My Read on the Mexico Real Estate Market

ventanamagazine.com
Author: Doug Jones


The recent news that we are no longer in a recession in the US was some welcome positive news that has been long awaited. Of course, statistics are one thing, and our own personal reality is something else. Many people are looking around them and still see depressed real estate markets in the US. Canada actually has a very strong economy with real estate prices increasing in many of the prime markets. They continue to look at Mexico as a great warm-weather place to own a second home. The Mexico housing market has seen a good drop in prices, but the prices haven’t fallen so much as to create an unstable real estate market as in the US.

In my recent conversations with agents and developers in Mexico, although we have seen the normal slow-down of new buyers in August/September, October has seen an increase in the number of new buyers purchasing in Mexico and November is looking strong as well. One developer told me they had 10 new sales in the last 2 months.

Although this isn't the same as the boom times, it is certainly a welcome sign. We are actually seeing some developers starting to inch up their pricing on some of their prime units. Just as we now know that for the past year we have been out of the recession in the US, the same will be true of real estate pricing in Mexico. It will be many months after we hit the bottom before everyone realizes the bottom of the market occurred and prices are heading up. I truly feel that we are at rock bottom for prices in the Mexico market right now. We are going to see some very good activity in the market in this high season that is right now beginning in much of Mexico.

Some of the “hotter” markets in Mexico right now are Puerto Vallarta, and Playa del Carmen, which have been consistently strong markets, but prices are much lower now than they have been since 5 or 6 years ago. San Miguel de Allende and Mazatlan are two areas that are seeing a renewed interest as a result of lower prices. Another area that has long been “under the radar” is the Merida/Progresso area in the Yucatan Peninsula.

Prices have been undervalued, but this area is seeing a much higher demand, as it becomes better known. We are now starting to see some new condo developments along the beach area just 20 minutes north of Merida, which is we have not had in this area until recently. Manzanillo is a very strong market, which has also experienced some good declines in sales prices. The Los Cabos market has slowed down considerably and prices have been coming down, although this area is still one of the higher priced areas in Mexico. You can negotiate some excellent deals in Cabo, so this is also a good area to consider when looking for real estate in Mexico. Mortgage financing can be done throughout Mexico.

Through the end of October, we have experienced the best year we have ever had in the six years since we began doing loans in Mexico. We have been able to help a lot of buyers get into a property that they wouldn't have been able to purchase without a loan. There are not as many transactions as in previous years, but a higher percentage of the contracts being written now include financing. This trend of increasing mortgage financing is going to continue. Even buyers who CAN afford to pay cash are choosing to hold on to their cash and leverage their purchase using a mortgage loan in Mexico.

Cash is king, and most people are holding on to as much of their cash as possible. This being said, it has become much more difficult to get an equity loan in the US, not only because equity has shrunk on properties in the US, but also because rates and fees have increased to the point where a loan in Mexico is much more viable. I have had many potential borrowers talk to me, look at the alternatives in the US and Canada, and decided to get their loan through me to purchase their new property. In the past, many of them never called me back because they got an equity loan in the US or Canada. This has been a significant change.

We have seen an increasing number of new buyers planning to purchase in Mexico over the next several months. They are contacting us to be pre-approved before they come down. With a loan pre-approval in hand, they can submit this with their offer and be considered the same as a cash buyer. The closing time is shortened, and there is no need for a loan contingency in the contract, which is what sellers are looking for - no contingencies and a quick close. By having a pre-approved loan, we simply add the address to the loan, with specific sales price and loan amount, and then get the new Fideicomiso/bank trust and lender appraisal done.

Savvy buyers are looking at Mexico as a much better investment opportunity than the US. Although there are some great deals in the US, it is going to take years and years for any appreciation in prices to occur. The market in Mexico has not dropped like it has in the US, so it is a more stable investment environment than the US. We continue to see a lot of Canadian buyers. Their economy remains strong, their banking system didn't experience even a hiccup, and it's cold in Canada in the winter, so they are buying up properties in Mexico at bargain prices.

This along with the strength of the Canadian dollar at nearly par with the US dollar, and Canadians are like kids in a toy store when they come to Mexico. Most Canadians are more conservative by nature than US buyers, but they recognize the great buying opportunity that Mexico represents and they are not having any problem making the decision to buy now. A property in Mexico represents a much better investment than buying a property in the US sunbelt that includes Arizona and Florida. Prices in these areas are low now, but they will be depressed for many years to come.

As you shop for a property to purchase, remember that many of the prices have already been lowered to reflect the current buyer’s market. You may not be able to negotiate a price that is much lower, but the existing price may well be a great deal, so don’t always plan your purchase based on how much lower you negotiate a price with the seller. The price of the home is likely already a great price if the seller is serious about selling. You will know this by viewing several other properties in your price range.

The bottom line is that now is a great time to purchase real estate in Mexico. Prices are the lowest they have been in many years, interest rates are the lowest they have ever been in Mexico, and you can purchase a property with as little as 25% down versus paying 100% cash as has been required in Mexico in the past.

By buying a property in Mexico now, in a year or two down the road, you will look back and be happy you decided to purchase when you did, rather than waiting until you see the market hit the bottom. We may not know for sure for another year, but the market may already be on the way back up!