Real Estate in Mexico, Where do We Stand Now?

We’d like to share with you an article by Mitch Creekmore from Stewart Title Guaranty Company, with the original title “Mexico Update 2010; Are We There Yet Daddy?” The article was published in Arizona Journal of Real Estate & Business, May 2010.

“Here we are, a decade into the new millennium, 10 years hence. Wow, was the Mexico real estate market a happening place during the 2000s. Right up until 2008 lots of sales were made, lots of commissions paid and developers had new plans for even greater projects to be developed. Problem was, no one really knew that U.S. financial markets would collapse, leaving many Americans, financial institutions, banks, our neighbors to the south, even our own government pondering, “What do we do now?” For those of us who make our living in the real estate arena, we keep moving forward. We “grind” away on what deals there are to be made.

Otherwise, we get out. One thing is certain: we’re all in this debacle together. If no one buys property in Mexico, or any international market for that matter, no one makes any money. Sadly and simply, we all have that commonality to deal with every day. It certainly hasn’t been easy and it’s not going to get much better quickly. What a hyperbole!
Let’s get one, big issue right out front. Mexico is not a dangerous country as reported by American press. It is a country far less dangerous than many others that surround it, including our own. Venezuela, Honduras, El Salvador and Guatemala have homicide rates at 40-60 per 100,000 people according to Mexico’s Citizens Institute for Crime Studies. Fourteen per 100,000 Mexicans were killed in 2009, and that figure puts it on par with Los Angeles and 1/3 of the average homicides in Washington, D.C. Our nation’s capital has three times as many killings by comparison to the homicide rate in Mexico, yet it is deemed a dangerous country. Many Americans are leery of visiting Mexico at all due to the sensational headlines. Should Mexican tourists not travel to the U.S. because an Army psychiatrist goes on a rampage, killing and wounding over 40 fellow soldiers in a U.S. city?

Tourist travel was down 79% in September 2009 versus the same period in 2008. Due to the impact of the H1N1 virus, tourism, Mexico’s third-leading GDP revenue source, dropped 45% in one year, according to Mexico’s Ministry of Migration. In the April 11 article entitled “The New Global Economic Reality” by Charles Simpson, he wrote that 95% of the narco-violence has occurred in Tijuana, Nogales and Juarez. In spite of the negative press on Mexican drug turf wars that have occurred in a few border cities, and with health concerns related to the impact of the H1N1 flu outbreak in 2009, Mexico still remains the #1 destination for Americans’ retiring internationally, as reported by the International Community Foundation (IFC)’s March 2010 report. Clearly, safety is a concern for 78% of the 840 participants in the ICF’s survey when purchasing a residence. Surprisingly, only 7% reported that narco-violence and security issues reduced the frequency or duration of their trips to Mexico. A conservative estimate of retiring baby boomers target Mexico as their country of choice for the next 15 years – some 6 million North Americans heading south.

One bright spot during the first quarter of 2010 has been the re-emergence of Canadian buyers in several Mexican markets. The International Property Journal reported in the April edition that in one Cabo development alone, the developer reported that 25% of their buyers have been from Canada. A prominent Cabo real estate company indicated that the vast majority of their buyers not only have been Canadians, but also Mexicans. It was clearly indicated, however, that few were buyers from the United States.

Canadians and Mexicans have been more willing to buy residential properties and pull the trigger quickly since they’re unencumbered by the recent mortgage crisis impacting many Americans. These prospective buyers did not experience a 45% reduction in their personal net worth as is the case for U.S. citizens aged 45-54, and they did not experience a 50% reduction for those aged 55-64 between 2004 and 2009. Let’s face it, until Americans can be more secure with their own personal net worth and they’re more confident in the U.S. economy, not to mention the
pervading political atmosphere and how it will further impact all of us, Americans will simply be sitting on their wallets in the foreseeable future.

Unfortunately, Mexican real estate sales have a long way to go. At the end of 2009, sales were down 70-80% compared with 2007 figures as reported by Vallarta Real Estate Weblog for that particular market. In recent discussions with other developers and agents, these figures would be consistent in all the major venues. Inventory of available units for sale are averaging a six to eight-year supply, depending on the specific market. Many developers have simply put their projects on indefinite hold until they can see a greater interest and enthusiasm for Mexican real estate from U.S. buyers. Forty-three projects in Puerto Vallarta reported zero, as in not one sale, in 2009. According to the Vallarta blog, there were 1,520 transactions in 2007 and yet only 315 in 2009.

Puerto Penasco has approximately 1,000 properties listed for sale with about 10-12 deals consummated each month so far in 2010. The majority of the residences on the market are owner-distressed re-sales. This does, however, create ample opportunity for buyers. Most of the markets have seen a price adjustment 30-35% less in price per square meter compared with 2007 highs. That is not to say one can buy at a reduced price. Clearly, many sellers will not be
willing to sell their property at a reduction regardless of market conditions or purchaser perception. Furthermore, many developers have made the decision not to sell below previously established prices in order to protect the sales integrity of their development and that of the current owners regarding their specific market value. At the end of the day, that is a good decision for all concerned.

Reported sales activity was better for the first quarter of 2010, despite many buyers behaving as the proverbial tire kickers “looking for deals”. Generally, they don’t seem to be interested unless it’s a distressed seller or property. Sadly, many of the prospective buyers are not Americans. For the most part, they’re still waiting to see how economic and political issues improve or play out. When will Americans return to Mexico’s second-home market? That’s the $64,000 question and most crystal balls are snow globes at this point. Everyone involved in Mexican residential realty is waiting for that answer!”
Editors Note: for more information on second home buying in Mexico, contact Coldwell Banker Riveras, a dedicated real estate brokerage in Baja California Sur with more than 35 years of experience and local expertise. Visit us at www.cbriveras.com , send us an email at info@cbriveras.com or call us at our Vonage line: 1.866.80549.38 or Mexican phone: +52.624.143.1342. We’d be glad to assist you in all your real estate needs and help you find your second home or vacation home in Mexico

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