Monday,
January 26, 2009
Current
Hot Topics in the Mexico Resort Real Estate Market
By
Matthew A. Miller
As
the Mexico resort real estate market continues to gain popularity among North Americans, one common theme exists; an increasing
demand for insightful and relevant information among the entire Mexican resort real estate community, including developers,
realtors, owners, resellers and potential buyers. This is especially true in light of today’s more difficult economic
times. Therefore, it seemed worthwhile to highlight the hottest current topics in the industry as discussed at the fourth
annual Mexico Resort Development Conference in Carlsbad, California held in December 2008.
This
year’s conference was once again well attended among the most knowledgeable industry players, spanning a broad range
of functions, including debt and equity investors, banking/lending institutions, developers, land planners, designers, architects,
consultants, real estate executives and professional service firms, all of who possess significant and direct experience throughout
all of Mexico’s resort areas.
The
2008 Mexico Resort Development Conference focused on the changing global economic landscape and its direct effect on Mexico’s
resort developments and buyers.
The
Current State of the Market Will Drive Positive Change
It
was made clear that the current global economic downturn will have several effects on the Mexico resort real estate market.
To understand the downturn and its effects, one must first understand the upturn.
The
historical upturn (from approximately 2000 to 2005) is simple. Mexico was and continues to be an extremely attractive destination
for second and retirement home ownership given its favorable attributes and proximity to the U.S. and Canada. As U.S. citizens
continued to discover Mexico, they were able to purchase beachfront and ocean view properties at a fraction of the cost of
similar real estate in the U.S., and they also enjoyed 40% to 100% returns on equity, as compared to 15% to 35% in the U.S.
This, coupled with buoyed U.S. equity markets and cheap and available credit, made it relatively easy for developers to sell
to U.S. buyers who purchased the majority of the real estate in Mexico’s tourist corridors over this time period. The
number of projects increased to meet the high demand, causing the unit prices and rates of returns to rise as well as the
number of investors financing such projects.
As
the U.S. economic downturn begun to first surface in 2006, followed by a global downturn that continues today, the number
of U.S. buyers naturally decreased. A growing number of Mexican and Canadian buyers emerged; however, this was not enough
to offset the decrease among U.S. buyers. Despite weakening demand, many developers continued to build properties, creating
higher inventory than seen in the past.
While
Mexico’s resort real estate markets have not experienced as severe of a downturn as the U.S. real estate market, nor
does anyone expect them to reach such a level, it is clear that demand has slowed and will remain slower for the short term
as compared to the booming years of 2000 to 2005.
A
slower market will translate into two things. First, it is evident that Mexico’s resort real estate market is now more
than ever a buyer’s market. Increased inventory in light of decreased demand puts buyers in the driver's seat more than
ever before. Second, a buyer’s market will force developers to work harder in order to differentiate themselves and
create value‐added projects that meet buyers’ demands even more.
A
Changing Market – for the Better
The
upside of the recent market boom yielded the creation of numerous world‐class resorts throughout Mexico, all of which paved the way for
future successful projects plus they attracted the attention of the international community, catapulting Mexico as the world’s
top retirement destination for the second year in a row as ranked by International Living.
The
current state of the market will bring more positive change. These positive changes were expressed by several panels at the
conference, all stressing a similar point; the stakes have been raised – buyers have new priorities in their lives and
developers will be forced to offer “programming” that is more creative and better understands their target market.
While
buyers continue to value strong amenities, the level and types of amenities have changed. Among the new level of amenities
that buyers are trending towards are spa, fitness and wellness facilities, activities for children such as kids clubs, educational
and cultural programming, retail villages, marina villages, shared open spaces, indigenous landscapes that include environmentally
sensitive amenities and sustainable design with a stronger focus on authenticity. As all developments appear to sell some
sort of differentiating lifestyle, developers will be challenged now more than ever to build the right lifestyle for the right
target market.
In
addition to developers being faced with the task of creating more value‐added products, the changing market has made every aspect of financing
a more important part of the sale process. First, developers will no longer be able to count on pre‐sales to finance
part of their construction, and therefore must take a more conservative route and line up traditional financing for the entire
project. This is needed to ensure completion of their projects and create the confidence among their buyers that units will
be delivered in a timely fashion despite a potentially slower market. Second, buyers are increasingly looking to finance their
purchases through cross‐border Mexico mortgage providers such as ConfiCasa. Developers and realtors will
increasingly work with Mexico mortgage providers to build a mainstream and healthy cross‐border Mexico mortgage
market that will help the market for both buyers and sellers by making Mexico real estate more affordable. The topic of Mexico
mortgage financing is discussed in significant detail in ConfiCasa’s Spring/Summer 2008 Newsletter article “Cross‐Border Mexico Mortgage Financing ‐ A Silver Lining to a Slower Mexico Real Estate Market.”
Change
Drives Opportunity
Mexico’s
continued attractiveness among foreign home owners, due to its climate, amenities, close proximity to the U.S. and Canada,
and safety, makes it clear that the U.S. and global economic downturn is just a shorter‐term hiccup in what will
continue as Mexico’s long‐term boom as a second home and retirement destination among Americans, Canadians
and Europeans. It is important that people not lose sight of this fact and realize that a shorter‐term crisis
creates opportunity. Finding those opportunities is the new challenge. For developers, it means raising the bar to what are
already world class properties. For buyers, it means being able to obtain tremendous value wherever they choose to purchase
in Mexico.
——————————
Matthew A. Miller is President and CEO of ConfiCasa Mortgage International. This article is reprinted, with permission, from the Winter 2008-2009
Newsletter of ConfiCasa Mortgage International. ConfiCasa Mortgage International, LLC is a U.S.-based company with office
locations in Houston, Chicago, Cabo San Lucas, Puerto Vallarta and, opening soon, Cancun, plus it maintains a diverse range
of strategic partner relationships throughout North America. ConfiCasa offers the broadest array of financing products for
cross-border Mexico property ownership including an exclusive loan program, as well as the information, tools, support and
professional guidance needed to enable its clients to successfully finance the purchase of their Mexican dream home. As the
pioneer in financing Mexican properties for American and Canadian dreamers, the Company has closed more than 1,500 cross-border
Mexico mortgages since its founding in 1997. To learn more visit www.conficasamortgage.com.
