Mexico Luxury Market Symposium

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:

  1. Branding will become even more important for real estate developments.
  2. Management of resort developments and reducing the cost of HOA fees will be important.
  3. Having expensive amenities will be less important for new projects going forward.
  4. Mega developments will not be coming back anytime soon, but rather small boutique developments (no golf course, centered around a boutique hotel).
  5. Remote destinations will have a tough time competing.
  6. 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.

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9 Responses to Mexico Luxury Market Symposium

  1. AU says:

    Thanks for the update John. As always, very good insights. We are seeing increased activity in Nuevo Vallarta, and renewed interest for this coming season. Land prices in Vallarta have not really dropped, at least not for prime property, so hard for developers to find a bargain.

    The “loss of wealth syndrome” as you put it, is going to be our biggest obstacle to overcome this season. Prospects that have their nest egg in the stock market are seeing their wealth recovering at a healthy pace. Not a good time to pull the trigger on their recovering investments to make a lifestyle purchase that will not go up in value as fast (perception). Just this month we’ve had a few such comments from prospects.

    By the way, how did you post this in the future, Oct 9th ?! What timezone is the server in?

    • johnlifestyles says:

      Thanks Alex. I think we should have active living as a session for the next real estate conference. This was a big part of the Luxury Symposium and I don’t think the word of what Luma (and Sensara), and other active living projects in the region, is getting out there enough, if realtors understand it well enough to really sell it. This has big potential for our market.
      With regards to posting in the future, I’ve always tried to be a little ahead of the curve, but not that much! I have not idea what’s happening there…

  2. AU says:

    I think a seminar on Active Living would be something that we would welcome at the next RE conf. As you know, Front Porch has a wealth of experience in this sector, and could help dispel the myths and highlight the benefits…

  3. David says:

    I am curious if there was any talk of the perecption issue of the narco war & the inherent concerns regarding the safety of Mexico as a country for foreign buyers. Even sophiosticated would be buyers are concerned. I know that the areas where foreigners primarily buy real estate in mexico are relatively safe, but this perception is one of the issues impacting buyers coming back in force. I agree that the 2010 will be a quiet year and likely another down year. We need another flu season to come and go, and a flue that has no connection to Mexico whatsoever. 2010 & 2011 will shake out those who have to sell, can’t afford the operating costs and are willing to get out at a loss.

    “we are seeing increased activity in Nuevo Vallarta” , I wish that people were more specific about mentioning sales instead of just saying “activity”. I think reading too much into making appointments or people at open houses does not necessarily correlate with sales improvements. Is that resale activity or new development releases?. The big question is how many single family residential & condo sales (actual closings) have there been in the past 3 months? How about in September?

  4. johnlifestyles says:

    Hi David,
    No, there was little talked about regarding the narco war, although security was talked about. Most agreed that the situation regarding the drug war has not effected foreigners, there have been no cases except involving people who were actually involved with the drug trade themselves. Its been blown so much out of proportion in the United States for a number of reasons. MSM loves sensationalism, for one. Another is that scaring Americans from visiting keeps tourism dollars in the USA, instead of going to Mexico. I thought the speakers, both American and Mexican, addressed this well.
    Security is an issue, but there are security issues everywhere. Vallarta is safe compared to many American cities. There are parts of major cities in the USA that you just don’t go to. That’s not the case in Vallarta.
    Unfortunately, perception is reality. And that is hard to overcome.

  5. David says:

    Thanks for the follow up
    comment. One thing I would like to add is that
    until we can be certain that the war is not going to expand
    and that their is 100% chance that Mexico is not going to be a failed
    state, interest in plunking down a lot of money on a beach front property anywhere in Mexico is going to be lessened. I have talked to too many would be buyers who are concerned that the Mexican government will lose their battle against the narco dons.

    The Jalisco area is relatively stable, but then again no cartel is challenging the dominance of the Sinaola syndicate for that territory, but what if one did? I think all bets are off until drug related deaths drop in the country. August and September were the worst in terms of murders in Mexico. Vallarta is not an island, and it is hard to enjoy owning a piece of paradise knowing that 3 hours by car, 5 heads are found in a dumpster.

  6. Brabara says:

    Obama has no realtionship with Latin America? Get your head out of the toilet and read the news on a daily basis, not the tabloids.

  7. johnlifestyles says:

    ? This comment was made by Andrés Oppenheimer, a Pulitzer-winning journalist, who is the Latin American editor and syndicated foreign affairs columnist with The Miami Herald, which is not a tabloid. Get my head out of the toilet? Rather strange comment, especially as I was only quoting what Oppenheimer had to say at the symposium. But I’d be interested in hearing more, could you elaborate (not about the toilet part but about Obama’s relationship with Latin America)?

  8. Brock says:

    Hi John

    Notwithstanding Obama’s inability to recite LA presidents, politics are politics. It shouldn’t come as a news flash that Obama was elected with the overwhelming support of the US labor unions to whom he will always owe a very strong allegence. The last thing the unions want is a stronger relationship of any kind to Mexico. The fact is that there is an overwhelming consensus by the core US democratic support groups, including the labor unions, (not to mention the US press) that Mexico – and Mexicans – are taking jobs away from US workers. The same feeling exists against NAFTA – which they say should never have been approved in the first place. The political economic reality of this landscape will unquestionably have a very restrictive/negative impact on relationship between Mexico and the United States for at least as long as Obama remains in power.

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