Background Paper 2a— Toward Sustainable Financing and Strong Markets for Green Building: 

Green Building Market and Finance in Mexico 1

Paper 2a: Toward Sustainable Financing and 

Strong Markets for Green Building:

Green Building Market and Finance in Mexico

Luis Antonio García Díaz

Sinergia Capital

Introduction

The purpose of this report is to describe, from an economic-financial viewpoint, the main 

elements that influence the green building market, and to emphasize that Mexico must 

implement financial policies if it aims to reduce carbon emissions and optimize the country’s 

natural resources.

There is no real estate market for green building in Mexico, and in fact, there is no market 

differentiation for buildings with the characteristics of green building. Instead, green buildings 

are listed in the commercial and low-cost residential sections.

Of the eight financial institutions consulted (five Mexican and three international), five 

responded that they had not supported any projects with green building characteristics and that 

they did not have any special or particular financing plans for green building. They did report, 

however, that their mortgage departments would be willing to assess such characteristics and that 

they would turn to their international banking departments to be able to finance green 

developments.

Basis for Financing

Financial institutions seek not only firm loan guarantees, but also to ensure, in the best way 

possible, that the project they are supporting will generate sufficient funds to cover the debt. To 

this end, they use certain elements of comparison, to allow them to more reliably estimate the 

project’s future flows. And they prefer to support projects in which the developer has proven 

experience in the business.
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Green Building Market and Finance in Mexico 2

With regard to other methods for financing and developing the real estate market, in addition to 

those granted by banking institutions, especially worth noting are stock market certificates and 

infrastructure and real estate trusts.

Stock market certificates. The real estate sector uses two instruments to place individual 

mortgage loans on the Mexican Stock Exchange (Bolsa Mexicana de Valores—BMV): 1) 

mortgage-backed bonds known as Boris, which are equivalent to Mortgage Backed Securities 

(MBS) in the United States, and which have been issued since 2003, with a total of more than 

US$3.068 billion placed on the stock exchange since that time;1 and 2) Cedevis or certificates 

issued by the Institute of the National Fund for Workers’ Housing (Instituto del Fondo Nacional 

para la Vivienda de los Trabajadores—Infonavit), which has placed more than US$1.7 billion 

on the stock exchange since 2004.2

Infrastructure and real estate trusts. The antecedents of these instruments, known as Fibras, are 

the Real Estate Investment Trusts (REIT) in the United States and Real Estate Income Trusts 

(REIT) in Canada. Although Fibras were approved in Mexico in 2005, they are still not 

operating. It is expected that they will be traded on the Mexican Stock Exchange shortly, since 

the first request for authorization was presented in 2006, and talks are underway with a number 

of issuers.

Construction Market

Historically, real estate in Mexico has been owned by local investors, however with the growth 

in activities associated with the North American Free Trade Agreement (NAFTA) as well as 

increased transparency in the real estate market, investments with foreign funds and foreign 

direct investment are increasingly more common in this sector.

Properties are classified in four categories (A+, A, B and C), depending on their specific 

characteristics. Categories A and A+ correspond to properties with the highest ratings in 

construction quality, location, technology, security and operations. Some characteristics of green 

building might be found in these two types of real estate.

Real estate responds to economic activity. In Mexico, the greatest economic activity, aside from 

the oil industry, is concentrated in Mexico City, its neighboring states, and the states in the 

country’s northern region that export manufactured products. Meanwhile, most of the tourist 

activity takes place along the Caribbean coast and all along the Pacifica coast.

One of the characteristics that investors seek is investment security, and in Mexico’s case, this 

security, as measured by transparency, has improved significantly since 2004. The Jones Lang 

LaSalle Transparency Index gives Mexico the top position in Latin America.3

 1

 Report from the Federal Mortgage Company (Sociedad Hipotecaria Federal) on mortgage-backed bonds. 2

 This amount (converted to dollars at an exchange rate of 11 pesos to the dollar) was taken from a BMV press release. 3

 Jones Lang LaSalle, “Investment Case for Mexico,” Advance, February 2007.
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Green Building Market and Finance in Mexico 3

Offices

The highest concentration of offices is found in the country’s largest cities: Mexico City, 

Monterrey and Guadalajara. The combined market value of office space in these three cities (a 

total of 3.5 million square meters) could surpass US$80 million annually.

Offices market (A+ and A)

Inventory Available Unit value Market value

(m2) (m2) (US$/m2) (US$)

Mexico Citya 3,079,739 316,761 24.00 73,913,736

Guadalajarab 79,000 21,725 15.25 1,204,750

Monterreya 365,720 42,643 18.00 6,582,967

Total 3,524,459 381,129 81,701,453

a

 Figures as of June 2006, in Colliers Internacional, Reporte de oficinas. Ciudad de México. b

 Figures as of December 2005, in Colliers Internacional, Presentación de Fibras and Reporte del mercado inmobiliario 2005.

We can see how the market has evolved favorably since, despite annual investments, the 

availability rate dropped from approximately 23 percent in 2002, to nearly 10 percent in 2006.

Industrial bays

The majority of Mexico’s industry is concentrated in three regions: the central, northern and 

Bajio regions. The annual value of the industrial market is over US$105 million, with an 

inventory of 23.5 million square meters.

The central region includes Mexico City and its metropolitan area, as well as the cities of Puebla 

and Toluca. This region has a significant potential for growth, since the index of square meters of 

“A” type industrial buildings per capita is a third of this index for most US cities.4 The Bajio 

region, which includes Guadalajara, Querétaro, San Luis Potosi, Guanajuato and Aguascalientes, 

is an area with a high degree of fertility and is characterized by high-technology agricultural 

production. The northern region, which includes Tijuana, Mexicali, Ciudad Juárez, Chihuahua, 

Saltillo, Monterrey, Laredo, Reynosa and Matamoros, is characterized by increasing integration 

with the US economy. The greatest real estate development in this region during the last year 

took place in the logistics and distribution areas.

 4

 Ibid.
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Industrial market (type “A” bays)

Inventorya Unit value Market value

(m2) (US$/m2) (US$)

Central 

regionb 5,590,000 5.00 27,950,000

Bajio regionc 4,180,000 4.40 18,392,000

Northern 

regiond 13,730,000 4.29 58,833,050

Total 23,500,000 105,175,050

a

 Square meters according to Jones Lang LaSalle, Investment Case for Mexico, Advance, February 2007. b

 Figures up to first quarter of 2006. Unit price corresponds to the Mexico City metropolitan area, according to the Índice de 

Mercado report by CB Richard Ellis. c

 Average price corresponds to Guadalajara, according to Colliers.

d

 Average price corresponds to Monterrey, according to Colliers.

Stores

Most of the real estate in this sector is owned by the occupants or by specialized developers. 

Companies for opening shopping centers have accelerated foreign direct investment. 

Specifically, the number of supermarkets and department stores has increased by more than 10 

percent during the last year, with a total of 13,062 in the country, covering 15 million square 

meters.

To estimate the size of this real estate market, we need only look at data from the National 

Association of Supermarkets and Department Stores (Asociación Nacional de Tiendas de 

Autoservicio y Departamentales—ANTAD) that report a total of 12,154 stores, covering more 

than 11 million square meters. Of these stores, 1,595 are supermarkets, 860 are department 

stores, and 9,699 are specialized stores. Another interesting piece of data is that Wal-Mart now 

owns 908 stores, and 120 of them opened their doors in 2006.5

Tourism

Information on the number and square meters of buildings dedicated to the tourism sector is not 

available. However, there is no doubt that the figures are very significant, since: a) Mexico is the 

world’s eighth most popular destination for tourists; b) there has been an increase of more than 

12 percent in private investment in this sector during the last three years, and c) according to 

Jones Lang LaSalle, Mexico occupies the top position in Latin America in the index on 

investment transparency.6

 5

 Wal-Mart México, Informe Anual 2006. 6

 See note 3, above.
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The characteristics just mentioned, together with statistics on the number of retired people in 

Canada and the United States purchasing a home in Mexico, suggest a major market for Mexico, 

specifically in the areas of Los Cabos, the Pacific Coast and Rivera Maya.

Residential Construction (Market-price Housing)

Although the growth index for housing construction has been greater than the population growth 

index in the last 30 years, the increase in the number of individuals at the age of establishing 

their own household was greater than the increase in housing construction during the last two 

decades. And this led to a deficit in new housing.

After the 1995 crisis in Mexico, banks withdrew from the lending market, and consequently the 

possibilities for financing were limited to government entities and specialized financial 

companies (Sociedades Financieras de Objeto Limitado—Sofoles). To counteract this situation, 

the Federal Mortgage Company (Sociedad Hipotecaria Federal) was established, and in 2001 

the number of bank loans began to once again increase at an accelerated rate, although not 

reaching the level of financing before 1995. In 2005 a total of 56,474 bank loans were granted, in 

comparison to 85,200 in 1994.

Financing by banks was particularly evident in the upper-class real estate sector, where a 

significant portion of bank financing was invested.

Sale of new homes7

Percentage of annual variation

2002 2003 2004 2005

Middle class 68.9 17.3 –1.6 7.3

Upper class 76.6 10.5 16.4 37.0

Plus 42.3 40.2 –10.4 –6.4

Public or Affordable Housing Construction 

There is also a deficit in new housing corresponding to public or affordable housing 

construction, and this deficit is even more notable given that the majority of the Mexican 

population is classified as low income.

After the 1995 crisis, the participation by banks in mortgage financing was practically zero. The 

growth is this sector during the years following the crisis was due particularly to the financing 

provided by Infonavit and the Housing Operation and Financing Trust (Fondo de Operación y 

Financiamiento Bancario a la Vivienda—Fovi).

 7 Servicio de Estudios Económicos de BBVA—Bancomer, El potencial de la vivienda en México, with data from Softec.
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Sale of new homes8

Percentage of annual variation

2002 2003 2004 2005

Public 3.8 8.8 7.7 11.8

Affordable 25.0 33.4 –6.0 47.4

The main actors in this sector are the government, through the National Housing Commission 

(Comisión Nacional de Vivienda—Conavi), the Housing Fund of the Institute of State Workers’ 

Social Services and Security (Fondo de la Vivienda del Instituto de Seguridad y Servicios 

Sociales de los Trabajadores del Estado—Fovissste), the Federal Mortgage Company (Sociedad 

Hipotecaria Federal) and the National Trust Fund for Low-Income Housing (Fideicomiso Fondo 

Nacional de Habitaciones Populares—Fonhapo), and the country’s major construction 

companies, such as URBI, GEO and Homex.

This type of housing is generally for the lower-middle class of the population, and most of the 

final users are from this sector.

Market structure

In June 2001 the Mexican government created the National Commission for Housing 

Development (Comisión Nacional de Fomento a la Vivienda—Conafovi) with the objective of 

defining and coordinating national housing policy. It also created the Federal Mortgage 

Company (Sociedad Hipotecaria Federal), a national housing bank that absorbed the assets of 

the Housing Operation and Financing Trust (Fideicomiso de Operación y Financiamiento a la 

Vivienda—Fovi), which until that time had operated in connection with the Central Bank (Banco 

de México). The Federal Mortgage Company operates as a second-tier development bank, and 

works to facilitate the mobilization of private savings into the residential mortgage market.

Housing subsidy policy was ultimately consolidated with the creation of Fonhapo. It is important 

to note that in Mexico subsidies are implemented on the supply side of the housing market, and 

currently there is a transition underway from implicit subsidies to direct subsidies for financing 

the acquisition of housing.

Current status of financing for green real estate 

It is hoped that what are referred to as “green mortgages” will enter into operation at some point 

during 2007. These instruments have not yet been introduced on the market primarily because it 

is still necessary to assess their benefits and define the way in which they will be transferred, 

through better rates or larger loan amounts. Currently, a multidisciplinary group is carrying out 

an assessment and classification of the prototypes of housing constructed in different parts of the 

country.

As mentioned in the Residential Building Code (Código de Edificación de Vivienda)

9

 established 

by the National Housing Commission (Comisión Nacional de Vivienda—Conavi):

 8

 Ibid.

9

 The Residential Building Code is a guide for developing regulations at the municipal level.
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States and municipalities define the standards for home building through construction regulations, 

laws on human settlements and housing subdivisions, civil codes and other instruments.

At the national level, nearly 100 construction regulations have been identified, of which 32 are state 

regulations, and the rest are municipal regulations. There is a great deal of diversity in their contents, 

criteria, concepts and definitions.

It is important to include sustainability characteristics in these regulations, although it is not 

possible to standardize regulations for all municipalities, since such characteristics depend on the 

geographic and climatic conditions in each location.

Institutional Building

According to Conae’s 2003 database on the largest federal government offices, there were 729 

office buildings with a total of 3.8 million square meters.10 The importance of this particular 

sector is evident when compared with the office market mentioned earlier, since it is slightly 

greater than the supply of A+ and A level offices in the country’s three primary cities. 

Conclusions

In general we can point to significant increases in the various subdivisions of the real estate 

market in recent years, and given the current conditions, this rhythm of growth is expected to 

continue. However, there is no differentiation in any of these subdivisions for real estate having 

the characteristics of green building.

Financial institutions are careful to avoid financing projects that pollute, and in some cases, they 

seek to bring their own buildings in line with sustainable criteria. However, they lack specific 

models or procedures for promoting or assessing green building projects.

The secondary mortgage market in Mexico must be further developed, since it has not yet 

designed any specific products for green real estate. In fact, there are no measurement systems in 

place for quantifying the benefits that green building offers in comparison to traditional 

projects—which would make it possible to incorporate these benefits as indicators in valuation 

models.

Recommendations

Financing for green building requires an economic justification, and therefore it is important to 

create a market niche that recognizes the benefits of this type of building. It is also important to 

create a tradition of green building, by providing investors, users, valuators and financial 

institutions with information on its primary characteristics.

 10 Odón de Buen, “Importancia del consumo de energía en inmuebles no residenciales en México y su subestimación en las 

estadísticas nacionales,” El Reporte de la Transición Energética, ENTE, November 2006.
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Green Building Market and Finance in Mexico 8

As part of the infrastructure for making the benefits of green building better known, it is 

necessary to develop and use an assessment method that is in line with the country’s economic 

and climatic conditions and to establish a correlation between this assessment and the 

measurement of benefits derived from different types of buildings.

As pointed out by Chris Corps in his background paper (2c—“Valuing Sustainability”) when we 

speak of sustainable projects, it is necessary to incorporate ecological and public interest 

variables in asset valuations, and to emphasize the longer useful lives of these projects.

In the case of Mexico, it will be important to learn from the experiences of those who have 

designed and developed projects in Canada and the United States, in order to increasingly reduce 

the additional costs involved in this type of project. It will also be important to develop a 

program for exchanging knowledge, so the architects and designers of new projects in Mexico 

can learn from those experiences.

The government can potentially play a significant role in promoting and generating a market for 

green buildings, if we take into consideration that it is the user of nearly the same amount of 

square meters as the available amount of A and A+ offices in the country’s three major cities. In 

order to finance the renovation of government facilities, one option is to use energy savings 

performance contracts which, according to Lean Tobias, have been successfully implemented by 

the US federal government. This model consists of granting long-term contracts to companies 

which, after an environmental audit, have identified improvements that will facilitate substantial 

energy savings. These contracts are used as a guarantee to obtain financing that can be used by 

companies to carry out their sustainability projects.

It is important that the government develop a program of economic incentives aimed in the same 

direction as the National Development Plan and the Urban Development Plan. These incentives 

would be provided for the amount of time necessary to stimulate investment and to identify a 

market niche that, in time, would provide the economic justification for green building, thus 

making incentives no longer necessary.

As for regulated financial institutions, it is still necessary to promote a system of norms that 

would facilitate promoting and developing records on this type of project.
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Sidebars (on special topics)

Sidebar 1

Water and Financing Green Building in Mexico 

Water is an essential resource to a country’s development and the health of its residents and 

ecosystems. Thus, as water availability and quality are in decline in several areas of Mexico 

while the investment required to provide drinking water increases, this issue has been defined as 

a “strategic and national security matter.” 

Availability

Given the current situation in terms of freshwater volume per resident, Mexico is categorized as 

a country with low availability, while the United States is a medium availability country and 

Canada enjoys high availability.

Source: Graph taken from the Guide to Efficient Water Use in Residential Developments (Guía 

para el uso eficiente del agua en desarrollos habitacionales), National Housing Development 

Commission (Comisión Nacional de Fomento a la Vivienda—Conafovi), Mexico 2005.

The Mexican population forecast for the year 2030 is more than 125 million inhabitants, 

requiring 25 percent more water than current needs. The majority of the population will be 

concentrated in areas with low availability. In the short term, the continued overexploitation of 

aquifers or bringing water from sources farther away, to satisfy growing demand, cannot be 

sustained.11

Mexico’s northern border with the southwestern United States faces a serious water shortage, 

with vast regions of dry climate and low precipitation, where water extraction exceeds renewable 

volumes. In this regard, binational treaties have been signed with respect to water usage.

 11 Water Management in Mexico: Progress and Challenges (La gestión del agua en México: avances y retos), 

National Water Commission (Comisión Nacional del Agua—Conagua), Mexico 2006.
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The forecast for 2030 shows that the Baja California peninsula, for example, in addition to 

recovering water through better farming practices and fostering proper use, may achieve 

significant water savings (up to 12 percent of the water currently used) with the promotion of 

green buildings.

Financial aspects

The investment and costs of infrastructure to provide water to new homes are higher than the 

costs associated with the energy infrastructure. For example, the cost of providing a water supply 

and management infrastructure to one million homes is almost six times the cost corresponding 

to electricity.

Type of 

infrastructure

Millions of pesos Millions of 

dollars

Percentage 

of total 

cost (%)

Hydraulic 10,000 909 41.9

Sewer 9,000 818 37.7

Wastewater 1,343 122 5.6

Subtotal 19,343 1,849 85.3

Electrical energy 3,500 318 14.7

Total 22,843 2,167 100.0

Note: Table prepared with data from the National Housing Commission (Comisión Nacional de Vivienda). Figures in 

US dollars calculated at an exchange rate of 11 pesos per dollar.

In addition, Mexican water subsidies are high. The 

cost of bringing water to consumers is up to 12.40 

pesos per cubic meter. However, in Mexico City, for 

example, the public pays a fee of $3.01 per cubic 

meter.12

Moreover, there is a certain percentage of water not 

account for, i.e., supplied to the user but not reported for collection purposes. This occurs 

worldwide, ranging from 10 to 20 percent (in the United States, up to 30 percent). In Mexico, 

however, unreported water use was 42 percent in 2005.13

 12 Guide to Efficient Water Use in Residential Developments with 2004 Conagua Data (Guía Conafovi uso eficiente 

del agua en desarrollos habitacionales con datos de la Conagua 2004), Conafovi, Mexico 2005. 13 “Drinking Water, Sewer and Sanitation Subsector” (Situación del subsector agua potable, alcantarillado y 

saneamiento), Conagua, Mexico 2006.
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For the control and study of water, Mexico is divided into 13 different basins, three of which are located at the US 

border.

Financial implications of green building

Passing along the differential in infrastructure cost or investment for water supply and 

management in user fees may have a considerable impact on economic activity and the overall 

cost of living.

Clearly, promoting green rules and measures in real estate construction—whether for 

commercial, residential or institutional use—not only ensures water availability to residents but 

also enables major savings in extraction, transportation and infrastructure, which are not passed 

on to the end user.

Sidebar 2

Fiscal Incentives for Promoting the Use of Energy from Renewable Sources

Among the financial policies adopted by the Mexican government to contribute toward reducing 

carbon emissions and protecting the environment are regulations for fiscal incentives and 

deductions associated with the generation and use of energy from renewable sources. For 

example, Article 32, section XXVI LISR of the Income Tax Law (Ley del Impuesto sobre la 

Renta) establishes the following:

Promotion of the use of energy from renewable sources

Income taxpayers who invest in machinery and equipment for generating energy from renewable 

sources will be able to deduct 100 percent of the investment in a single fiscal year, and will be 

contributing toward protecting the environment by diminishing the use of fossil fuels.
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In order to understand the scope of “renewable sources,” a description of such sources is 

included, as follows: those which, due to their nature or through adequate use, are considered to 

be inexhaustible, such as solar energy in all of its forms; wind energy; hydraulic energy, both 

kinetic and potential, from any natural or artificial water body; ocean energy in its various forms; 

geothermal energy; and energy originating from biomass or wastes. Also, “generation” is 

considered to be the successive conversion of energy from renewable sources into other forms of 

energy.

In order to avoid these investments being made for the exclusive purpose of reducing one’s tax 

base, it is considered obligatory to maintain acquired machinery and equipment in operation for a 

minimum period of five years after the year in which the purchase was deducted.