Latin America is having a great 2022. Unlike Asia, which is being weighed down by China’s economic slowdown, or Eastern Europe, which is being disrupted by Russia’s invasion of Ukraine, Latin America’s major economies are outperforming. One reason is the global energy crisis, as the region is a major commodity exporter that benefits from current high prices. But there are other structural forces at work.
Solid economics are underpinned by strengthened state institutions. Over the last forty years, countries throughout the region transitioned from dictatorships to democracies while Colombia ended the world’s longest-running continuous war. That has fostered a growing Latin American middle class that is benefitting from decades of steady economic and political improvements. There is just one problem – housebuilders have been unable to keep pace with the extra demand.
Regional investment opportunity
The region’s population is now at 665 million people, up from 175 million in 1950. That growth was accompanied by rapid urbanisation, with 80% of Latin Americans now living in urban areas and rising to 90% by 2050. As a result, the InterAmerican Development Bank estimates that Latin America’s housing deficit stands at 23 missing million units plus a further 43 million houses that aren’t fit for purpose. And the rapid economic and population growth means the problem is getting worse.
The growing housing deficit creates a massive, long-term investment opportunity for players like Miraval. The developer has five residential projects in different stages of planning, construction and delivery across Colombia. It is also expanding to neighbouring markets, such as Panama, Costa Rica, the Dominican Republic and Ecuador, where similar demographic and economic drivers are at work.
Miraval’s first market, Colombia, is a good example of Latin America’s economic resurgence. Colombia’s GDP tripled over the last two decades, making it the fourth-largest in Latin America. Indeed, this year it is expected to be the fastest-growing major economy in the region. The population expanded to 50 million people today, up from 16 million in 1960. Moreover, an average age of just 27 means millions of Colombians will be looking to form new households over the next few decades. A recent study from La Haus and the Massachusetts Institute of Technology, found that Colombia will need to build 400,000 houses per year – an investment of 0.5% of annual GDP – to close the deficit.
Miraval doesn’t just build houses – it creates sustainable microcities. These are safe, clean, well-organised communities, with amenities ranging from swimming pools to schools. In Colombia - a state that provides inadequate basic services to the people - Miraval’s sustainable microcities have an appeal that goes beyond the four walls of the house.
That model is also good for Miraval’s investors. As a vertically-integrated developer it will generate profits along the whole chain, from land purchases to residential management services. Moreover, Miraval will provide utilities, such as electricity and water, for its residents, ensuring visible, long-term revenue streams that complement housing unit sales.
The business model isn’t just profitable – it is also environmentally and socially sustainable. Indeed, the company’s activities support eight of the UN’s Sustainable Development Goals. That matters because it means that Colombian officials, from the central government to local authorities, support Miraval’s projects.
The five projects that Miraval has underway are expected to earn more than $500 million of sales between 2022 and 2026. The company is currently raising funds privately to develop those projects and aims to list on a European market in the mid-term.
The most advanced project is Villanela, a 1,061-house development in the Bolivar department of Colombia. Construction began in 2018, with sales worth $16million in 2021. It is expected to sell a further $100million of units before construction completion in 2026.
Villanela integrates Calle Mayor Project, a 2,800 m2 leisure and commercial centre, that already started construction . Three more residential projects – Laguna Baru,Santa Ana Club and Rivera Baru – will launch this year. Location is everything in real estate development, and fast-growing Bolivar offers several benefits. Miraval’s projects are strategically-located 25 minutes from Cartagena, a leading industrial and touristic city on Colombia’s Atlantic coast.
Miraval’s developments will provide much-needed, high-quality housing to Colombia’s growing middle class. But it’s not just Colombians that will benefit. Miraval will also create impressive returns for investors.