Puerto Vallarta Realtors Reflect

Had dinner out on the town with a few Realtors a couple of nights ago, some of the top in the industry and who between them have many years selling and developing real estate in the region. Its been a tough year for them all. They have had to make major changes in their operations, scaling back, closing down satellite offices and getting more involved in the day-to-day operations of their businesses. When times were good they could spend more time away from the office, working on pet projects such as developing real estate. But now they are back at the office, keeping a very close eye on the bottom line – its all about cash flow these days.

For some it is rentals that seem to be keeping them going, and for other offices out there. Rentals have been good, at least compared to sales. The upper-end of the market for real estate sales has basically come to a standstill. Luxury properties are just not moving. It seems people are taking a year off, renting a few places to try them out, rather than jumping in and buying something themselves. There are still inquiries, people are interested, they just want to be a little more secure about the state of the US economy before moving forward with something. The active market right now is under $500,000 USD. There is some action above that, but nearly all below $1 million. And for the properties that are selling around $1 million, the eventual sales price was significantly below the asking/listing price.

There is some concern whether there is a “shadow” market, involving people who want to sell but are waiting for the market to get better. The number of listings in the MLS service Multi-List Vallarta has leveled off for the past year, so sales seem to be keeping up with new listed properties. But are there many people out there waiting, and when these properties will come on the market, how will it effect it? There are still a lot of investor-held properties out there; they have to put them on the market sooner or later.

In 2003 the MLS tripled its sales from the year previously. Tripled – in one year. Well sales have now been cut by about 2/3s, so are we getting back to “normal”? Problem is there’s a lot more inventory now than back then. Its not outrageous, and we’re better off than some other markets in Mexico, but its there and its going to take some time to get it back to normal. Fortunately for the health of the market nearly all the properties are held free and clear, as financing is still a small part of the market.

Further to Trust Requirements and the IRS

Here’s a couple of  documents, one from Enrique Hernandez of the law firm Procopio, called “What Happens in Mexico” and  another called “What’s a Fideicomiso” by American lawyer Amy P. Jetel. Both has differing opinions with regards to how or if Mexican Trusts need to be registered with the IRA.

I also suggest reading the comments that have been coming in regarding this at this post.

Mexico Luxury Real Estate Symposium

Every year the following symposium takes place in Mexico City. I’ve attended and found it very rewarding, educational and a great way to network. This year should be especially interesting with all that is going on in the real estate industry. I highly recommend it.

Luxury Markets Symposium – Mexico, October 6th and 7th, Mexico City

Luxury Markets Symposium is the forum to learn about the current state of the luxury leisure real estate industry. The results, the changes we face and the newest trends which will drive our future. Luxury Markets Symposium is a unique forum in Latin America in which you can hear from international speakers, learn from their experience and discuss the options for growth and development for the industry.

Some of the opportunities to be discussed this year are:
• Mixed-use projects
• The Mega development experience
• Active Living (new and attractive wellness and lifestyle options for retirees).
• Marketing 360°. Communication and product positioning.
• Potential growth in the luxury segment of the leisure-oriented real-estate industry.

Widen your networking opportunities and generate growth for your business.

Luxury Markets Symposium will take place at: Club de Banqueros in Mexico City www.luxurymarketsymposium.com

Call them to register: +52 (55) 5005 6345 México City,
or email at registro@luxurymarketsymposium.com

Working out of this real estate downturn

The traditional way would be to get together realtors and developers, hopefully the tourism board participating, and create a marketing plan involving public relations and advertising, perhaps attend a few conventions and have a booth and tell people how wonderful it all is done here. But I don’t think the traditional way works as well anymore.

With the advent of the Internet and social networking, the consumer has been put in the forefront and in the driver’s seat. You can’t pull the wool over their eyes or fake your way through it – they will find out and they will tell their friends – virally. I can just see it, rolling out with a $200,000 USD campaign and then a development goes down, like the Trump Tower project did up near the border, and its all across all forms of media. $200,000 down the drain.

I think we need another approach, because we aren’t out of this yet. Everyone has been effected by this slowdown, some more than others. And the one’s that have been hurt the most, will have problems recovering and will mean a difficult road for those who have invested with them, unfortunately we will be hearing more about them in the news and on the blogs, than the one’s that are doing just fine and are taking care of the buyers and investors.

There’s a new mantra out there going round and being used by the media consultants and it goes something like this: “The complaint department is the new press release” or “The complaint department is the new marketing strategy”. Both are saying that if you just take care of your customers really well, the word will get out there, through websites, blogs, Facebook, Twitter and other social networking means.

So here’s my proposal.

More about Vallarta MLS Service…

I’ve been asked to elaborate a little more about what I mean by “back-end” and “front-end” MLS services.

Back end involves all those services that a realtor or real estate office needs to do to maintain and keep track of their listings and clients. They add/update listing information, prepare Comparative Market Analyses, and even can have built-in contact management systems. This is especially helpful when you have a large office with a lot of listings and clients. However, we calculated  what the average real estate office has for listings in the current MLS. The results were surprising; 80% of the offices had less than 20 MLS listings. 17% had between 20-50 listings and 3% had more than 50 MLS listings. Makes you wonder how complicated or sophisticated a system you need when 80% of your offices only have less than 20 listings.

Front end involves what is done with that information to help the Realtor or real estate office market their properties for their clients. This involves having MLS Search featured on websites on the Internet for the public. It involves tying the MLS properties in with print publications (such as what we currently do with the MLS Catalog and the Vallarta Real Estate Guide). Its using the MLS inventory as a marketing tool to attract buyers and sellers.

Back-end systems are about inventory and client maintenance and administration, Front-end systems are about marketing. In my opinion, Front-end systems are more important. Back-end becomes critical when you have larges offices and hundreds of listings, but if, as mentioned above, 80% of the offices in the Vallarta region have less than 20 listings, is it not overkill?

When we’ve looked at improving our back-end systems, we found it to be just too expensive with not enough members to make our investment pay for itself. The systems AMPI is currently looking at offer great back-end systems and as they are major US corporations serving major real estate boards, they can leverage their investments in this area to make it feasible for even small boards such as Vallarta. However, what they lack is the front end. As small as our company is, we can help market properties much better than they can. And with our Google positioning for key phrases, it is basically impossible for them to match what we can offer.

What I’m suggesting then, if Back-end is critical to AMPI, that they get a 3rd party vendor to supply that service for them. They then can use us to help market their properties, just like they currently do in our publications such as Vallarta Lifestyles and the Vallarta Real Estate Guide.

What’s the future of MLS services in Vallarta?

As mentioned in my earlier post, the local real estate boards are looking into an alternative 3rd party vendor to supply their MLS service, something we have been doing for the past 20 years. I’ve been reflecting on this for the past few weeks, for we have also been reflecting on the service we provide them; is it the best way to help people who want to buy real estate get in touch with people who want to sell, or with people who have real estate to sell? That, in essence, is what a good part of our business is about, functioning as an intermediary to help buyers find real estate and realtors and developers to find buyers. Is the current system the best one?

It strikes me that the whole real estate industry is in a state of transition and transformation, driven primarily by advances of the Internet and most recently, the rise and popularity of social networking. On one side there are major heavyweights such as Google getting into the real estate information distribution game, as well as others such as Zillow, Yahoo and even Craigslist. Then there is Facebook, Twitter and LinkedIn, the social networking sites that provide a completely different way of marketing or connecting buyers and sellers – often without the middleman or intermediary.

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.

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.