Vallarta/Riviera Nayarit Real Estate MLS (Multi-Dev Vallarta) Update

September 14, 2011

Over the summer real estate agencies seemed to have had a decent summer, at least keeping up to the activity they had seen in the earlier part of the year. July, however, was quite a good month with 21 sales reported in the MLS Multi-List Vallarta. That’s the good news. Unfortunately most of the sales had low prices. For the first time in quite some time, houses outsold condominiums (13-8). However, the average sales price for a home was only $185,000 ($350,000 for condos). One house sold for $3 million, however we removed this before calculating average price as it would have distorted it and would not have been a good indicator. So a good month for the number of sales, but not for what they sold for, except for the one in Punta Mita.

July was also an interesting month for the number of days these properties were on the market. Nine out of the 21 sales were on the market for over a year and one for four years. The average days on market for July was 775 whereas the average for the year has only been 380 (which is still quite high). So it seems that July was kind of a late Spring Cleaning; with properties that had been on the market for some time finally lowering or accepting a lower price in order to move the property. It is still a buyer’s market, and quite a good one at them. There are some very good deals out there.

In June there was also one sale for over a million ($1,250,000), which we removed as well to calculate average home sales price, as it was so far off the others. There were just three other house sales and they were all for under $170,000; even lower than July. Even condos fell to just over $200,000 for the average sales price.

In August home prices were back up to $381,000 (but just three home sales) and condos up to $250,000. The average sales price for a condominium is now back to what they averaged in 2007.

Days on Market has average 380 days so far this year.

An encouraging sign is that for the first time in awhile, American visits topped Mexican and Canadian visitors, in both July and August. Hopefully this is a trend for the upcoming high season.

The number of sales for the year is above 2010, although that’s not a hard year to beat! I think we’ll see 2011 in the future as the year the market started to bottom out and turn around.


Foreign Land Ownership in Mexico Revisited

August 2, 2011 recently posted an article by Barnard R. Thompson entitled Mexico Should Allow Foreigners Unrestricted Ownership of Beachfront Property that addresses the ongoing issue of whether foreigners should be allowed to own land along the borders and coastlines of Mexico. I was aware that this issue was up for review with the Mexican senate, but I didn’t realize that it was shot down in April of this year; a resolution to drop the ownership limitation did not pass as was hoped by many.

A legislative initiative submitted by Baja California Sur Senator Luis Alberto Coppola Joffroy in July of 2007, which after (occasional) debate — and failures of committees to act — was ultimately rejected by the Mexican Senate last April.

This is unfortunate. As Barnard mentions…

…such a change could be huge for Mexico’s tourism industry and economy, considering the number of non-Mexicans who would like to live, retire or have a second home on a sunny beach with actual ownership and title to the property.  And this is to say nothing about positive publicity, or added income from fees and taxes, increased foreign exchange, investment opportunities, development and growth, and the creation of jobs for Mexican workers, among other things.

And there is the ongoing argument, why is it that Mexicans can go up and buy real estate in the U.S. or Canada, but Americans or Canadians cannot? (or at least not along the border or coastline)

And also, why is it that Americans and Canadians CAN obtain title if they buy in the interior of Mexico but not in the restricted zones and what possible ramifications could this hold for them? Well, a situation came up recently when the IRA stated that all Americans that have a foreign trust must report it to them. I’m sure when they did this they were thinking more of those who have monetary trusts that have been set up in a tax haven country. But unfortunately, this is also affecting Americans who own real estate along the coast or border of Mexico. But, Americans who own property away from the coast or border don’t have to file, as they have title and don’t have to use the trust system! Doesn’t quite seem right…

Barnard explains more about how the trust came about…

The Mexican Constitution, in Article 27 (an Article that in one way or another has been amended some 16 times since 1917), deals with national ownership and territorial jurisdiction of lands and waters, and it grants the state “the right to transmit ownership thereof to private persons, thereby constituting private property.”  However, the first paragraph of Part I of Article 27 continues:

“Only Mexicans by birth or naturalization, and Mexican companies, have the right to acquire ownership of lands, waters, and their appurtenances, or to obtain concessions for the exploitation of mines or waters.  The State may grant the same right to foreigners, provided they agree before the Secretariat of [Foreign] Relations to be considered as nationals with respect to said property and not to invoke the protection of their governments, for that very reason, in matters relating thereto; under penalty, in case of noncompliance with the agreement, of losing the property they acquired by virtue of the same to the Nation.  Under no circumstances may foreigners acquire direct ownership of lands or waters within a zone of 100 kilometers along the borders and 50 [kilometers] along the coastline.

It should be noted that many foreign residents already “own” restricted zone properties in Mexico, through fideicomisos.  However, a fideicomiso — in this case a type of real estate trust, with a Mexican bank designated as trustee and holding possession of the land title — is not direct ownership.  With a fideicomiso, the foreign buyer acquires tenure rights to the property through the (up to 50-year) trust, which is renewable and transferable.

But, as mentions above, means you have to report that you have this trust with the IRS.

Certainly all nations have border concerns and sovereign needs to safeguard their coasts and territorial limits; however is it (still) realistic for Mexico to fear a foreign invasion from the north?  Could anyone today believe that hostilities might be instigated by non-citizens who have met the requisite qualifications to reside in Mexico — full or part-time residents living under the rule of Mexican law? As well, in today’s world considerations with respect to coastal properties should include economic assessments and not simply the behind-the-times discrimination of Article 27.  The latter being prohibitions that inhibit foreign investment and cost the nation money — outmoded concerns that should be addressed through up-to-date regulations.

Exactly right. These rules regarding foreign land ownership, established nearly a 100 years ago, are no longer relevant as they are don’t in any way protect Mexico from getting invaded. Its silly to even think so. If anything they are holding back investment in the country.

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.


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

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 »

Vallarta Real Estate Development Study 2011

May 27, 2011

In late April of this year we contacted a number of real estate developments in and around Banderas Bay to obtain information with regards to their inventory and how sales have been. Not all were as obliging as in years past to review how their sales had been in 2010, and considering market conditions, that was to be expected. However, since we knew their inventory levels from past years, we could obtain an approximate number of what their sales were.

It is always difficult to obtain clear, factual statistical information regarding real estate sales in the Puerto Vallarta region. It is difficult to substantiate information other than by comparing to information given in past years. We cannot ascertain the complete accuracy of these numbers and the statistics generated from them. We do our best to obtain the best information possible and where we have had doubts about the accuracy, we have asked through alternatives sources to confirm the information received. It is not the best system, but it is the best system we currently have to give us a portrait of the current real estate development market.

We contacted every development we could establish was open for business and came up with 136 projects. Seems like a large number, but we found that about 15%, (18) of them actually had less than ten units in overall inventory, while about 30% had between 11-50 units . Twelve of these projects had more than 100 units in total inventory, which also encompassed 1/3 of total units on the market. (Note: we had previously reported this differently, (and therefore incorrectly) that there were 44 projects with less than 10 units. For this we had calculated how many units they have in their current inventory left to sell, not their total inventory).

For these 136 projects, we calculated they have about 2,300 units actively listed for sale. This is down from a high of 7,200 in 2007. However, what needs to be taken into consideration is a “Shadow” market that exists of dormant inventory.

Since 2008 we have found that many development scaled back the size of their project, some cancelled, but many decided to only release product in phases. A good example would be Alamar. We originally included that this project had over 600 units for the market. However, they only released for three towers, and eventually even put the third tower on hold. This reduced the number of units they have on the market but this doesn’t mean this product will not be released sometime in the future. There are still around 500 units that at some point Alamar will decide to continuing building and introduce this product to the market.

We calculate that there are about 2,500 of the shadow, dormant units on the market. Fortunately they do not directly affect our market at this time, but any new developer considering starting up a new project in the region should be aware of this inventory. As much of it hasn’t been constructed yet, but the land most likely has been paid for, they have the flexibility of introducing product that is more relevant to today’s market, such as smaller units with less amenities.

As has been reported in past years, 2007 saw 53 new project come into the local market providing a total inventory of 5,400 units. In 2009 only eight new project entered the market with 200 units. In 2010 there were nine new project providing over 400 units.

In 2007 there were 1,620 new project sales (this does not include re-sale property sales). This diminished to 685 in 2008, 340 in 2009 and increased slightly to 430 in 2010. However, one project, a large one, informed us of sales substantially above the others, and we suspect that these numbers were inflated or involved trades.

When we considered where the inventory is located, 1/3 was in the Marina Vallarta/Hotel Zone region, another 1/3 in Nuevo Vallarta/Flamingos, the balance evenly distributed between the regions on either side of these two: downtown Vallarta and the South Shore, and to the north, the North Shore and northern Riviera Nayarit.

The market is particularly difficult for developers right now. They benefited heavily during the boom years but now many find themselves with product that is not what they market may be looking for, developed at costs that makes it difficult for them to be competitive. They find themselves competing with the re-sale market (which is seeing good activity) and in some cases, competing with re-sales in their own project. But more on that in a future post.