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Builders Focus on Lower-Income Market

MANAGUA – A private sector push to cater to middle- and lower-income housing needs could lead to a boom of moderately priced gated communities in Nicaragua that would help ease the country’s enormous housing deficit.

Some private firms, estimating that political uncertainty will weigh on the high-end real estate industry for the next few years, are putting their money into projects aimed at the middle- and lower-income population – sectors that are most affected by Nicaragua’s gargantuan, 400,000-home housing deficit.

“For the next two or three years, the future is houses for lower- and middle-income people,” said Frank Martínez, marketing manager for Sun Real Estate in Managua.

Martínez’s real estate company plans to begin construction in March on a lowincome gated community in Granada, where houses will start at $12,000. The community will include streets, lights, sidewalks and a potable water supply.

Though an array of NGOs, the Inter- American Development Bank (BID) and the Ortega administration all have plans to construct low-income housing – with Venezuelan President Hugo Chávez pledging to fund construction of 200,000 units over the next five years – the emerging privatesector trend seems to be making the fastest headway in that direction.

With homes starting at $12,000, the pinched middle class and even some lower-income families in Latin America’s second poorest country may be able to afford a home for the first time, private developers say.Middle- and low-income, of course, are relative terms in Nicaragua, where nearly half of the economically active workforce is in the informal economy and even teachers – the standard bearer of middle class – earn average salaries of less than $100 a month, making even “affordable” housing unattainable.

“The construction sector in general has gone through a deceleration,” said Carlos Siezar, the World Bank’s Private Sector Specialist in Nicaragua. Political uncertainty as the Sandinistas took power and skyrocketing oil prices are the top culprits, he said.

“The deceleration has been in middle-class houses and up. But the low-income sector has stayed its course, and the capital flows have moved towards the houses of social interest,” Siezar said.

Yet despite the private sector shift toward lower-income construction, potential homeowners still face major hurdles when it comes to financing their homes, casting doubt on whether such developments will really benefit Nicaragua’s largest economic group. Also, one urban development expert said, more gated communities could lead to more class segregation in Nicaragua.

Brooding Deficit

Since a devastating 6.2-magnitude earthquake leveled the capital in 1972, natural disasters have been frequent visitors to Nicaragua.

From a 1992 tsunami to Hurricane Mitch in 1998 to last year’s devastating Hurricane Felix, each natural disaster has contributed to the persistent housing deficit.

According to a recent government report, the deficit will take $1.3 billion to fix, because it doesn’t mean just building new houses but repairing old ones. Of Nicaragua’s 1.1 million homes, the majority require maintenance and another 250,000 need to be reconstructed, the report found.

The private communities could change the face of Managua, a city that despite massive urban sprawl over the last 30 years has seen little residential and infrastructure growth besides shantytowns and other housing improvisations. In fact, the new middleincome housing colonias represent the first major investment in “affordable” housing communities since the government of Violeta Chamorro (1990-1996) constructed residential communities for journalists and military.

Much of Managua’s recent urban development has been in the city’s outskirts, such as along the recently-expanded highway to Masaya. This is where high-end and middle-income families are finding gated communities, but also where some of the lower-income communities are moving in.

Middle Income Appeal

Sun Real Estate’s gated community in Granada, Praderos de Mombacho, will not have a wall surrounding it, like many gated communities, but it will have a gated street entrance, 24-hour security, street lights, paved roads, sidewalks and potable water.

“It’s for people who work at the market, have their own business, or are teachers or police officers,” said Martinez, adding that young families and military will also be in the market.

“We have to face the reality. The reality is that people who have a lot of money are very skeptical” of Nicaragua’s investment climate, Martínez added.

Roberto Lacayo, president of the Nicaraguan Construction Chamber, agrees.

“The high-end homes are seeing less movement,” he said. Lacayo, whose company Lacayo Fiallos is developing a gated community with homes starting at $12,000, said there’s a great need for middle- and lower-income real estate and that there’s more resources being dedicated to that sector now.

Lacayo’s development, which is still being designed, will cater to households with monthly income of around $400, he said.

“For a family that can get together a cost of $80 to 100 a month [for housing payment],” he said, “it can be done by many lowincome families.”

Though some real estate insiders say the return of Ortega may be scaring away foreign investment in high-end developments, Dennis Rogers, a professor at the London School of Economics, who has followed urban development in Managua, has his doubts.

Higher-ups in the Ortega administration have clear interests in that sector, he noted. Tourism Minister Mario Salinas is president of the private real estate company Desarollos Sooner, which is developing the massive, 2,400-unit gated development San SebastianCity in Managua, with houses in the $25,000 range. And the wife of Comandante Bayardo Arce, one of Ortega’s closest advisers, runs Inversiones Compostela, a real estate company with $4 million invested in Managua.

Though Lacayo has no estimate for how many gated communities of this type are in the making, The Nica Times consulted real estate insiders involved in five such projects around Managua.

Micro Mortgages?

Though some banks are showing interest in sub-prime mortgages in Nicaragua, the market is still largely closed off to lower-income families.

“Few poor Nicaraguans have bank accounts or regular incomes or even the means to put up down-payments or collateral, and so if the financial arrangements have to be formal, this would be a major impediment,” said Rogers, who has published works on Managua’s urban development. He added that less than 7,000 mortgage loans have been granted in Nicaragua during the last decade.

Though Nicaragua’s microfinance sector has been growing in recent years, the growth has mostly focused on providing microcredits for trade and agricultural sectors, not on mortgage financing, said Carlos Siezar, the World Bank’s Private Sector Specialist in Nicaragua,

“Microcredits are short-term loans, a year or two maximum. (Mortgages) require longterm financing of 10 years or more,” Siezar told The Nica Times.

Financing for “social interest housing” under $10,000 a unit, “practically doesn’t exist,” Siezar said.

Some international banks, like the Central American Integration Bank, have been assisting commercial banks in Nicaragua to provide more access to mortgage lending.

‘Trickle Down’ Real Estate?

It may be too early to tell whether the lower-income gated community will benefit lower-income families. Already, investors and speculators are reportedly buying up many of the homes at pre-construction rates.

“My family, some friends and I are happy to support Nicaragua’s economic development by investing a small amount to acquire a property that will no doubt be a good investment in the near future,” said Manuel Salazar, a Nicaraguan-American living in California who recently purchased a home in the 950-unit Valle Santa Rosa development in Ciudad Sandino, north of Managua. The development’s pre-construction prices start around $18,000 a unit.

Considering that more than 90% of Nicaragua’s economically active population earns less than $160 a month, many lower-income Managuans won’t be able to afford the $80 a month, Rogers said.

“Still, such developments could certainly benefit a very small-but-growing professional class, which until now has often lived in conditions only one step up from the mass of the poor,” Rogers told The Nica Times in an e-mail.

Rogers commented, however, that such gated communities won’t help to appease spatial class segregation, which has been worsened in Managua due to a boom in upper-class urban gated communities over the last decade.

A “deeply iniquitous” urban development process is taking place in Managua, Rogers said.

“It makes sense that cheaper versions of the exclusive gated communities be built to respond to the aspirations of those hoping to be upwardly mobile or else by groups seeking to ape the rich in order to seem upwardly mobile,” he said, adding that the fact that real estate developers are catering to lowerincome communities may hint that the market is saturated.

He said a “trickle down” of gated communities from rich to poor in other countries, like South Africa and Brazil, has only worsened segregation, as communities “lock themselves away and try to constitute themselves as autonomous islands.”


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