VZCZCXYZ0000
PP RUEHWEB

DE RUEHMU #0416/01 1111732
ZNR UUUUU ZZH
P 211732Z APR 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 4059
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS MANAGUA 000416 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
STATE PASS TO OPIC/DEBRA ERB 
 
E.O. 12958: N/A 
TAGS: EIND EINV ECON NU
SUBJECT: NICARAGUA: REAL ESTATE: DEMAND FOR HOUSING DECLINES IN 2008 
 
SUMMARY 
------- 
 
¶1. (SBU) Housing developers and real estate brokers estimate 
that demand for residential housing not related to the 
tourism sector fell an estimated 35-50% in 2008, as compared to 
¶2007.  The primary reason behind the fall in demand for residential 
housing has been the tightening of local credit markets in response 
to the global economic crisis.  Some developers believe that the 
Government of Nicaragua's (GON) push to build new low-income homes 
might provide a small boost to the residential housing market, but 
others remain pessimistic about their prospects in 2009.  Despite 
the decline in 2008 and poor outlook for 2009, most industry 
representatives remain cautiously optimistic about Nicaragua's 
long-term growth potential.  End Summary. 
 
RESIDENTIAL HOUSING DEMAND DECLINES IN 2008 
------------------------------------------- 

¶2. (SBU) In January 2009, the Nicaraguan Chamber of Housing 
Developers (CADUR) reported that, in 2008, developers built 3,000 
new homes, half as many as in 2007.  Alfonso Silva, President of 
CADUR, explained to us that 90% of the homes built in 2008 were 
initiated only after builders received full payment.  Kirk Hankla, 
Director of Coldwell Banker Nicaragua, added that his company's 
sales for new and used homes fell by 66% in 2008, as compared to 
¶2007.  He estimated that new and used home sales throughout 
Nicaragua fell 35-50% in 2008, as compared to 2007. 
 
PROBLEMS WITH APPRAISALS 
------------------------ 

¶3. (SBU) A key challenge in determining the value of Nicaragua's 
real estate sector is appraising property.  Only 30-40% of real 
estate in Nicaragua is registered with municipalities, including 
cities such as Managua, Granada, and Leon.  In addition, most 
Nicaraguans do not pay property taxes, and the government does not 
maintain accurate cadastral records and individual property tax 
files. 
 
LACK OF CREDIT LEADS TO DECLINE 
------------------------------- 

¶4. (SBU) The primary reason behind the fall in demand for 
residential housing has been the tightening of local credit markets 
in response to the global economic crisis.  Jose de Jesus Rojas, 
General Manager of the Central Bank of Nicaragua, explains that 
banks and other financial institutions have tightened their lending 
requirements and raised interest rates for customers seeking home 
loans.  For instance, local banks are currently requesting a 30% 
down payment and have raised interest rates to 14% in the latter 
half of 2008 and in 2009 compared to an average of 8.5% in 2007 for 
a 30-year mortgage.  Ernie Valle, President of VCS Construction 
Company, noted that these terms disqualify many Nicaraguans from 
getting a loan.  Valle estimated that homes in Managua sell in the 
range of $7,000-$20,000 for low-income housing, $25,000-$75,000 for 
medium- income housing, and $250,000-$500,000 for high-income 
housing.  Separately, Hankla added that the global economic crisis 
has caused local buyers to live with their families or in 
apartments, and foreign investors no longer have the money to buy 
new real estate. 
 
NEW LOW INCOME HOUSING TO THE RESCUE? 
------------------------------------- 

¶5. (SBU) Some developers believe that the GON's recent push to 
build low income housing will provide more opportunities for 
construction companies.  Nicaragua has a housing shortage of 750,000 
homes, and an estimated 150,000 homes are in need of repair.  The 
National Assembly recently passed a new housing law which focuses on 
low income housing.  The law authorizes the Social Fund for Housing 
(FOSOVI) to finance the construction of homes selling for less than 
$20,000.  The law also requires employers in the public and private 
sectors to provide their employees an advance of no more than 20% of 
their retirement or termination package to use as a down payment if 
beneficiaries decide to obtain a bank loan to build their own house. 
 
 
¶6. (SBU) As a result of this law, the board of directors of the 
state-owned National Social Security Institute (INSS) loaned 
$190,000 in March to a local construction company, Tecnosa, to build 
24 new low-income houses for the "Pueblo Presidente" housing 
development in Managua, and it discussed providing another loan of 
$1.09 million to the firm to build an additional 136 new houses for 
the project.  Tecnosa is closely affiliated with Francisco Lopez, 
President of Petroleos de Nicaragua (Petronic), the state-owned oil 
company, Vice-President of Bolivarian Alternative for Latin America, 
Nicaragua S.A. (Albanisa), and Treasurer of the Sandinista National 
Liberation Front party.  [Note: Industry representatives believe 
that FSLN partisans will be the beneficiaries of this program.  End 
Note. On April 4, the Netherlands' Sister Cities Association and 
the Center for the Promotion of Local Development and the 
Eradication of Poverty (Ceprodel) signed an agreement with 
Nicaraguan Institute of Rural and Urban Housing (INVUR)to provide 
six million euros ($7,830,000) to build low income housing 
throughout Nicaragua. 
 
GLOOMY PROSPECTS FOR 2009... 
---------------------------- 

¶7. (SBU) A number of developers remain pessimistic about the 
short-term outlook for the residential housing market.  Raul Calvet, 
president of a tourism and real estate services firm, argues that 
the new housing law would not revive demand for residential housing 
because the legislation's focus is on social welfare rather than 
incentives for construction.  He predicts that Nicaragua's housing 
market could decline another 20-25% in 2009 if the global economy 
does not improve.  Turula Murdock, Vice-President and Regional 
Director of First American Title Insurance in Latin America and the 
Caribbean, agrees that demand for housing would likely decline in 
¶2009.  She added that investor confidence is low and people are 
worried that they will be unable to pay their mortgages if they lose 
their jobs. 
 
...BUT CAUTIOUS OPTIMISM FOR THE LONG TERM 
------------------------------------------ 

¶8. (SBU) Despite the decline in 2008 and poor outlook for 2009, 
industry representatives remain cautiously optimistic about the long 
term.  Their hope is that when the global economy recovers, 
Nicaragua's housing market should follow.  Right now, that feels a 
long way away. 
 
CALLAHAN