Real estate experts in Mexico
worry that the giant sound they hear is the softening
U.S. housing market sucking out the money that Americans
have poured into vacation homes south of the border.
But
neither the cooling American housing market nor
tense Mexican presidential politics so far have
stemmed the influx of foreign dollars into Mexico's
booming coastal resort areas, government and real
estate officials said.
When FONATUR, Mexico's tourism development agency,
put the first phase of Litibu on the market a few
months ago, buyers snapped up the 500 acres of the
newest Pacific Coast resort for $125 million. Foreign
investment into Mexico is on track to hit $20 billion
this year, up from $17.6 billion in 2005, according
to the government.
"We have some concerns about the slowing U.S.
housing market but there are many other things working
for us," said John McCarthy, FONATUR's director
general, who was in Beverly Hills recently to speak
to U.S. investors. "Most of our buyers are
baby boomers who have paid off in good part their
initial mortgage and are coming into inheritance
money."
In addition, real estate experts say, Mexico's resort
property market might experience a smaller price
shock than U.S. homes will because it is a new area
of investment and the buyers tend to be higher-income
and less likely to be forced into fire sales.
"The cooling real estate market could take
this from being a very, very positive trend to a
mildly positive trend," said Christopher Thornberg,
an economist with Beacon Economics, a real estate
consulting firm in Los Angeles.
That's good news for Janette and Harvey Craig, who
paid $60,000 four years ago for a piece of beachfront
property in Litibu, a small beach community about
30 miles north of Puerto Vallerta. They expect the
parcel, which is worth about $300,000 today, to
become even more valuable when the nearby resort
is completed in three years. It will include hotels
and condominiums, 910 homes and an 18-hole golf
course designed by Greg Norman.
"It's just going to push prices higher and
higher," said Janette, a part-owner of Garcia
Realty in the nearby surfing town of Sayulita.
In the past, foreigners
have been wary of investing in Mexico because of
legal problems, corruption and red tape. But changes
in Mexican laws have made it easier for foreigners
to own property through bank trusts. Major U.S.
firms have begun offering mortgages and title insurance.
Mexico also is drawing more attention from Europe.
Last year, Spanish companies were the top investors
in the tourist industry, pumping $416 million into
resort properties. U.S. investors followed with
$321 million, according to the tourism agency.
McCarthy
rejects the notion that tourism only benefits wealthy
developers and well-heeled travelers. He pointed
out that the average incomes in Quintana Roo and
Baja California Sur, the states that are home to
Cancun and Cabo San Lucas, are among the highest
in the nation. Tourism is the third-largest generator
of foreign exchange in Mexico, after oil and remittances
from Mexicans living abroad.
FONATUR
identifies promising tourism areas, buys land, draws
up a master plan and develops basic services such
as roads, sewage facilities and power plants. The
government then sells the property to private developers.
By getting state and local officials to sign off
on a project, the Mexican government has dramatically
reduced the risks to foreign investors, said Doug
Regelous, president of Los Angeles-based Daedalus
Projects Group Inc.
Daedalus is finalizing the purchase of approximately
9,000 acres on the East Cape, a largely undeveloped
stretch of coastline along the Gulf of California
between San Jose del Cabo and Punta Pescadero.
He declined to divulge the specifics of the project
because the deal had not been finalized. But he
said it would contain an upscale resort hotel, golf
course and residential community with a focus on
water sports.
"The East Cape is a swimmable ocean,"
he said. "The Pacific isn't."
In just a few decades, the southern tip of the Baja
Peninsula has become one of Mexico's most exclusive
getaways.
Once known for inexpensive time-share properties,
the rugged coast between Cabo San Lucas and the
sleepier San Jose del Cabo is lined with luxury
resorts that charge as much as $1,000 a night for
hotel rooms.
Oceanfront
estates sell for as much as $7 million. On busy
weekends, it is not uncommon to see 100 private
jets at the airport.
Mexico's real estate boom also has been helped by
the development of upscale "fractional ownership"
properties that allow buyers to purchase a piece
of a condominium or home.
Barry Hacker and his wife, Paivi, sold their beachfront
home in Florida after it was damaged by two hurricanes
in two years. They said they have invested "tens
of millions" of dollars in a piece of waterfront
property in Ixtapa, a resort area on the west coast
of Mexico. They plan to build a 10-room boutique
hotel called Punta Romantica and offer fractional
ownership in 10, four-bedroom villas on the property.
Hacker, a partner in KPMG's Tokyo office, said many
wealthy Americans were selling their waterfront
properties in Florida and California while prices
were high. "We can deliver a villa for a fraction
of the cost that's also oceanfront and is fully
staffed with all the hotel services, a gym, a spa
and a restaurant," he said.
Mexican tourism officials are sensitive to criticism
that this rapid development threatens some of the
country's most beautiful coastline and marine reserves
and puts a strain on the rural communities that
bear the brunt of the rising land costs, increased
traffic and an influx of people looking for work.
These challenges have come into sharp focus along
the east coast of Baja California Sur, which borders
the Gulf of California, home of the largest marine
park in Mexico.
FONATUR has teamed up with Loreto Bay Co., a Scottsdale,
Ariz., developer, to build what is being billed
as the "largest resort community in North America
committed to the principles of sustainable development."
The
Mexican government invested $200 million on roads,
water treatment plants and other infrastructure.
The $3-billion project, called the Villages of Loreto
Bay, will create a town of 6,000 homes in neighborhoods
designed for pedestrians and golf carts. No cars
will be allowed. Nearly two-thirds of the 8,000
acres will be maintained as a "greenlands preserve."
Homes
are being constructed with locally produced adobe
bricks, and the developer has leased land for a
wind farm so the project can generate its own electricity,
said Jim Grogan, Loreto Bay's president and chief
executive.
In two years, the project has sold 640 homes, whose
prices start at $380,000. Two-thirds of the buyers
are Americans, many from California, and the remainder
are mostly Canadians with a sprinkling of Mexicans.
"There's no question, people are willing to
pay a premium for sustainable development,"
Grogan said.
The U.S. firm has established a nonprofit foundation
that has bought new equipment for the local hospital
and purchased a patrol boat for the marine conservancy,
according to Grogan. The Loreto Bay Foundation gets
1% of all home sales and resales, or about $3 million
so far.
Rob Faris, an economist with the Harvard Institute
for International Development, praised the developer's
efforts to limit the project's environmental footprint.
But he worries about the impact such a large number
of people will have on southern Baja's limited water
supply, the marine park and the community of Loreto.
Within
two decades, the population of the sparsely populated
region is expected to balloon from 15,000 to 120,000,
according to a study co-authored by Faris.
"I think their intentions are largely noble,"
Faris said of Loreto Bay Co. "But creating
a sustainable community of this magnitude in Mexico,
it hasn't been done before."
