Vallarta Real Estate Sales up in March

April 4, 2011

The March report for sales for Multi-List Vallarta, a marketing and MLS service for the Puerto Vallarta and Riviera Nayarit region, showed a substantial increase over what the average usually is. 22 sales were reported for MLV (re-sales only, MLV does not include new sales for real estate developments), which is double what is usually reported. Nine of these sales originated from Tropicasa Realty, which had an exceptional month.

Is a trend emerging here? I contacted Wayne Franklin, the owner/agent of Tropicasa Realty, to ask him. I always enjoy a conversation with Franklin about real estate in the region, as he has seems to be able to get his head up and above the day-to-day operations and give a good, objective perspective to what he sees is going on. As well, he comes with years of real estate experience in both markets, the USA and here in Vallarta. It may be that Tropicasa is a little ahead of the curve on sales, as not everybody is currently experiencing the same level of activity.

  1. “We input our sales data into the system, which not all agencies are doing.  So the data could be somewhat skewed. (My note: This has been an ongoing problem for years; to get agencies to report their sales. There is really no other way of obtaining the information if they don’t report them. This is now increasingly more difficult as there are now two MLS systems with not all real estate agencies belonging to both MLS systems. Hopefully, though, this will get worked out in the future, so go statistical information will be available.)
  2. Some clients are just sick and tired of being sick and tired.  In other words, they’re full of the drivel that’s in the media and they just want to get back to making life decisions for themselves. (My note: I agree with Franklin, people are getting tired of the sensationalism, especially when they come down here and find out the situation is not all like its being portrayed in the media.)
  3. Some clients are tired of the US government and the decisions being made and are looking at exiting the madness, temporarily or permanently.
  4. Other clients are simply retiring earlier than expected, thinking that it doesn’t look like things will improve in 5 years when they would normally be retiring, so they’re just making the decision to do it now.
  5. I have seen in the past year the buying public being more investor-minded people, as well as at the other end of the spectrum, the high net worth clientele coming into the market.  Typically seen as the “smart money”, these people I think are seeing an outstanding and unique opportunity that has not existed in this market, and are taking advantage of it.  Typically, when the investors start coming back into a market, that’s the beginning of the return.
  6. Also, keep in mind that there is only a small portion of the market as a whole in Vallarta that was severely affected by all of this.  The remainder stayed at relatively retail levels and wouldn’t move from there.  Clearly, those properties haven’t yet sold.  BUT what will end up happening is that when the distress properties or financially challenged owners have been able to sell, then all that will be left is the retail inventory.  It will then begin selling as there will be no alternatives for the investor market.  I certainly see that taking place in the next 18-24 months, if not sooner. (My Note: My concern with this is that a “Shadow Market” has been created, of people who have not listed their homes because they can’t get the price they want, but still want to sell. What does this consist of? Is it significant?)
  7. As to volume, just as an aside, including a couple deals that I’m currently negotiating, in Q1 of 2011, we sold the same volume that we did in 2010 … FOR THE YEAR!  It IS a whole new ballgame this year.  There IS hope!

Excellent news from one real estate agency in the region. In the next couple of months I’ll be talking with other agents to get their perspective for our regular Real Estate Trends article that is featured in the Summer/Fall issue of Vallarta Lifestyles, as will be available here as well.

With regards to the sales that did take place in March, the average sales price is still down with the condominiums averaging less than $300,000 and interestingly, homes still lower with an average of less than $250,000. The highest priced sale was $685,000; the lowest was $58,000 – there really is something in this market for everyone’s budget!

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Digital Vallarta Lifestyles

January 20, 2011

Vallarta Lifestyles has now been published for more than twenty years, documenting the region’s evolution and providing visitors information on what to see and do while here. We have currently 16 past issues of Vallarta Lifestyles available online in digital format and we plan to double that to 32 by the end of the month. We are digging out old formats of our publications (anyone remember Pagemaker?) and seeing just how far back we can go. So if you’ve missed an issue, you can find it now online at virtualvallarta.com. Visit this page to see the complete library or just type in http://www.vallartalifestyles.com.


Mexico Hot Spots for Crime

October 9, 2010

In a previous post I included an image that shows where crime is concentrated for the greater Los Angeles area and remarked that these are the places you don’t want to go, but that doesn’t mean you don’t visit Los Angeles. I also said what we need is a similar map, but for Mexico, as to where you may not want to go. Well the LA Times was kind enough to deliver that kind of map for us as well.

This shows that 2,439 deaths have occurred this year related to the drug wars in the whole country of Mexico. And most of this had to do with drug gangs taking out each other as they fought for turf – or taking our the competition.

The orange circles show where the crimes have predominantly been taking place. Puerto Vallarta is situated just to the left of where the text says “State of Mexico -156 deaths” on the coast. You can see the inset coastline, which is the Bay of Banderas. There are no circles in or near the Puerto Vallarta area.

So its just like the previous post about Los Angeles. There are good places and bad places in LA, and most people know that, but you don’t write off the whole city because of it. The same goes for the country of Mexico. There are places that have experienced more violent crimes because of the drug wars – stay away from those. But don’t think that you have to avoid the whole country of Mexico!


Mexico Federal Maritime Zone Explained

October 7, 2010

The following contains an excerpt an article about the Federal Maritime Zone that was written by David Connell and his team at David Connell and Associates, a law firm located in Puerto Vallarta, as well as Ixtapa and Mexico City. Their website is an excellent source for articles dealing with legal and fiscal issues regarding real estate in Mexico. For the full article and others, visit his website at www.mexlaw.com.mx.

Federal Maritime Zone
The Federal Maritime Zone is the 20-meter-wide strip of firm and passable land that borders beaches or natural deposits of marine water. As mentioned before, the Land Gained from the Sea is a fraction of land that may exist between such Federal Maritime Zone and the adjacent private property (beach front lot).
Both Federal Maritime Zone and Land Gained from the Sea are considered public property, which means that the Government is the owner. While the Federal Maritime Zone usage can only be ‘acquired’ through a concession by means of which the licensee only acquires rights to ‘use and enjoy’ such Federal Maritime Zone in an exclusive manner, the Land Gained from the Sea can be ‘acquired’ either through a concession or public sale (auction), giving the purchaser direct title over such land and converting it into private property. No further fee or tax should be payable to the Government after the price for the (public) sale is paid. The price payable for the sale will be estimated based on an official appraisal.
The process of acquiring the concession over Land Gained from the Sea is similar to the process of acquiring a Federal Maritime Zone concession. The process of acquiring the Land Gained from the Sea via public auction could certainly represent a larger and more annoying process. However, the outcome is that this land will be converted into private property and for that reason will be totally sellable. This process has several phases which must be carried out correctly. This process does take time, and we estimate that it could run as long as 2 years to complete.
An important note to consider is that the owners of lots that have acquired the concession title over the adjacent Federal Maritime Zone have the right of preference for acquiring adjacent Land Gained from the Sea via direct sale, thus completely avoiding a public auction.

Mexico Real Estate Ejido Property Explained

October 6, 2010

The following contains an excerpt an article about the Ejido Properties in Mexico that was written by David Connell and his team at David Connell and Associates, a law firm located in Puerto Vallarta, as well as Ixtapa and Mexico City. Their website is an excellent source for articles dealing with legal and fiscal issues regarding real estate in Mexico. For the full article and others, visit his website at www.mexlaw.com.mx.

Ejido Property

A very large part of Mexican real estate is classified as ejido land. Ejido land is not private property and cannot be bought and sold as if it were. However, since the constitutional reforms of 1992 ejido land now can be converted into private property and sold to third parties, including foreigners. The present article will briefly describe what an ejido is and how ejido land is classified as well as talk about the ways in which ejido land can be converted into private property.

In general terms, an ejido is a collective group of people that live and work on a determined piece of property as a community. While the concept of the ejido in Mexico is pre-hispanic, most of the fundamental ideas and concepts that created what an ejido is today stem from the theories of democratic communism. Understanding this is very important when dealing with ejidos. Most people reading this article have grown up in a society based on democratic capitalism in which the individual and not the community determines what he or she is going to do. In a communistic society the community determines what it is going to do, including agreeing upon how the land they hold is to be used.

Taking into consideration the above, it is not hard to imagine the confusions that could exist when discussing ownership of ejido land. Most foreigners associate the word “ownership” with words such as “fee simple”, “private property” “Adam Smith”, while the ejidatarios idea would be more on the lines of “community rights”, “right to use and enjoy”, “governmental concession”.

Until ejido land is converted to private property, foreigners cannot acquire “ownership” of ejido land in accordance with their understanding of the word “ownership”.

Please remember:

1.- Ejido land cannot be sold to non-ejido members until it is converted into private property. There are exceptions where non-ejido members can acquire “posessionary” rights to ejido land, however the rules governing posessionary rights are not very secure, especially for foreigners.

2.- Foreigners cannot legally become ejidatarios.

3.- What an ejidatario understands as ownership is often times different than your understanding of ownership.


Mexico Real Estate Capital Gains Explained

October 6, 2010

The following contains an excerpt an article about real estate in Mexico that was written by David Connell and his team at David Connell and Associates, a law firm located in Puerto Vallarta, as well as Ixtapa and Mexico City. Their website is an excellent source for articles dealing with legal and fiscal issues regarding real estate in Mexico. For the full article and others, visit his website at www.mexlaw.com.mx.

Capital Gains Tax on the Sale of Homes in Mexico

In 2007 the Mexican government modified the rules pertaining to the exemption of income tax obtained in the sale of primary residences. The main reason they did this was to close loopholes that allowed the upper class to avoid paying taxes on any homes they owned.

In order to understand how the tax authority views a sale we must go through a few definitions:

Definition Of “Sale”.- For tax purposes a sale of real property occurs when there is:

a) A transfer of property, including a sale where the selling party “reserves ownership rights” (or what is known as “reserva de dominio”).

b) A transfer of trust (fideicomiso) rights, changing the beneficial rights of the trust.

Definition Of “Fiscal Residence”.- You are considered a fiscal resident of Mexico when you have established your home in Mexico. However, when you have a home in another country, you will be considered a tax resident in Mexico if Mexico is where you have your “center of vital interests”.

Definition Of “Center Of Vital Interest”.- You will be considered to have a center of vital interests in Mexico when more than 50% of your total income comes from Mexico OR when you have set up the “main center of your professional activities” in Mexico.

Note.- Tax rule I.2.1.3. states that you do not have a primary residence in Mexico when you temporarily inhabit a home with tourist, vacation or recreational ends.

Those are the three definitions and one rule you really need to understand BEFORE we can talk about taxes on the sales of homes and allowable exemptions.

Exemptions On The Sale Of A Home For “Fiscal Residents”

Case 1.- When the amount of the sale does not exceed one million five hundred thousand investment units (approximately $550,000 USD as of February 2008), the sale is exempt from income tax if you are a “Fiscal Resident” of that property. (see definitions above)

Case 2.- If you are a “Fiscal Resident” and the amount of the sale exceeds the above amount, you will pay tax on the amount that exceeds the exemption (550,000 USD) “proportional to the amount that results from dividing the amount that exceeds by the total amount of the sale”. What????? Let’s look at an example to clarify:

Case 3.- If you are a “Fiscal Resident” for more than 5 years of a home, the sale of the home is exempt.

Who Calculates The Taxes, How Do You Pay It and What Documents Do They Ask For to Prove “Fiscal Residence”?

The notary is the person responsible for calculating, withholding and paying the tax on the sale of homes that belong to physical persons (not corporate entities). In our experience most notaries have “tax advisors” assist them with the calculation of taxes. We strongly advise that you get an independent advisor to do your own calculation of this tax. While notaries have very competent advisors, other experienced counsel can sometimes save you tens of thousands of dollars in taxes.