I recently attended the Mexico Luxury Market Symposium, put on by the Luxury Registry (part of RCI), in Mexico City. Its held annually and is attended primary by real estate developers and the larger real estate company executives. The two-day event is packed with great sessions and panels that focus on the Mexico real estate market; where its at, where it may be going, its weakness and its strengths.
This was an especially interesting year with all that has been going on over the past 12 months.
There were a number of great speakers. Pulitzer prize winner Andres Oppenheimer was the main speaker of the event. He gave a sobering but enlightening talk on how he sees things are unfolding, especially with regards to Latin America and its relationship with the USA. He was tough on Mexico, saying it lives too much in the past, in its history, and needs to break out of that. The most positive point he had to make was with regards to Mexico’s opportunity for medical tourism and active retirement living. No matter how the health care issue goes in the USA, there is still going to be great opportunities for Mexico to offer very affordable healthcare services for Americans and the country should take advantage of this; developers included.
A problem Andres brought up that Mexico will have with the current USA administration is that Obama does not have a relationship with Latin America. Early in his campaign, when asked about his three favorite LA presidents, he could only name one, and he got the country of origin wrong. That will work against Mexico.
The most pressing question for everyone was; how long is this downturn going to last? Most tend to agree that the worst is probably over, but that recovery will not begin until sometime in 2011, and when it does, it will be slow. Although it is easy to fall into gloom and doom, many of the speakers were practical, saying that real estate is cyclical, usually in 10 year periods, and we are in the bottom of one of the troughs of these 10 year cycles. This cycle suffered a major dip, driven by investment. There were a number of figures quoted, but it seems that at least half of the purchases made over the past few years were for investment purposes rather than for personal use. Its going to take some time to work through the excess inventory that has come on the market, or will be coming on the market. Some tend to feel that there is a pent-up “shadow” inventory, made up of owners who want to sell but are waiting for the market to get somewhat better. That will add to an already slow recovery.
Consumers for Mexico real estate are the same people (Baby Boomers), but they are different psychologically through a “loss of wealth” syndrome. They are worried about retirement and preservation of wealth (what wealth they have left). As Wally Hobson, of NorthCourse Leisure Real Estate Solutions put it, “Conspicuous consumption is out, wealth recovery and preservation is in”.
Here’s a few other points Wally made:
- Branding will become even more important for real estate developments.
- Management of resort developments and reducing the cost of HOA fees will be important.
- Having expensive amenities will be less important for new projects going forward.
- Mega developments will not be coming back anytime soon, but rather small boutique developments (no golf course, centered around a boutique hotel).
- Remote destinations will have a tough time competing.
- The large, expensive homes will have a tough time selling. New market will be smaller, less expensive investment homes.
Active retirement living played a major role in the conference and I’m sure many developers left with this concept in the back of their minds; how can they build it into their current or on-the-planning-table development. With 401s becoming “201s”, many Americans will find that the only way to make their retirement savings last for them will be to make a move to Mexico, where the cost of living is so much lower and they get more for their dollar.
Here’s an interesting couple of facts about active living. 30 years ago the average age of someone in a retirement home was 65 years old. Today its 87. Before, primary competition for activity living developments was the oldest daughter, who would take it upon herself to take care of her parents. But today, the oldest daughter would be around 65 years old, and not in the best position to take care, or want to directly take care of her parents. This has turned the active living market into a US$100 billion dollar industry in the United States. There are a million retired Americans living in Mexico full time. That’s 25% of the total of all Americans retired, living outside of the USA.
I was part of a marketing panel and focused on the New Media that is quickly becoming something that developers and realtors need to be aware of. Traditional Media (TV, radio, newspapers, magazines, etc.) is important, but New Media (websites, blogs, social networks, online video), is quickly becoming very popular and could change the way many projects are marketed. I’ll get into that more in a future post.
Another positive note is that many of the larger developers, those with money (and juevos), are out looking to buy land, and they are doing so at bargain prices. They believe this is the bottom and now is the time to take advantage of low prices. So they are positive that this is just a downturn (and yes, a bad one at that), but the market will come back, just like it has through previous real estate cycles. And when it does, they will be ready to offer real estate product at good prices.
In summary; this is a serious downturn in the market, with sales dropping by as much as 80%, but we seemed to have gone through the worst of it. However, not much will be going on in 2010 and we won’t see markets seeing any significant up-tick until 2011, and even then, growth will be slow. 2010 will be, as 2009 has proven to be, a time of conserving cash flow, until times improve.