Mexico’s positive Tourism Dept. changes

July 28, 2011

In a piece featured with CNN a few days ago, a number of positive measures are mentioned with regards to what Mexico is doing to help its ailing tourism industry.

  1. Mexico has begun allowing holders of U.S. visas to enter Mexico, opening up the possibility of tourists to the United States extending their trips south of the border.
  2. Brazilians, Russians and Ukrainian visitors can gain travel permission to Mexico on the Internet, with no need for a visa. (In 2011 to date, Mexico has seen a 40.9% increase in Brazilian tourists, a 58.1% increase from Russia and 32.8% increase from China, according to Mexico’s tourism ministry.)
  3. Finally, for travelers from other countries, visas to Mexico in many cases can be obtained through a travel agent, erasing the need for trips to embassies.

These are important changes that should make it easier for people to travel to Mexico. Point #1 is an excellent move, as it allows for people that are planning to visit the U.S. to now, with no additional paperwork, visit Mexico at the same time. And point #3, that visas can now be obtained through a travel agent and not have to visit an embassy, is also a great idea. But will it be enough?

Mexico has to look at other markets, especially over the next few years while the U.S. economy is on the road to recovery, and allow Americans time to really see the reports on violence in Mexico for what they really are: it’s taking place in very specific places, which in most cases are far from the popular tourist regions, and its being sensationalized. At some point Americans will begin to understand that millions of Americans visit Mexico every year without ever experiencing problems and actually have a very good time.

But until then, Mexico has to look elsewhere, just like U.S. investors are looking elsewhere, at emerging markets. The U.S. and Europe are going to be tied down with debt problems, both sovereign and public, along with high unemployment, for some time to come. Public debt and unemployment are going to make it hard for Americans to travel, while people in emerging markets are not experiencing similar issues. They are not plagued by high debt and unemployment. Investors are looking at foreign emerging markets for better returns, it looks like Mexico is as well for their tourist industry.

For U.S. travelers specifically, the Commerce Department’s most recent data — for 2009 — shows that 31.7% of all U.S. international tourists go to Mexico. From 2002 to 2009, while U.S. tourism to Canada fell by more than 27%, tourism to Mexico from the U.S. increased by 5.1%. This happened even though the overall number of Americans traveling abroad decreased, from a peak of 64 million in 2007 to 61.4 million in 2009.

These are impressive numbers, and coming from the U.S. department of commerce, not Mexico’s: 1 in 3 American international tourists in 2009 went to Mexico.

However, although these new markets may provide tourists, they most likely will not be providing people or families that may be interested in real estate. Mexico’s strongest target markets for real estate sales remains in the U.S. and Canada, where travel to somewhere warm is for most people, only 3-4 hours away. For the local real estate market to make a serious bounce back, it needs Americans buying second homes once again. With real estate values still falling in the U.S., it seems this is still a ways away. Although the local market seems to be holding its own, its a long ways from the boom years from 2003 to 2008.



Manufacturing Business in Mexico is strong…

July 12, 2011

This article was featured in the NY Times yesterday. Here’s some of the highlights:

When the latest bloody headlines from the drug war in Mexico reach headquarters in New York, Ken Chandler, the manager of an American electronics manufacturing plant here, jumps on the phone. He is not begging to come home. He is begging to stay. “We try to put them at ease, to say it is not time to pack up,” said Mr. Chandler, who oversees the company’s operations in this border city, where the military arrived last week to help purge drug cartel members from the police department.

Not that his employer, Spellman High Voltage, needs much assurance. Like a crop of other manufacturers at the border, including six companies in this city alone, Spellman is expanding its operations, with a new plant under construction after making a calculation that offers one of the starker paradoxes of these violent days in Mexico. Despite the bleak outlook the drug war summons, the Mexican economy is humming along, not without warning signs, but growing considerably faster than that of the United States.

Over all, jobs in Mexico’s manufacturing sector increased 8.2 percent to 1.8 million as of January, the most recent figures available, driven mostly by what Mexican officials called regaining health in the auto and electronics industries, the engine of the economy along the border.

Mostly American-owned and in border states, the plants import raw materials duty free and export assembled products, lowering the cost of goods in the United States and providing jobs that pay more than the Mexican average (typically $8 to $16 per day on the assembly line) but a lot less than American wages.

Some of the new or expanding plants come at the expense of plant closings in the United States. Electrolux, which makes washers, dryers and other home products, closed a plant in 2009 in Iowa but opened one in Juárez last month that is expected to employ 400 people. Others are from investors farther afield. Foxconn, a Taiwanese firm that makes iPhones, Dell computers and other electronics, is one of several Asian companies taking root. It opened a plant in Juárez last summer. Down the coast from here, Posco, a Korean steel manufacturer, has announced plans to expand its operations with a second plant that will employ 300 people by 2013. Several other companies plan to built or expand in other states as well.

Over all, the Mexican economy, the second largest in Latin America after Brazil, grew 5.5 percent last year, its fastest pace in a decade, and is expected to grow 4.5 percent this year, driven largely by manufacturing as well as internal growth from an expanding middle class. The American economy, by contrast, is expected to grow between 2.7 percent and 2.9 percent in 2011, the Federal Reserve projected late last month.

Economists say Mexico’s growth would be even stronger without the cartel violence, which in the last five years has left more than 40,000 people dead, according to the count by national newspapers.

Why do they have to put it that way? Over 90% of those killed were narcos killing each other or being killed by police and/or the army. The other 10% consists primarily of the army or police killed fighting against them. There has been little “collateral damage”, as Rumsfeld used to like to say…

The Bank of Mexico reports foreign investment was $17.7 billion last year, far off pre-recession levels of $25 billion and fed in good measure by a single transaction, the purchase of a one of the country’s largest beer companies by Heineken.

Security costs are rising to protect property and shipments, and safety remains the top concern expressed by potential investors, said Bob Cook, the president of the El Paso Regional Economic Development Commission, which helps recruit businesses to Ciudad Juárez, Mexico’s most violent city. “But we are still working with more companies now than we did three years ago,” he said. Business is business, and the proximity to the United States is hard to pass up. The rising cost of labor, transportation and the renminbi have made some companies reconsider Mexico instead of China, he contended. Despite several murders a day, trade between Juárez and Texas rose 47 percent last year to $71.1 billion, he said.

“Central location, great infrastructure, suppliers and labor pool,” he said. “Those things haven’t been tampered with by organized crime.”

See the full story here.


Americans still flocking to Mexico…

July 3, 2011

according to an ABC news report, quoted by Michael Zenn of BoomerAbroad. Unfortunately no links were included for the report, or for the one by the LA Times, but it all sounds good!

Recent reports strongly indicate that the highly televised Mexican drug war has not stopped most Americans from traveling or moving South of the Border.  In fact, according to an ABC News report, of the 5.25 million Americans living in other countries, the vast majority (over 1 million) live in Mexico, and many more may be on their way.  A number of Mexican communities now virtually look like U.S. suburbs and in some cases American and Canadian property owners outnumber locals.
No Fear Here
In areas far from US border towns, such as Playa del Carmen and Tulum, Mexico’s drug war is a distant and far away place.  In fact, when surveyed, most Americans living here feel that they are much safer than in cities like L.A., New York, Chicago, Atlanta or Miami.  Indeed, recent statistics prove them to be right.
According to a report last year by the LA Times, tourist areas in Mexico are 12 times safer than Tampa or Honolulu, 17 times safer than Dallas or West Palm Beach, 26 times safer than Orlando or Houston and a whopping 39 times safer than the U.S. capital, Washington D.C., and Americans and Canadians are coming in droves.
Why Here, Why Now?
Americans and Canadians are sneaking South of the Boarder for all the usual suspects: tropical weather, pristine property, tree-lined beaches, white-sand, warm turquoise water, crystalline coastlines, the beckoning beach lifestyle, and a litany of other adjectives.  But perhaps this time they are descending on magical Mexico for a compelling new impetus altogether.
When the global recession hit, many retirees and investors were driven south where life is cheap and the living is easy.  A dollar down here buys roughly 30% more, taxes are negotiable, and the economy is rebounding at a rapid pace.  Personal debt and the credit crisis are virtually non-existent since Mexicans do not generally use credit to buy things.
Surging Economy
That could explain why the Mexican economy is surging (not sputtering) out of the global recession, recording a 4.3% growth rate in the first quarter of 2010 alone (much faster than the U.S.)  And if you had invested $10,000 here in 2000 you would have witnessed a 232% gain in your bank account.
Perhaps the biggest bonus for retirees and investors in Mexico has been their opportunistic purchases of homes, condos and real estate property.  In key areas, real estate development in Mexico is far outpacing growth in other countries. For example, Playa del Carmen was named the fastest growing area in the world just a few years ago and Tulum, just to the south, is poised to grow even faster in the next 5 years.
Healthcare Heaven
The other goldmine that Americans and Canadians are getting in Mexico is the veritable healthcare jackpot they enjoy that includes full medical, dental and vision coverage for about $600 a year. This government run healthcare plan (IMSS) was created for Mexican employees but is also open to legal foreigners. Imagine a healthcare-fantasy world where there are no deductibles, no co-pays, no limits, no prescriptions to pay for and even pre-existing conditions are covered after 1-2 years.  No small reason to make your way to Mexico.
There are now over 18,000 major American companies currently investing and operating in Mexico and it is estimated that over 1 million Americans are buying, building and or retiring here.  In truth, no one knows exactly how many American or Canadian retirees, entrepreneurs, and families are now traveling or making plans to relocate to Mexico. One thing’s for sure, it’s not a few, it’s not slowing down, and there seems to be no end in sight.  And for those who might doubt it, just ask the Mexican locals and they will quickly remind you “they’re moving in all around us!”.
by Michael Zenn, Boomers Abroad

Bullish on Mexico – Financial Times

June 26, 2011

This was recently sent in by Dean, one of our regular readers, giving us some positive news for a change, and news that has substance as well. It was first featured in the Financial Times.

Put aside the bloody news headlines about Mexico’s drugs war for a moment. Look instead at how investors view the country. They are, in a word, bullish.
Why? As an FT survey published today argues, the Mexican macroeconomy is well-nigh bulletproof.
That provides a sound platform for business activity, which is just as well, although it shouldn’t be that surprising. It’s not even that unusual – at least among “sensible” countries. Just look at Colombia’s experience. Between 1980 and 2010, when Colombian drugs and guerrilla-related violence peaked and then fell, the economy grew an average of 3.5 per cent a year. Remarkably, there was also only one year of recession. The lesson here is that countries cannot even begin to deal with a drugs war if they don’t have a stable macroeconomy in place. Colombia did it. Mexico has it.
Will Mexico, though, build on this stability to enact the many reforms the country still needs to do? Not until the 2012 Presidential election has taken place. But beyond that, John Authers, head of the FT’s Lex column, gives a tentative yes. So does Luis Rubio, a guest columnist. In one encouraging sign, regulators are already starting to curtail the oligopolies that stifle competition in the domestic economy.
Dealing with some of the most violent criminals on the planet; pushing through economic reforms that defy large vested interests; re-building the country’s institutionality. None of this is child’s play. Still, in the meantime, several sectors of the Mexican economy are booming. As an article in today’s newspaper also shows, one Mexican company has even turned child’s play into big business. Latin America is more than just about commodities.

Also found in the special feature on Mexico:

The reasons for such bullishness – at odds with many news headlines – are plain. The macroeconomy is virtually bulletproof. Inflation is about 3 per cent. There are no fiscal or current account deficits to speak of, and, unlike many Latin peers, exchange rate strength is not an issue. When adjusted for inflation, Mexico’s trade-weighted peso is 4 per cent more competitive than its 10-year average; the Brazilian currency is 50 per cent less.
Meanwhile, the huge cost-advantage that Chinese manufacturers enjoyed in 2001, when China acceded to the World Trade Organisation, has shrunk “to about 14 per cent”, says Ernesto Cordero, finance minister. As transport costs have risen with energy prices, manufacturers have increased their share of the US market and found new markets abroad.


Vallarta Real Estate Trends Part II

June 26, 2011

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!

Vallarta Real Estate Trends 2011 – Part I

June 24, 2011

Following is the first of a two part series on real estate trends for the Puerto Vallarta and Riviera Nayarit markets, which will be featured in the summer issue of Vallarta Lifestyles.

Last year when compiling our annual real estate trends article, we saw the year as a turning point in the market, that the bottom of the cycle seemed to have been reached and it should begin to swing upwards as we moved into 2011. This seems to have been proven to be true, at least for the re-sale market. The number of sales have increased and the number of listings on the market reduced. For new product or development properties, they still seem to be working through this. But that’s natural after a downturn cycle in the market – recovery is led first by the re-sale market and then followed by new product as developers start building again.

Most realtors we talked to believe we are over the worst but it’s going to be a slow recovery continuing well into next year. The Vallarta multiple listing service, Multi-List Vallarta, seems to confirm this with average inventory levels dropping slightly 1,100 to 1,000 re-sale property listings this past season, with new property inventory (development projects) dropping slightly as well.

Below are trends we see currently taking place with regards to the local real estate market.

Its all about “Price Point”

This is the trend I hear most often when talking to realtors about the local real estate market, its no longer about price per square foot or square meter as was the custom in years past. Today, buyers have a price in mind of what they can afford or a limit to what they are willing to invest and they want to see what’s available at that price point. If they wanted two bedrooms but there’s only one-bedroom units available at that price, that’s what they’ll look at – just don’t try and get them to move out of their price comfort zone.

This has led, coincidentally, to one-bedroom condominiums becoming popular once again. You couldn’t give them away in 2007. Back then buyers wanted an extra bedroom or two for friends to visit, TV room or an office, and were willing to pay for it. Developers stopped including one bedrooms in their inventory or drastically cut back and instead started building three bedroom units. But no longer. They are popular once again as they meet the price comfort level for many. The most popular price range in 2010 was between $100,000 to $200,000. That not something a developer can provide, except with one bedroom units.

The same goes for maintenance or carrying costs for the property. Buyers also have a number in mind with what they can afford to pay monthly for the condominiums. And with one-bedrooms about 60% the size of two-bedroom unit, that means maintenance fees are 40% less. Another very good reason to consider a one-bedroom unit. Read the rest of this entry »

Crime Costly for Mexico’s Businesses and Economy

May 19, 2011

This article was recently posted in the Latina American Herald Tribune, following a number of other articles regarding how drug violence has affected doing business in Mexico for American companies.

 The wave of drug-related crime and violence in northern Mexico has affected key sectors of the economy and cut the gross domestic product by 1 percent, industrial security expert Alejandro Desfassiaux told Efe.
Crime is “the biggest risk factor that could limit economic activity in coming months,” Desfassiaux, who is president of the National Private Security Council, said.
The council is a trade group that represents about 200 security firms in Mexico. About 27 percent of businessmen are reconsidering their investments in Mexico, according to the latest survey conducted by the council, while 16 percent have suspended investing and 8 percent are considering shifting investment to other countries.
Some 88 percent of businessmen agree that the crime problem should be dealt with immediately, Desfassiaux, who is also head of security firm Grupo Multisistemas de Seguridad, said. Many businessmen have limited their trips to Mexico in response to the rising violence, the security expert said.
“Crime is affecting the economic performances of Chihuahua, Guerrero, Jalisco, Nuevo Leon and Tamaulipas (states), where murders related to drug trafficking have risen threefold to 18-fold,” Desfassiaux said.
The states most affected by job losses and business closings due to crime are Tamaulipas, Nuevo Leon, Chihuahua, Baja California, Baja California Sur and Sinaloa, all located in northern Mexico, the security expert said.
Only 23 companies opened in 2010, while 3,000 had opened in 2007, and many firms based in northern Mexico moved to other parts of the country, are being managed from abroad or reduced operations because of the drug-related violence, which has claimed the lives of nearly 40,000 people since 2006, Desfassiaux said.
Between 80 and 100 real estate firms closed in the border region, while in Monterrey, the capital of Nuevo Leon, the surging crime and violence “killed” medical tourism, which had been drawing from 60 to 70 foreign patients a month to the industrial city for surgical procedures of all kinds, Desfassiaux said.

“80-100 real estate firms have closed.” So far we have seen few offices close, but then we have seen very little of the violence these regions are experiencing (although you’d think differently from what the mainstream media is portraying). It IS bad in Monterrey, this is a place that has been severely affected by a major turf war taking place within the city limits.

Visits “have been reduced, on average, to one every three months,” Desfassiaux said, adding that tourism in the border region was down 10 percent. Nightlife in the border region has been reduced drastically, the security expert said.
“Patrons prefer to stay home, leading to the closings of 36 percent of restaurants and of 53 percent of nightclubs and bars,” Desfassiaux said.
The assembly plants, or “maquiladoras,” that dot the border region have also seen production fall, prompting management to try to cut costs to prevent the shifting of operations to other countries, the security expert said. Sales at shops and department stores have dropped by about 10 percent, Desfassiaux said.
“In 2010, output grew 5.5 percent in the entire country, the highest level since 2000, but the perception of crime does not just affect some sectors and the northern border, it affects the whole country,” Desfassiaux said.
Construction companies and real estate developers reduced investment in Mexico by 240 billion pesos (about $20.5 billion) last year due to the wave of violence, the security expert said.

Well, not solely because of violence. I’m sure the economic world crisis hasn’t helped any. But that’s a huge number. In Vallarta, we saw 50 new real estate projects start up in 2007, adding thousands of new condos to the market, whereas this year there were nine new products and most of these were quite small.