Great
Real Estate Deals
in Puerto Vallarta
Bargain-hunting
south of the border
By Benedict Mander, Financial
Times
Published: November 11 2005 |
|
The Mexican property market has long
benefited from being situated next
to what is possibly the largest group
of second-home buyers in the world,
luring Americans and Canadians to
a tropical coastline that is prettier
and less expensive than their own.
But cross-border
property deals have surged to a new
level in the past decade since the
enactment of the North American Free
Trade Agreement (Nafta), which eliminated
legal uncertainties and onerous procedures
that had deterred many foreigners
from buying in Mexico. According to
the US National Law Center, American
and Canadian property ownership, which
accounts for 90 per cent of total
foreign ownership, has more than doubled
since 1994 in key areas of the country.
As a whole, foreign ownership is rising
10 per cent per year, compared with
a 5 per cent growth rate before Nafta.
And, “frankly”, says Law
Center president Boris Kozolchyk,
“our estimates are very conservative.”
He cites places such as Rocky Point,
on what is being marketed as the Sonoran
Gold Coast. Overlooking the Sea of
Cortes, on the mainland across from
the peninsula of Baja California,
it is practically a drive-in market
for US buyers, and he says he wouldn’t
be surprised if foreign ownership
had more than doubled their there
since Nafta’s passage.
Popular areas outside his study, such
as Puerto Vallarta further down the
Pacific coast or Cancun on the Caribbean,
which is popular with buyers from
the eastern US, would probably show
similar increases, he adds. And although
the Maya Riveria, including Cancun,
was decimated by Hurricane Wilma last
month, recovery is under way and any
drag on the property market is expected
to be short-lived.
Indeed, says Bruce Greenberg, an international
real estate consultant in Tucson,
Arizona, the hurricane is unlikely
to distract buyers from the long-term
benefits of owning property in Mexico
post-Nafta. The most important change,
he says, is improved legal security.
“For a long time there was a
problem with title insurance [which
establishes clear ownership of a property],
but this risk has been reduced, and
issues of corruption are being resolved.
Mexico has become a much safer investment.”
Bob Stanley, a Houston-based property
appraiser who advises US buyers in
Mexico, agrees. “I would not
buy anything without title insurance
– I wouldn’t touch Mexican
property without it,” he says.
In the past, he explains, many hasty
buyers discovered only after closing
on a property that their dream house
was located on communal ejido land,
which is jointly owned by a group
of people.
Another key Nafta-related development
was the introduction of a law enabling
foreigners to buy beachfront homes.
Technically the constitution still
forbids non-Mexicans from owning property
within 50km of the coast. But the
introduction of fideicomisos, or bank
trusts, which can be extended indefinitely,
has skirted this problem by allowing
investors to own through another entity.
Demographic trends are also causing
the Mexican market to flourish, says
Rogerio Basso, a real estate analyst
for Ernst & Young in Miami. “The
aging baby boomer generation –
retiring, and with kids out of school
[and] greater disposable income and
more free time – needs to do
something with its assets,”
he says.. “There are certain
coastal destinations in the US where
prices are becoming prohibitive, but
looking abroad they can find more
value.” According to some estimates,
there are now as many as 100,000 Americans
choosing to retire to Mexico every
year.
And many have found their homes to
be excellent investments. Greenberg
estimates that average appreciation
rates on Mexican property have been
15-20 per cent in the past five years,
and even higher in certain luxury
developments. The massive US influx
into the Baja California market, particularly
in the area around Cabo San Lucas
at the tip of the peninsula, has helped
make it one of the more expensive
areas in Mexico.
Still, prices are up to three times
lower than in San Diego on the other
side of the border, while still suiting
the needs and tastes of homeowners
with US Californian lifestyles. And
there are several up-and-coming areas
in Baja where analysts still see value.
“Loreto Bay is probably one
of these destinations that still has
room for appreciation,” says
Basso, referring to the town on the
shores of the Sea of Cortes well north
of the more developed areas between
La Paz and Cabo San Lucas.
Similarly, while Puerto Vallarta has
seen property prices triple since
1990, Nayarit, a largely undeveloped
state further north, offers an equally
pretty coastline, a hilly backdrop,
lush vegetation and many more bargains.
Gina Tanner, a Los Angeles attorney,
bought her hilltop second home with
a garden and ocean view in Sayulita
because there is an airport within
40 minutes’ drive but it “still
[has] the feeling of a pueblo”.
“The buying experience was very
easy,” adds the former estate
agent, who says she would
“never buy a property unless
it was a damn good deal”. “We
didn’t feel uncomfortable at
all.”
She does advise househunters in Mexico
to “find a good realtor”,
however. “There is a tremendous
opportunity for people who want to
invest in Nayarit, but if you don’t
have someone to guide you through
the process you may lose the money,”
she explains. The market is full of
stories of foreigners who bought land
only to find out too late that the
property already had a legitimate
owner.
Most estate agents in Mexico recommend
buying beachfront property, since
demand is only likely to increase.
Even in well-developed areas, coastal
homes are still being snapped up.
Stanley cites a 68-condominium project
in the classic Caribbean resort of
Playa del Carmen on the Yucatan peninsula,
which broke ground in November 2004
and is already almost sold out.
Mexico’s National Fund for the
Promotion of Tourism is concentrating
on developing five specific areas
– Cancun, Cabo San Lucas, Huatulco,
Ixtapa and Loreto – pushing
for infrastructure improvements likely
to propel growth. But those well-trodden
places account for a tiny proportion
of the roughly 5,800 miles of Mexico’s
coastline, to say nothing of its inland
treasures – although lesser-known
areas may lack the amenities and easy
access enjoyed by the main resort
areas.
Charles Alm, an American buyer, is
currently looking for property in
Mexico with two friends because “it
seemed like the nexus of price, proximity,
and stability”. But they are
focusing outside established resorts
in less developed areas north of Ixtapa
on the Pacific and islands off the
Caribbean state of Quintana Roo. “Being
on the beach – or at least in
a beach town – is a requirement
as is finding a location that hasn’t
yet been ‘discovered’,”
Alm says. “We’re looking
for a sunny place with substantial
growth possibilities and relatively
low capital requirements [that we
can all use] maybe one week a year
and a few weekends here and there
on our own.”
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