THE APRIL MARKET REPORT – Coldwell Banker Previews

Brock Squire has some interesting comments on safety and the economy in Mexico, in Coldwell Banker Preview‘s April Newsletter:

Safety Concerns and Market Trends by Brock Squire

Over the past several months we have been repeatedly asked ‘Is it safe here’? Well, it depends on who you believe – and your sense of geography. If one was to listen to the certain segments of the sensationalist US media one would quickly come to the conclusion that the entire country of Mexico was in a state of civil war. That the drug lords were in shootouts with government troops on every street corner. The truth is that the Calderon government has drawn a line in the sand against the drug cartels that have operated with impunity for many years in Mexico. At the same time, the severe tightening of the US/Mexican boarder crossings has put the cartels between a rock and a hard place. The result is that now the cartels have a two sided battle to deal with – the Calderon government bent on eradicating their operations in Mexico – and – each other with rival cartel groups vying for the very limited cross-boarder smuggling opportunities.

Certainly the media coverage of these battles sells, but what has not been properly reported is that these battles are limited to the boarder areas of Mexico adjacent to the US and contrary to these media reports, there are daily reports of significant progress by the Mexican government against the cartels at their very highest levels. The more immediate question for our customers and owners then arises ‘Is this conflict affecting other areas of Mexico – and specifically the Puerto Vallarta/Riviera Nayarit areas’?

Riviera Nayarit is Mexico’s newest travel destination stretching along 192 miles of pristine Pacific coast framed by spectacular mountains to the north of renowned Puerto Vallarta. Mostly undeveloped, the destination extends along the entire coast of the Pacific state of Nayarit including the resorts of Nuevo Vallarta up to the historic, colonial town of San Blas and includes exclusive Punta Mita and the spectacular Banderas Bay. The region features luxury resorts and eco-tourism boutique hotels, world-renowned surfing, four professional golf courses, rare native wildlife including sea turtles and tropical birds, mountain and island adventures, shopping for local artwork and traditional Huichol handicrafts, charming fishing towns and miles of serene beaches. This coastal area is now among the strongest tourism regions in Mexico as well as investment from Mexican and North American investors for tourism expansion which is an important source for job creation.

Furthermore, a recent study by the Center for Research for Development (CIDAC) reveals that the state of Nayarit has one of the lowest crime rates in the country. This independent institute cites all of these features as part of their evaluation of Nayarit´s competitive climate as among the best in the country. This combination of positive factors demonstrates an unprecedented level of confidence, image and interest in this new destination.

In 2008, the average occupancy of hotels that are members of the Riviera Nayarit Convention & Visitors Bureau topped 79%, with highest occupancy in the months of January, February, March and July. Riviera Nayarit maintains its momentum in 2009 with an impressive January occupancy rate of 78%. A 2008 Mexican Tourism Investment Study showed that investors have confidence in this new destination, as Nayarit has the second highest tourism investment by the private sector, totaling US$778.5 million dollars.

A wide range of new resorts, condominiums, golf courses and retail services are currently underway. The St. Regis Punta Mita and the second new Jack Nicklaus championship golf course in Punta Mita have just opened and soon to come in 2009 is Los Veneros, a $126 million dollar resort in La Cruz de Huanacaxtle. Given the substantial tourism developments in the state of Nayarit, the regional employment sector continues to grow.

According to a study by the National Employment Institute, Nayarit garnered first place in job creation. So far in 2009, 1,555 jobs have been created, a 1.12% increase from the same period in 2008. “We are very proud of the growth of tourism, business and investment to Nayarit as well as the positive response from residents, tourists and media regarding our new region of Riviera Nayarit. During this challenging economic climate, we are also dedicated to making tourism development in the region well planned and protective of the environment as well as welcoming, safe and affordable for our visitors,” said Nayarit Governor, Ney Gonzalez Sanchez. Recognizing the extraordinary potential for this region and its abundance of affordable accommodations and activities, Riviera Nayarit has recently received glowing accolades from North American media.

In late 2008, listed Riviera Nayarit among five destinations to watch for 2009. In early 2009, Riviera Nayarit was also cited as a top destination for 2009 by Hideaways Magazine.

On the Economic Front, the Mexican government’s efforts are aimed at limiting the social impact of the global recession. The fiscal measures should save up to 150,000 jobs, says one official. Even so, with about 900,000 joining the workforce each year, unemployment is bound to rise (it climbed from 4% to 4.8% in November alone) and migration to a recession-hit United States no longer offers much of a safety valve. In past recessions Mexico has had to cut public spending. That it is different this time is tribute to the health of public finances. Public debt is only around 30% of GDP (and a fifth of that comprises contingent liabilities that the government may never have to repay).

Only $3.2 billion of foreign public debt falls due this year—and the government has already raised $2 billion in a bond issue last month. Skillful hedging by the finance ministry has softened the fall in the price and production of oil, which provides a third of government revenue. Mexico presold its oil output for 2009 at $70 a barrel—almost twice the current market price! If recession persists into 2010, the government can still stimulate the economy, albeit on a smaller scale, points out Alejandro Werner, the deputy minister of finance. When the economy was growing, the government saved a sum equivalent to 1.8% of GDP in stabilization funds which have not yet been spent. And the devaluation of the peso means that dollar oil revenues will go further in pesos. Furthermore, Mexico saw inflation rates drop last month, giving the Central Bank room to cut interest rates.

A recent Economist analysis examines how the country plans to gird itself to weather the storm, saying that, “for the first time, Mexico’s government is in a position to lean against the economic cycle with expansionary fiscal and monetary policies,” which include stimulus measures and counter-cyclical moves. So in the end as crime scares may keep some tourists away, a weakened peso draws others!


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