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The Reality and Opportunity in Mexico
By Mitch Creekmore
Stewart Title Guaranty Company
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 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 to 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 Mexico is deemed a dangerous country.
Many Americans are leery of visiting Mexico, 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 the U.S.? Tourist travel was down 79 percent 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 percent 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 percent 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 number one destination for Americans retiring iinternationally, as reported by the International Community Foundation (IFC)’s March 2010 report.
Safety was a concern for 78 percent of the 840 participants in the ICF’s survey when purchasing a residence. Surprisingly, only 7 percent 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 percent 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 percent reduction in their personal net worth as is the case for U.S. citizens aged 45-54, and they did not experience a 50 percent reduction for those aged 55 to 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 to 80 percent compared with 2007 figures, according to the Vallarta Real Estate blog. 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 opportunity for buyers. Most of the markets have seen a price adjustment 30 to 35 percent 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 purchaserperception. 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!
For more information on second home buying in Mexico, check out “Cashing in on a Second Home in Mexico, How to Buy, Rent and Profit from Property South of Border” at www.tomkelly.com. Mitch Creekmore is co-author of the book with real estate columnist Tom Kelly. Mitch can be reached at 800 729-1900, ext. 4104.
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