Vallarta Real Estate Trends Part II

This is the second part about trends currently taking place in the Vallarta and Riviera Nayarit real estate markets. The first part can be seen here.

Speculation Is Gone—At Least For a While

Speculation drove a large part of the market in years past. Today, real estate investment has to make sense and stand on its own merit, any potential upside gain considered a bonus and not necessarily a reason for buying. Single-property speculators are gone—and even the investors, to some degree—except for some bottom feeders every real estate agency reports dealing with. There’s been a shift from people buying a “vacation” property to now buying a “retirement” property. People are looking for a place to not just vacation in but to have as their primary or secondary home in the near future. This is all good long term, but doesn’t sellers and developers that want sales now.

With regard to investment buyers, Vallarta just doesn’t have the foreclosure or distress properties to the extent that can be found in the USA. Properties here were purchased primarily with cash, so unless the owner is over-extended back home, there is no need to sell at this time. This traditionally has been the case for Vallarta in other downturns in the market.

Renting More Common

There are more owners entering the rental marketplace now. Budgets are tighter and owners who would not have rented in the past are doing what they can to cover HOA and utility expenses. This is flooding what is an already saturated market. Short-term renters realize this and are bargaining, obtaining good rates. While rates will most likely go down, homeowners who wish to rent will need to offer not only better prices but also better services and extras, such as full maid service, a chef and/or bundled extras such as golf rounds, massage service and restaurant coupons.

Security a Concern

With the increase in violence in Mexico between rival drug cartels and the police and soldiers trying to suppress them, along with the coverage it has been receiving in the American press, it’s understandable that people are concerned about security. However, the violence is concentrated mostly along the border and around Mexico City and has not affected Americans or Canadians living here, especially in this region of the country. Yet, no matter how safe it may be, there is no question that the US media coverage of this, and in our opinion, over sensationalizing it, is affecting the real estate market.

Lowered Expectations

Coming out of this past recession, Americans have considerably lowered their level of expectations. The over-exhuberance, the rush to use credit, feeling richer than perhaps they actually were, is mostly over. In its place comes a more realistic prospective homebuyer who realizes that big is not always better and that they can actually get buy with a lot less in regards to their home size and still have a great second home in Vallarta experience. As mentioned earlier, buyers are now coming to the market with the idea of a price they are comfortable with investing as well as how much they can afford for monthly living expenses such as HOA fees and all that goes with owning a home. They realize they don’t really need the extra bedroom, especially when they see the difference in price, for both the purchase price and the maintenance fees. They see the extras such as gyms or concierge services at condo projects not as nice amenities but as unneeded extra carrying costs. The Baby Boomers, who continue to be a large part of second-home buyers in the region, still want a second home somewhere warm during the winter, however, their expectations of what they need are just more in line with what they can afford or should be investing.

An interesting trend that has come out of this is people are looking at what are traditionally non-tourist type properties. Not social housing but a step above. They are gated communities of usually townhouses that can provide a home of a decent size at a very affordable price, usually under $150,000. The most popular region for this is in and around Nuevo Vallarta and Flamingos.

More Diversified Market

Five years ago the tourism real estate market was comprised primarily of American buyers, with some realtors estimating as high as 75%. Today, after the downturn in the US economy and the rise in value against the dollar for both Canadians and Mexicans, its leveled out so that its evenly distributed between the three groups. In 2010 it was the Canadians and the national market that kept realtors in business. Where Canadian buyers are buying real estate in regions all along the bay, Mexicans prefer areas such as Nuevo Vallarta or the Hotel Zone highrises. They already have what many Canadians or Americans are looking for, the quaint villages with plazas and cobblestone streets back home in or near Guadalajara or in the Bajio region, they want something that looks more like Miami.

Mega-Home Market

As in the USA, 2003-2007 saw the average size of homes increase substantially, and the building of mega-homes of “McMansions”. Vallarta was no exception with some incredible homes built during this time, especially along the North Shore of Banderas Bay. Although few of these homes actually came on the market, when they did they were testing the market between $10 and $15 million. Nothing ever sold for that and for the few that did most recently, it was for a serious discount. At the current time there is little interest in this part of the market. It involves a serious investment that for those that can do it, don’t seem to be willing to do at this time. One architect I talked to recently, who specialized in this segment of the market, said its dead and does not think it will be coming back for quite some time. He’s now designing condominiums projects; with a lot less amenities involved.

The “911” Trend all over again

One realtor had an interesting take on a trend he believes is currently evolving. When 911 happened it was thought at the time that this would certainly slow down activity in the local real estate market. But it didn’t. Matter of fact, it helped fuel the largest real estate boom that Vallarta has seen. What came out of this was that Americans were shocked not just by the horrendous event itself, but some took it as a personal wake-up call–that it could have been them. Which got some thinking that they weren’t getting any younger, that perhaps instead of working more it should be less, they should be spending more quality time with the family, travel more and, perhaps by that condo they’ve been thinking about down in Puerto Vallarta.

The economic downturn that followed only elevated this sentiment. Which takes us to the Baby Boomers. They didn’t disappear, but for some their long-awaited retirement was unfortunately delayed. Now, with the economy seemingly getting back on track (the US stock market is up to nearly pre-crisis level), many have recovered any losses they incurred and can now more seriously consider retirement, or at least take further steps in the direction. Like buying a condo in Puerto Vallarta…

The realtor’s take is that a pent-up demand is being created – some people have called off buying, but many have just delayed it for awhile for reasons given early, but they still intend to buy. And each year brings even more that are holding off. But at some point, the moment is going to seem right for these buyers and there be a flood of them looking to buy real estate. Perhaps not a tsunami, but something significant.

As well, in today’s financial markets its difficult to find good places to put your money these days. So some are thinking, why not a home in a warm place where at least you can physically enjoy it, at prices that are looking quite good these days. He concludes that the recent uptick in activity he has seen is because the “demand” is now starting to come into the marketplace. We’ll be keeping an eye on this particular trend!

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One Response to Vallarta Real Estate Trends Part II

  1. ITT Tech Virtual Library…

    Vallarta Real Estate Trends Part II « Vallarta Real Estate Weblog…

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