
Mortgage
loans
2%Other
2%
Mortgage Backed Securities Do Not YetRepresent a Significant Share of theSecuritization Market.
The Unpleasant Gap:Wages in Pesos, Real Estate Prices in
Dollars
Figure 3. Meters squared bought by one monthly salary
0
0.5
1
1.5
2
2.5
3
Jan-
77
Jan-
80
Jan-
83
Jan-
86
Jan-
89
Jan-
92
Jan-
95
Jan-
98
Jan-
01
Jan-
04
m2
Source: Cruces, Kawamura y Weinschelbaum (2006) based on Gimenez Zapiola, Cento de
Estudios Avanzados de la UADE, INDEC y FIEL.
Affordability of housing
•Property values have increased pari passu with the devaluation,
while wages have been lagging in dollar terms.
Affordability of housing
Table 2. Achievable amount of credit
by monthly salary and TFC (AR$)
Total financial cost (%)
Monthly salary (AR$)
2000 3500 5000
10 73,225 128,144 183,062
13 60,402 105,703 151,004
15 53,779 94,112 134,447
•Most workers cannot qualify for loan to buy an apartment or a house
Although construction activity is growing at a high pace,buyers do not take mortgages
Supply of housing
Housing construction activity
Index number 1997=100
30
50
70
90
110
130
150
01
-19
93
01
-19
94
01
-19
95
01
-19
96
01
-19
97
01
-19
98
01
-19
99
01
-20
00
01
-20
01
01
-20
02
01
-20
03
01
-20
04
01
-20
05
01
-20
06
Index 12 months MASource: INDEC
Some policy measures to foster the mortgagemarket in Argentina
•Some public actions are need to deal with therelative high rates of Inflation that lead to highnominal interest rates and high monthly paymentsthat it makes it difficult to qualify for the loans.
•Indexation is not a solution at this time due to legalrestrictions and a manipulation of the official priceindices
• The difficulty observed in foreclosing properties is aproblem for new loans, as well as the existence ofcapital and foreign exchange controls or the taxes onbank credit and debit.
Policy measures to foster the mortgage market
• Some possible policy actions inlcude:
• A subsidy on the buyers to help themqualify for the mortgages
•The provision of credit insurance toincrease the LTV above 60%.
• The creation of a new mortgage financeagency (similar to Fannie Mae)
• The development of a market that wouldallow a swap between fixed interest rateloans on the one hand and indexed oradjustable instruments on the other
Policy measures to foster the mortgage market
Growth of Potential Demand
> R$ 4,8014.7 mm families
From R$1.201 to R$4.80019.0 mm families
< R$1.20024.9 mm families
> R$2,60111.7 mm families
From R$1,201 toR$2,60012.0 mm families
< R$1.20024.9 mmfamilies
10%
39%
51%
24%
25%
51%
TR+9%20years
TR+14%10 years
PotentialDemand:+7 mm families
Source: UBS Pactual
Beginning of 2006
MonthlyIncome
MonthlyIncome
Beginning of 2007
Market for Units of R$ 110,000
71%
77%
80%
82%
73%
65%
70%
75%
80%
85%
< 5 5 ~ 10 10 ~ 20 > 20 Total
Minimum Wages
% O
wn
ers
hip
111%
73%
65%
53%
46%
20%
13%
10%
9%
8%
6%
2%
2%
166%
156%
249%
137%
125%
141%
63%
46%
17% 33%
28%
37%
35%
0%
50%
100%
150%
200%
250%
300%
Neth
erl
ands UK
USA
Irela
nd
Sp
ain
South
Afr
ica
Chile
Hungary
Mexic
o
Cze
ch R
ep.
Po
lan
d
Ind
ia
Bra
zil
Mortgage credit to GDP Ratio Total credit to GDP Ratio
2,2 3,04,8
10,04,56,0
9,1
10,3
0,0
5,0
10,0
15,0
20,0
25,0
2003 2004 2005 2006
Commercial Banks CEF
Home OwnershipCredit Availability(R$ billion )
Source: Central Bank and Bradesco Corretora
Source: PNAD and MCMSource: ABECIP and Central Bank
Brazilian Real State Market Information
Mortgage to GDP Ratio
Brazilian Real State Market Information
-6% -4% -2% 0% 2% 4% 6%
0 to 4
10 to 14
20 to 24
30 to 34
40 to 44
50 to 54
60 to 64
70 or more
Men Women
6660544842
Brazilian Interest Rates(average rate per year)
Housing Deficit(million of households)
5.4
6.7
0
3
6
9
1991 2006Source: Fundação João Pinheiro and Ministry of Cities
2000
7.9
Income Segments in BrazilAge Pyramid in Brazil - 2005
47 mn households
Consumption
19%A/B > 10 min wages - US$ 1,590 52%
5 – 10 min wagesUS$ 780 - US$ 1,590
30%C 28%
< 5 min wages - US$ 780
51%D/E 20%
Source: LosangoSource: IBGE
2002 2003 2004 2005 2006Source: Central Bank and MCM Consultores
19.2%
23.5%
16.4%
19.0%
15.1%
2007E 2008E
12.0% 11.3%
Favorable Macroeconomic and Demographic Environment
Contact IR
Cyrela Brazil Realty S.A. Empreendimentos e Participações
Address: Av. Brigadeiro Faria Lima, nº 3.400, 10th floor São Paulo - SP - Brazil ZIP Code: 04538-132
Luis Largman Dani AjbeszycCFO and Investor Relations Officer Investor Relations ManagerPhone: +55 (11) 4502-3153 Phone: +55 (11) 4502-3144e-mail: ri@cyrela.com.br e-mail: dania@cyrela.com.br
www.cyrela.com.br/ir