Mexico’s Cap Rates

Recently, a colleague contacted me to ask me if I had done analysis or had data about the housing market in Mexico. It turns out that there might be some opportunities to invest in real estate. The New York Times reported not long ago that the market was evolving favorably.  So, I decided to provide some insight about the Capitalization Rates, or Cap Rates, that having a house for rent in Mexico City yield. A Cap Rate is the ratio between the income and the house value. It says how much money your investment produces over one year. If you invest in a house that has a current market value of $500,000 and you rent it by $1,500 a month, the Cap Rate is 3.6% a year. Subtract the operating cost to get the net Cap Rate. As simple as it is, for a real estate investor, it is an important piece of information. You want to look at places that have the highest Cap Rate and that are in an area that makes it likely to be rented most of the time.

For the analysis, I collected data from one of the most popular sites in Mexico that promotes the housing market, metroscubicos.com. In addition, data for new developments were gathered from inmuebles24.com. Both sites were crawled with the same Python spyder, adjusted by the particular html.

The attributes obtained include text fields where most of the information about particular characteristics of each unit is gathered. Data about amenities, sizes, parking spaces, units per building, square meters and more are extracted. To measure the Cap Rate, both rentals and apartments for sale were needed. In total there are more than 6,000 units available for rent, and over 8,500 units in sales in Mexico City’s metropolitan area were gathered. To get a solid number, the rental amount has to be matched to similar apartments in sale.

A good approach to this problem is to cluster the data by zip code; otherwise the resulting value will not reflect what is happening in the housing market. Data is too sparse, and each area of the country has different types of units in terms of pricing, sizes, neighborhood and amenities, to name a few. This could result in bias if some zip code areas have diverse types of apartments, a common thing in Mexico. For that reason the Cap Rate would be measured based on square meters. By doing that, we can compare different zones and discern, from direct comparison, which areas offer the best Cap Rates. The visualizations include both amount and square meters measurements. The following step is used to measure the average prices for rentals and sales by zip code.

For the visualization on Google Maps I contacted a cartographer to help me understand how a polygon is made. Using data from INEGI , I was able to gather the longitude and latitude by zip code (of Mexico) With that information and a good explanation, I was able to build the kmls required to set the polygons over Google Maps. The visualizations includes the number of data points available at each zip code and the average Cap Rate, rent amount and sale price. The characteristics of rentals and sale apartments are shown in Tableau. Since the data comes from the same site, similar comparisons are presented in each section.

The data show that over 17.7% of the properties have a Cap Ratio over 4%, which is close to the interest rate of a treasury bond in Mexico. From those, 25% have annual ratios over 8%, and 11% of them yield 12% over a year’s time. From Google, we can see that over 60% of searches in the housing market in Mexico are related to the Mexico City metropolitan area. So, we know that people are interested in getting an apartment to live in the city. The largest urban area in Mexico suffers from traffic and a lacks good or private public transportation, and we are finding that there are significant areas spread around the city that might provide a good investment opportunity.