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RESIDENTIAL INVESTMENT in MEXICO EXCEEDS U.S. RETURNS
The residential real estate market in the United States is in a word, “hot.” Home prices in the U.S. rose 12.5 percent over the past 12 months ending March 31, according to figures compiled by the Office of Federal Housing Enterprise Oversight. States such as Nevada, California, Hawaii, the District of Columbia and Florida posted price increases well in excess of 20 percent over the same period. The market demand has been fueled by speculation, low interest rates and the emergence of the “echo boomers,” those buyers born between 1977 and 1994. In the United States, there are nearly 80 million people in this group and four million more turn 21 each year, giving the housing market increased momentum for the next five years. The echo boomers simply don’t want to wait until they’re married or to find someone to buy a house with.
As amazing as the housing market has been in the United States over the past five years, the second-home market in Mexico has been even more prolific for U.S. and Canadian buyers seeking appreciation for their vacation or retirement residences. In some Mexico markets, it has not been uncommon for foreign purchasers to realize at least a 30 percent increase in home values over a two-year period. It really isn’t hard to understand why. Owning your residence has long been the way in which Americans create personal net worth. Houses have historically accounted for the largest and single most important acquisition one makes. If our disposability of income reaches a threshold where we can make prudent investments, real estate has long been a lucrative avenue. So why has Mexican residential real estate become so attractive? Simply put, Mexico has something for everyone who can afford the investment.
Basic laws of supply and demand dominate the Mexican resort/residential real estate market. Although 43 percent of its land area lies on the water, the beach municipalities like Los Cabos, Puerto Vallarta, La Paz, Puerto Peñasco, Loreto, Manzanillo and the Riviera Maya – to name a few – are small geographically, with a very limited supply of beachfront properties and available infrastructure. Some of these destinations are less than 100,000 in population and yet they are marketing to all of North America. Add to that the differences in climate and topography that each area offers, ranging from arid desert to mountain tropic to seaside jungle, and the subsequent preference a buyer would have for a particular locale and the market supply shrinks even further. In addition, property taxes and the cost of living are substantially lower in Mexico when compared to the United States. Since 9/11, U.S. citizens also have become more aware of travel and how to “get back home.” Mexico has easily become the closest and most-accessible vacation destination outside of the United States for North Americans to consider. And on top of it all, the quality of the projects and their amenities are outstanding, rivaling anything one would find in a U.S. or Canadian development. As a result, more Americans and Canadians are looking to our neighbor to the south to make that second-home investment they’ve always dreamed of. Not only is Mexico incredibly beautiful and dynamically diverse, but it is a country of “open arms” when it comes to tourism. The Mexican government’s tourism agency, FONATUR, is committed to growing its tourist development, realizing that it generates income, infrastructure, jobs and tax revenue for each local community. The government has even created investor/developer financing incentives in some of its master-planned “mega” tourist developments like the Costa Maya and Huatulco projects.
Investing in Mexico’s residential market has also become easier for Americans as they better appreciate the dynamics of the Mexican transactional process. The concept of the fideicomiso, a trust creating a 50-year beneficiary right for any foreign buyer purchasing a residence in Mexico’s restricted zone, has become less difficult to understand. The Internet has made North Americans much more investment-savvy and provided greater comfort and security in the acquisition of Mexican beach residences. Let’s face it, buyers are now better educated and informed about the laws and issues when acquiring and owning residential property in Mexico. The end result is that there has never been a more prolific and energetic home buying market. Remember one thing, buying public: the laws of supply and demand. Mexico is not making more land on the beach, therefore the supply continues to be a diminishing commodity that will only drive prices higher and hopefully investment returns as well.
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