New Coalition formed to promote Mexico

Tim Kelley, Director of the Mortgage Alliance Program (MAP for Stewart Title Latin America, dropped by our office in Vallarta to present a new program Stewart Title is currently introducing to help promote second home purchasing in Mexico. This has probably been the worst year for Mexico regarding negative PR, primarily because of the drug cartel wars and the swine flu. Tim has been traveling the country, talking to real estate developers and associations, to have them all contribute to a non-profit fund that will provide a marketing and public relations campaign on behalf of Mexico, primarily for the American market. He has managed to enthusiastically bring on board many of Mexico’s largest developers, who are contributing because they realize this is something that effects everyone of them and they can do more working together on this rather than individually. Kelley has also managed to get the government involved as well, who hopefully understand the benefits of real estate tourism and what positive benefits it brings to the country. More on this as I receive information.

USA Home Value Chart

This graph from Robert Schiller is a little sobering. Basically it shows that from 1890 until 2000 home prices have only gone up about 20%. But from 2000 until 2006 they doubled. What about the fact (I guess its now a myth), that homes always appreciate in value? So where does it look like  prices are going to go from here? They are already going down, but just how far? I’ve mentioned before that it was this remarkable increase in home values that drove the Vallarta (and many other  second-home markets) real estate market over the past five years. Looks like the US market, and therefore the Vallarta market, have a little more adjusting to do, if history serves us right.

Top Forty Most Influential in Mexican Tourism List

Had someone in my office yesterday who congratulated me for making the list for the top forty most influential people in the tourism industry in Mexico, a list compiled regularly by the magazine Leaders of Mexico. I had been profiled there a couple times before, but didn’t know about this list. Interesting, I’m better known outside of Vallarta for something most people in Vallarta don’t even know I am involved with!

Mexico Boutique Hotels is something we started in 1998, when we were doing a national travel magazine (travel, boating and real estate ). We sold the publication but continued the section in the magazine called Mexico Boutique Hotels by creating a brand and offering public relations, marketing, consultation and reservations. It has since grown into a collection of 50 small hotels (most under 25 rooms, all under 50 rooms) in 26 locations throughout Mexico. We are very selective of who we take, and it has worked out well, becoming the brand in Mexico for quality boutique hotels. And its also come in very handy when we want to take vacations anywhere in Mexico!

Mexican Market Rebound? Vallarta Real Estate Update on Trend #9

I commented on my trends postings here and here for the Vallarta real estate market that we could be seeing an increase in the number of Canadians and nationals interested in real estate. Well, the recently ruling that Mexicans now require a visa to enter Canada, may have many Mexicans staying home, or near home.

Mexican nationals will now need a visa to travel to Canada, that country’s minister of citizenship, immigration and multiculturalism, Jason Kenney, announced Monday. Canada decided to stiffen the requirements due to what officials said has been a surge in claims for refugee status by Mexicans. LA Times

This has caused havoc for many Mexicans who had Canadian vacations planned, summer camps and even entering private schools or universities in the fall. And, understandably, they are not pleased about this ruling. The Mexican government retaliated by saying that Canadian officials and dignitaries will now need visas. They didn’t go so far as to say Canadian tourists will need a visa (thankfully), however.

Perhaps the recent trend towards “staycations” in the USA, where more Americans are deciding to just stay home for their vacation, will now pass over to Mexico as well. With the visa now necessary for both the USA and Canada, rather than go through the frustration of getting a visa, they may decide to just stay within Mexico and get to know their country better. At Mexico Boutique Hotels, there was an immediate noticeable  increase in reservations, said director Sylvie Laitre. “Reservations had been slow for us, ever since the swine flu scare, but they picked up dramatically for national bookings with this announcement,” she confirmed.

Why did Canada decide to do this?

Refugee claims from Mexico have almost tripled since 2005, making it the number one source country for claims. In 2008, more than 9,400 claims filed in Canada came from Mexican nationals, representing 25 per cent of all claims received. Of the Mexican claims reviewed and finalized in 2008 by the Immigration and Refugee Board, an independent administrative tribunal, only 11 per cent were accepted.

“In addition to creating significant delays and spiraling new costs in our refugee program, the sheer volume of these claims is undermining our ability to help people fleeing real persecution,” said Minister Kenney. “All too often, people who really need Canada’s protection find themselves in a long line, waiting for months and sometimes years to have their claims heard. This is unacceptable.”

Hotels are quite full these days, with the national holidays, and you can see it in the increase in traffic and the number of people walking the Malecon. I’ve already heard of realtors talking about an increase in interest by nationals for real estate in the Puerto Vallarta area. We certainly have enough available condos for sale to accommodate them!

Buying into real estate in Paradise

This was recently featured in the Vancouver Sun.

With the recession hitting the United States worse than Canada, and the Canadian dollar still strong, this may be a great time for Canadians to buy that sunny, tranquil getaway in the U.S. or further south. But to make sure it is tranquil, do your due diligence, just like you would at home.

Tom Kelly, a syndicated columnist based in Washington State has co-authored two books about buying real estate in Mexico and Central America. He believes prices in those areas will go up once American baby-boomers recover some of their wealth. Baby boomers in the U.S. weren’t prepared for the economic downturn and once they rebuild they are going to look for a cheaper life style and it’s definitely cheaper in Mexico and Central America, Kelly said. Canadians, on the other hand, haven’t been as hard hit and were better prepared, he said.

So they are in a better position to buy now. “And the further you go typically the less expensive it’s going to be,” Kelly said Panama, for example, “is a bargain right now,” Kelly said. “But it costs money to get there.”

And while Puerto Vallarta and other places in Mexico are easier to get there, deals can be found there too, because not as many people are buying, he said. The outbreak of swine flu in the spring turned some people off. And the rash of drug-related crime did too, kelly said. But Kelly believes Mexico is perfectly safe, with the violence limited to the drug trade near the border. “There’s no history of these people targeting non-nationals,” Kelly said. Mexico is also safe from a purchasing perspective with title insurance now available to those buying property, he said.

And a lot of the horror stories of people buying in Mexico and ending up with nothing really stemmed from “non-nationals buying property they should have never bought in the first place because nobody owned the title to it,” Kelly said. So just like you would in Canada, “go out and do the due diligence” before you buy, he said.

“Don’t leave your brains at the border,” he said. Check out the property in person to make sure it’s what you want, rather than buying off the internet,” Kelly said. And for financing, it’s cheaper to remortgage your Canadian property and buy with cash than get local financing. While there are international banks that will lend you money they will charge more, he said.

David Ingram is a North-Vancouver-based former real estate agent who has made a career out of advising Canadians who want to buy property outside the country, and foreigners who want to buy property in Canada. About 6,000 people attended his seminars last year, an indication of the interest in offshore real estate, Ingram said. The first thing to remember is every country, and every state, is different. So get the advice you need to learn the rules before you buy.

In Mexico for example, non-nationals aren’t allowed to buy within a certain distance of shores or borders, as part of national security. But that can be overcome by setting up a trust to purchase the property, for which title insurance is available. But other things to think about are local laws relating to rentals. If the property is to be rented out, chances are tax must be paid on the rental income, both Kelly and Ingram said.

While owners may be tempted not to pay the tax, Kelly recommends against it. Because if you don’t pay and the government finds out you will have to go through a hearing and the government could put a lien on the property. “So it’s better to be safe than sorry,” Kelly said.

Other things to think about?

Don’t forget about visa requirements to stay in the country, Ingram said. While no visa is needed for the U.S. if you stay too long you may have to pay tax on your worldwide income. And if you’re not careful, you may lose your entitlement to B.C.’s medical services plan which requires residents to be “physically present” in the province for at least six months of the year.“So get proper advice,” before you buy, Ingram said.

With the recession hitting the United States worse than Canada, and the Canadian dollar still strong, this may be a great time for Canadians to buy that sunny, tranquil getaway in the U.S. or further south. But to make sure it is tranquil, do your due diligence, just like you would at home.

Don’t forget about visa requirements to stay in the country, Ingram said. While no visa is needed for the U.S. if you stay too long you may have to pay tax on your worldwide income. And if you’re not careful, you may lose your entitlement to B.C.’s medical services plan which requires residents to be “physically present” in the province for at least six months of the year.“So get proper advice,” before you buy, Ingram said.

Tom Kelly, a syndicated columnist based in Washington State has co-authored two books about buying real estate in Mexico and Central America. He believes prices in those areas will go up once American baby-boomers recover some of their wealth. Baby boomers in the U.S. weren’t prepared for the economic downturn and once they rebuild they are going to look for a cheaper life style and it’s definitely cheaper in Mexico and Central America, Kelly said. Canadians, on the other hand, haven’t been as hard hit and were better prepared, he said.

So they are in a better position to buy now. “And the further you go typically the less expensive it’s going to be,” Kelly said Panama, for example, “is a bargain right now,” Kelly said. “But it costs money to get there.”

And while Puerto Vallarta and other places in Mexico are easier to get there, deals can be found there too, because not as many people are buying, he said. The outbreak of swine flu in the spring turned some people off. And the rash of drug-related crime did too, kelly said. But Kelly believes Mexico is perfectly safe, with the violence limited to the drug trade near the border. “There’s no history of these people targeting non-nationals,” Kelly said. Mexico is also safe from a purchasing perspective with title insurance now available to those buying property, he said.

“Green Shoots” in Vallarta real estate market?

After a very difficult past nine months, the Vallarta real estate market seems to be seeing some action with sales being reported by a number of offices and developments. The numbers are way off what they were last year, but  there are people interested in looking and more comfortable now in making offers.

I think we are going to be seeing some fire sales for some of the Vallarta real estate developments. After a very slow season, many are finding themselves asset rich but cash poor. There are a number of projects that I have heard from that are interested in selling a unit or two to assist with cash flow. They seem more comfortable with that than actually reducing overall prices. Selling a couple for substantially reduced prices will help out short term, but inventory pricing will probably have to be adjusted as well, to be competitive with the re-sale market, which is traditionally priced below new product, and has seen price reductions. What happens in the fall, as we enter the high season, will determine by how much and when.

UPDATE:

A “fire sale” is taking place at El Encanto in Punta Mita for three of their ocean view three bedroom townhouses. The list price is $750,000 and that’s substantially below what the price was this past season (around $1.2 million I believe). I’m sure this is to just unload some product that has been sitting there for some time and to get some cash flow, although they have been having good success with their three bedroom, ocean view condominiums. For more information: www.elencanto-puntamita.com.

UPDATE II:

Here’s another one. Molina de Agua have just announced that they will be reducing their prices for remaining inventory by 35% to unload the few remaining units they have left. Condos that were listed at $815k yesterday are listed at $535K today. The two show units on the first floor, listed at $620k without furnishings, are now available at $450k including at least $50k each in furnishings. For more information contact  info@timothyfuller.com or www.timothyfuller.com.

Vallarta Real Estate Trends Continued

Trend #4 – New Product going Forward

With price playing an increasingly important role in what a buyer can afford –because their net worth has been substantially reduced, less work or scarcity of credit – developers are already making changes, some to projects underway and some for future projects. Unit sizes are being reduced (back to the 1,500-sq-ft two-bedroom condo), extras dropped (did we really need two dishwashers in the kitchen?) and amenities scaled back (such as onsite restaurants, spas and concierge services). People are seriously questioning how many square feet they really need, since it all comes with a cost, both up front and down the line in cleaning and maintenance fees. “Economical” and “efficient” have replaced over-sizing everything and luxurious extras.

Trend #5 – Financing More Prevalent

The mortgage brokers are busy, or busier than they have been in years past. The finance market in Mexico was not involved with sub-prime or ALT mortgages, so financing is still available and is being requested much more frequently than in the past. Every realtor now works closely with a mortgage broker, or should, since cash is not as readily available as it was in past years or people are not willing to invest as much up front.

Trend #6 – Closer to Community and Being Involved

In the past, it was trendy for buyers to want something “away from it all,” with exclusivity and privacy. However, it seems that after years in their home hideaway, many have found it a little too hidden and would prefer to be situated where there’s more activity, desiring community and the ability to get involved in social activities, especially as the amount of time they have available to stay here increases.

In a study done earlier this year, where we compared total developer inventory to number of sales that have taken place and compared the results by region, we saw that, for the most part, there were more sales compared to overall inventory the closer you got to Puerto Vallarta. As you moved away, to the north or south, sales dropped off when compared to the overall inventory available in the region. I think this also has to do with security, in part.

At the top of the list for sales-to-inventory was the Nuevo Vallarta/Flamingos area. With three golf courses, the bay’s longest beach, athletic clubs, shopping and good security, social networks have been built up that are attractive to new homebuyers. Today’s retiree is not passive. I have a friend who is 81, and he just took up golf. People want to be more involved in their communities, help out through non-profit organizations and keep physically and mentally active.

Trend #7 – Progressive Ownership

Although this isn’t a trend that has become readily apparent yet, some large developments that offer a wide range of real estate options are having success with it, and I believe it will become more prevalent. These projects are starting people off with what they can afford and will use, in either timeshare or fractional ownership. And then, as they need more (size, space or time), they bump them up, giving credit for the equity in their existing property. It’s done entirely in-house and works well, especially in a slow market environment; at least there are sales taking place in the form of upgrades. I’ve even heard of developers working the other way for their clients, allowing them to downgrade to something they need and can still afford (and keeping a sale together). I think this trend, allowing more flexibility within real estate purchasing, will give developers who can offer this an edge and help them retain clients.

At the beginning of this economic downturn, I thought the timeshare industry especially would suffer since it relies so heavily on financing, but it has actually held up rather well. I suspect people are being a little more realistic with their expectations and concluding that a couple of weeks is all they can use each year, so why own for the whole year? And if the ability to upgrade is there, it makes even more sense. Unfortunately, this type of program is limited to very large developments that can provide such a wide range of real estate options.

Trend #8 – Market Convergence

When demand was at its peak for secondary housing or real estate tourism in a warm climate, locations that would not usually be seen as potential candidates for prospective purchasers were brought into the market. Developments were being announced in places such as Nicaragua and Honduras. Panama, Costa Rica and Argentina became “hot” markets. Within Mexico, Loreto, which had remained a stagnant market for years, suddenly had multiple developments, one with more than 6,000 home sites.

Well, as we’ve seen in our local market, the buyers (those that are still out there!) are looking for something closer to the center of activity in the community. Similarly, we see that people will be looking for something closer to their primary home, easier to reach and with a large community (consisting primarily of other second-homeowners) they can actively join. This is good for Mexico and the traditional real estate tourism markets such as Puerto Vallarta. It’s not so good for Honduras and Nicaragua, or even the Loretos out there – that 6,000-home development, the Loreto Bay Company, recently shutting down its operations.

Trend #9 – Canadian/National Market Rebound

When the market tanked last fall, there was a “flight to safety” into treasury bonds, and the Canadian dollar and Mexican peso lost substantial value against the US dollar. Since then, they have begun to recover, with the long-term trend being that this recovery will continue. Since real estate in Vallarta is based on US dollars, this will make real estate investing more attractive for both the Canadian and national markets.

Trend #10 – Recovery

This is a trend that has just recently begun, and it still may be a little early. But with talk of “green shoots” of economic recovery in the USA, it seems our market has bottomed out and will see more activity moving into the fall of this year and into 2010. What’s not so certain is what this recovery may look like. It will most likely follow what happens in the US economy, since that is where most buyers originate.

There are people who want to buy in Vallarta. Some are moving ahead, but more are sitting on the sidelines, waiting to see where the economy is going. They still want to have a second or retirement home here; they just need to be a little more comfortable with where they stand financially and where the economy may be going. It does seem that the economic downturn has bottomed out, that the swine flu is a thing of the past (at least for Mexico) and that the trend should be for a recovery in the local real estate market.

So there probably will be an uptick in activity in the fall, with people who have been sitting on the sidelines because of the uncertainty principle mentioned above coming out to once again look at real estate. It most likely will be slow, but slow can be good. It’s those violent upswings that can also bring drastic downswings.

Let me conclude by saying that the fundamentals for a strong real estate tourism market in Vallarta are still in place. Its proximity to US markets, pleasant winter climate, low-cost of living, low property taxes, great amenities, Mexican culture and the wide variety of real estate options available all add up to an excellent opportunity for Americans, Canadians and Mexicans looking for a second or retirement home somewhere warm and inviting. This downturn is temporary; the market will return as the American economy begins it recovery.

Check out Trends 1-3 here.

A reality check on Mexico…

An interesting post form the Jeff Musto Blog was passed along to me recently. Although I may not agree with everything, he does bring up some interesting points. I say “He” as I’m not sure who actually wrote it. Its shows up on Jeff’s blog, but then its also on Banderas News with Charles Simpson given credit, but then on Jeff’s blog at the end he has Adamarie King mentioned from “a” Conde Nast Magazine. But it still makes an interesting read!

Update: Was just contacted by Charles Simpson and he confirmed that he did indeed right this article. Sorry about the confusion Charles, it was a little confusing trying to figure out where Adamarie came into all this. JY

Real estate opportunities in Mexico! How to prosper & avoid the coming storm and prolonged economic stagnation in the USA.

First: A reality check on Mexico
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Mexico is in a unique position to reap many of the benefits of the decline of the US economy. In order to not violate NAFTA and other agreements the U.S.A. cannot use direct protectionism, so it is content to allow the media to play this protectionist role. The U.S. media – over the last year – has portrayed Mexico as being on the brink of economic collapse and civil war. The Mexican people are either beheaded, kidnapped, poor, corrupt, or narco-traffickers. The American news media was particularly aggressive in the weeks leading up to spring break. The main reason for this is money. During that two-week period, over 120,000 young American citizens poured into Mexico and left behind hundreds of millions of dollars.
Let’s look at the reality of the massive drug and corruption problem, kidnappings, murders and money. The U.S. Secretary of State Clinton was clear in her honest assessment of the problem. “Our insatiable demand for illegal drugs fuels the drug trade. Our inability to prevent the weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police officers, soldiers and civilians,” Clinton said. The other large illegal business that is smuggled into the U.S.A. that no one likes to talk about is Human Traffic for prostitution. This “business” is globally now competing with drugs in terms of profits.

For the complete article, click here

Punta Mita offering attractive financing

In a move to raise buyer interest, DINE, developer of Punta Mita, is now offering attractive, below market financing rates at the Kupuri beachfront development. Kupuri is part of Punta Mita’s nine-and-a-half-mile beachfront, where DINE is offering lots ranging from ¾ acres to 1.5 acres, priced from $2.25 million for secluded hillside locations to $7.2 million for beachfront estate sites. 

To date, DINE has sold eight Kupuri lots, including a beachfront property to homebuyer and Mexico City-based architect Alejandro Quintanilla.  Quintanilla has designed a five-bedroom, contemporary style estate home with special guest quarters now under construction and slated for completion by fall of 2009.  

DINE’s new financing program requires a 30 percent down payment due at closing with no mortgage payment due for three years at zero percent interest. A balloon 70 percent payment balance is due at the end of three years. Additional terms and incentives, for a limited time, include a 15 percent discount off the list price, and a 10 percent discount as long as the home is built within the first three years. In addition, homeowner association fees, property taxes and golf membership dues are waived for three years.

Vallarta Real Estate Trends #1, #2, and #3

Trend #1 – Buyer’s Market
It is definitely a buyer’s market. There’s plenty to see, time to shop around, and no hurry to make decisions in most cases. And that’s exactly what prospects are doing. Lower offers are now common with the spread between list price and sales prices has moved from a more traditional rate of 6-7% to over 10%.

Trend #2 – Reduced Developer Inventories
We went into 2008 with about 7,250 properties on the market, a number obtained from a study we perform at the beginning of each year. This was after we saw 50 new developments introduced to the marketplace in 2007. However, in the past when we calculated on many properties were on the market, we took the total number of units that a development was going to consist of, rather than what was actually available for sale. Many developments release in phases, most certainly today when units are not selling as they once were, before they had even broken ground. We took that into consideration this time. We also saw that some projects, that never actually had broken ground, decided not to go ahead. We also saw some turn a portion of their inventory into another use, introducing a hotel component. When we took all this into consideration plus the sales that actually took place in 2008, we found that actual inventories were down to 4,200 units. Still high, but workable. And a lot better than some other places in Mexico.

Trend #3 – Shift from a “Developer-Driven” Market to a “Re-sale Driven” Market
For the past five years the market has been developer driven with people preferring the new products that offer the newest construction techniques, glitzy, luxurious extras, wonderful amenities that were not usually found in the existing market and larger in size as the average home and condo size increased dramatically. People were so tied up in this that they would upgrade to the “newer” project of a developer because it was “bigger and better”. Well in today’s market, bigger is not actually better and if the extras and amenities are going to add to the overall cost and increase maintenance fees, then some buyers are not as interested. 
There is also the concern on whether the developer will be able to deliver, not just on time, but also everything that has been promised. With existing product, what you see is what you get. And in the past, purchasers were paying a premium of up to 20% over what a similar existing unit may be selling for, just to have something that’s new with the latest add-ons. For purchasers considering new product and there are many reasons to still consider it, as mentioned above, plus items such as warranties and less maintenance as its new, this is still a very good option. Just do your homework on the developer and the development. And a good realtor can help you with that. A last advantage that the re-sale market has is that usually an existing homeowner has more room to play with on his asking price. The developer is more locked in to his price because of construction costs.