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.

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One Response to Vallarta Real Estate Trends Continued

  1. […] Rebound? Vallarta Real Estate Trends Update on #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 […]

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