Mexico's Geo bets on building cities from scratch

By Noel Randewich and Chris Aspin

MEXICO CITY (Reuters) - Geo, Mexico's No. 2 home developer, is betting on turning empty fields into carefully planned new cities of hundreds of thousands of houses, industrial parks and shopping malls to fuel growth in coming years.

Geo is teaming up with the government, shopping center specialists and industrial firms to build six entire cities in the State of Mexico, and expects this new model to quickly become half of its business, Luis Orvananos, Geo's founder and chairman, told the Reuters Latin America Investment Summit.

"They'll have education, recreation, hospitals, shopping and jobs," Orvananos said on Thursday.

Mexico's homebuilders have been booming for more than five years thanks to improved economic stability and a government push to end a shortage of millions of houses.

Companies like Geo (GEOB.MX: Quote, Profile, Research, Stock Buzz) and competitor Homex (HOMEX.MX: Quote, Profile, Research, Stock Buzz) have traditionally built neighborhoods on tracts of land on the edge of cities across the country.

But as state governments demand better urban planning and as land near cities becomes more expensive, Geo and other builders are turning to larger-scale "megaprojects" including industrial parks, retail districts and schools.

"This will be the launch of a new side of Geo," Orvananos said.

Megaprojects so far account for about 15 percent of Geo's ongoing housing developments, he said, led by Zumpango in the State of Mexico, where 20,000 homes have already been turned over to new owners.

"It's going to grow from a town into a city," Orvananos said.

Geo plans to build more than 100,000 homes in Zumpango, accommodating up to 600,000 residents. The city is expected to dwarf Pachuca, a nearby mining hub that is centuries old, in only eight years.

Mexican developers typically build homes that sell for less than $40,000 each and Orvananos said Geo expects to stick mostly to that range in its megaprojects.

"With the infrastructure being put in by the government and us, plus the alliance between the industrial, commercial and housing segments, we've got potential to make the business successful," he said.

Orvananos said he expects Geo, with revenues of $420 million in the fourth quarter, to expand as fast as 14 percent this year and up to 20 percent annually in the future.

(For summit blog: summitnotebook.reuters.com/)

(Additional reporting by Gabriela Lopez; Editing by Braden Reddall)