Not so long ago, Mexico was regarded as a cheaper – and less glamorous – alternative to South Florida or the Mediterranean for vacation homes. Now, that’s changing. These days, real estate markets in Mexican resort towns are decidedly hot.
What’s driving the change is the recent introduction of mortgage financing. Until only several years ago, customers looking to buy property in Mexico had few financing choices. Most transactions were paid in full in cash; in rare instances, developers of larger projects provided internal financing.
All in all, mortgages were rare, not just for vacation homes, but for all Mexican residential properties.
By opening Mexico’s closed banking sector to outsiders, NAFTA changed all that. Within the past few years, a growing number of lenders, mostly from the U.S., Canada and Europe, have entered the market, changing the ground rules of property transactions. In the process, they have opened the door to millions of prospective buyers, domestic and foreign.
The overall Mexican real estate market has taken off, and so too has the country’s vast market for vacation homes.
While the minimum down payment is high by American standards (usually 30 percent), and interest rates are typically two to three points higher than in the U.S., the mere availability of mortgages has contributed to a sharp rise in prices and set off a wave of development.
“We’ve had an incredible boom here the past three years,” said Sam Skidmore, owner of Puerto Vallarta Luxury Properties in Puerto Vallarta. “The availability of mortgages has been a definite benefit. Oceanfront property has appreciated from 30 to 40 percent in about three years.”
Despite the hurried pace of development in some cities, much of Mexico’s coastal area remains untouched. Patsy Chilson, co-owner of Chilson & Associates Real Estate Co. in Playa del Carmen on the Yucatán Peninsula, noted that even though construction has been intense along the Costa Maya between Cancún and Belize, development has barely spread inland.
“If you look from above, it’s just this tiny strip of land right along the water that’s built. You look across the peninsula, and it’s nothing but green,” said Chilson.
Like Puerto Vallarta to the west, the Yucatán has experienced significant appreciation in the past three to four years. According to brokers, condos that sold for $650,000 to $850,000 two years ago now sell for $950,000 to $1.3 million.
“On the beach in Playa, you’ll pay $650,000 to $2 million. One block in, it’s $500,000 to $1 million. Seven or eight blocks back, it’s $150,000 to $250,000,” said Chilson.
Brokers say the credit crisis in the U.S. isn’t slowing sales in resort towns. Canadians, Europeans and South Americans are all active buyers, particularly in the Yucatán.
“It’s mainly Canadians and West Coasters on the other side of Mexico, but people come to the Yucatán from all over the world,” said Chilson. “I’d guess 30 percent of Playa del Carmen’s population is from Italy. There’s also a lot of French, German, Argentineans, Chileans and even Eastern Europeans. The euro is driving the market, not the dollar.”
With beachfront prices soaring in these established communities, many buyers are seeking new opportunities. Popular up-and-coming locations are typically adjacent to existing hot spots.
For example, the coastal towns in the state of Nayarit north of Puerto Vallarta have attracted a raft of developments, as well as individual buyers looking to acquire either individual lots or Mexican family homes to upgrade to U.S. standards.
In the Yucatán, buyers and developers are looking south of Tulum or on the peninsula’s western coast from Campeche to Progreso. They’re also looking 30 miles inland to the colonial city of Mérida.
Pacific Coast resort towns that have languished in recent years, like Mazatlán and Manzanillo, whose popularity peaked after Dudley Moore chased Bo Derek across its sands in the 1979 movie “10,” are also making comebacks. Prices for vacation homes there have gone up about 30 percent in three years, according to brokers.
“We’ll continue to see activity at the luxury price point, with more branded luxury product like Ritz-Carlton, Four Seasons and Fairmont. But there’s also a lot of room at the mid-market and active retirement level. We see that as being a huge long-term opportunity,” said Embree Bedsole, a managing director of Alvarez & Marsal, a real estate development consultancy.
The potential for development in connection with new mortgages has yet to be fully tapped, according to Bedsole.
“Mortgages still represent a very small piece of the pie; I’d be shocked if it were more than 10 or 15 percent. But I see more lenders coming in all the time. That’s going to open up a big market,” he said.
Most important of all, said Chris Snell, owner of Snell Real Estate in Cabo San Lucas, is that while prices have risen significantly, for now, at least, they remain below those of comparable vacation home destinations.
“Our prices are still reasonable compared to Hawaii,” he said. “And for most people, we’re a lot closer. Those two things alone should keep the market going strong.”