As Americans struggle with the rising cost of living and a suffering housing market, investing in Mexican real estate is beginning to look muy bueno. Property prices in Mexico are significantly more affordable than in the U.S., and the forthcoming retirement of the baby boomer population is likely to create huge demand for property markets offering the pleasant climate, glittering beaches and rich cultural traditions for which Mexico is famous.
Mexican real estate might seem like a surefire place for investment, but the process of obtaining ownership of property in Mexico can be risky and complicated. (For more general information about owning Mexican real estate, read our previous article, The Myth of Mexican Property Ownership). Because finding the right place for investment can be equally challenging, NuWire has selected five Mexican real estate markets that show potential for growth and appreciation.
Real estate markets were selected based on factors such as affordability, proximity to the U.S., strength of the local economy, natural and cultural attractions, development of regional infrastructure, tourism activity and overall appeal as a potential retirement and expatriate destination.
1. Loreto, Baja California Sur
Growth in Loreto has been a Cinderella story of sorts, with Mexico’s National Fund for tourism development, FONATUR, playing the role of fairy godmother. As a result of the enormous amount of investment dedicated to Loreto’s development, the small fishing village—home to just 14,000—is now regarded as an up-and-coming tourist hotspot, following the lead of popular tourist destinations such as Cancun and Ixtapa.
Pristine beaches, fishing trips and new development make Loreto real estate hot
Advances in Loreto’s infrastructure include an international airport, marina, utilities, wastewater treatment plant and improvement and expansion of its road system. Resort development includes two hotels, a tennis center and a golf course. In addition, Loreto is favored for selection as the capital of the Sea of Cortes Nautical Route, “FONATUR’s most ambitious project in the last 20 years,” according to the FONATUR website.
Furthermore, plans for development in Loreto are intended to promote ecological sustainability, which could potentially foster a strong industry in ecotourism.
Because the region around Loreto remains undeveloped compared to other markets, investors can take advantage of relatively affordable opportunities for investment in coastal properties, retirement or vacation homes and raw land.
For more information about Loreto, read our previous article, Loreto: Mexico’s Next Real Estate Hotspot.
2. Merida, Yucatan
Real estate in Merida, the capital city of the Mexican state of Yucatan, offers a unique blend of urban and coastal markets and features surprisingly affordable property prices. A colonial home in the downtown area, for instance, can be purchased for less than $100,000. A savvy investor could also buy a 20- to 25-meter tract of nearby beachfront for a similar amount of money, according to Brian Murphy, owner of real estate firm Mexira.
Moreover, prices for beachfront property are considerably lower than those of other markets on the Yucatan Peninsula, such as the region of Costa Maya. However, Merida’s beaches are situated along the Gulf of Mexico and don’t offer the beautiful turquoise waters of Mexico’s Caribbean coastal towns, such as Cancun or Riviera Maya, Murphy said.
Because cheap, undeveloped land surrounding the city is abundant, Merida should see considerable growth in the next 10 years, according to Murphy. FONATUR has not shown much interest in the area, but existing tourist and recreational attractions—such as port activity at nearby Progreso—is helping to drive the local economy.
“It’s slowly developing itself—and I think just market forces will allow that to develop without any...[need for an] infusion of money,” Murphy said.
For more information about real estate in Merida, read our previous article, Merida, Mexico Real Estate: Variety and Value.
3. Guadalajara, Jalisco
Tlaquepaque Street in Guadalajara is known for its quaint atmosphere
As the second most populous city in Mexico and a major industrial hub, Guadalajara is a far cry from an “undiscovered” market by anyone’s definition. However, the city’s strong local economy and favorable living conditions are likely to promote reliable growth in property prices.
Guadalajara ranked fifth among major “North American Cities of the Future 2007/2008” for its youthful population, low unemployment rate and large number of recent foreign investment deals, according to Foreign Direct Investment magazine. The city has also become known as the “Mexican Silicon Valley,” with a strong presence of high-tech companies such as General Electric, IBM and Intel.
Rapid development and building in the city has begun to grow “upwards as opposed to outwards,” and construction of luxury high-rise condominiums has exploded, according to Mary Wick, co-owner of Wick Barazza Real Estate.
“I would say [that] in a parameter of three miles…about 20 high-rises are in the process of finishing,” and many more are in the beginning stages, Wick said. Prices for luxury condos range from $200,000 to $3 million, but supply is quickly outstripping demand, and prices are expected to drop within the next one or two years, according to Wick.
Another opportunity for investment can be found in low-income housing, as Guadalajara struggles to support its large lower-class population.
In addition to the urban setting, expatriates are drawn to the city for its pleasant climate, Wick said. Average high temperatures range from 75 to 89 degrees Fahrenheit throughout the year, according to Weather.com, and Guadalajara’s high elevation helps to avert air pollution.
4. Puerto Vallarta, Jalisco
Nestled in the center of Banderas Bay on Mexico’s Pacific coast, Puerto Vallarta's real estate market has rapidly created a boomtown for vacation properties and second homes. Vallarta is home to 350,000 residents, with a community of 6500 expatriates, according to VisitPuertoVallarta.com, a website promoted by Puerto Vallarta CVB and Tourism Board.
Church of Our Lady of Guadalupe in El Centro of Puerto Vallarta
Vallarta’s continuously expanding international airport welcomes more than 450 flights daily, according to the website. Overall, it is estimated that more than three million tourists visit the Vallarta area annually, “with the total rising substantially each year,” Tere Kimball, broker and partner for Prudential California Real Estate, said in an e-mail interview.
Although prices for condos and villas have risen by an average of 10 percent each year for the last 10 years, prices are expected to flatten soon as a result of overbuilding, according to Kimball.
“U.S. and Canadian buyers will soon enjoy the first buyer’s market in many years,” she said. “But it won’t last forever.”
The best opportunities for property investment around Vallarta may be found in the larger Bay vicinity, which already boasts luxury resorts, residential developments and golf courses. FONATUR’s plans for the new Litibu resort development, approximately 45 minutes north of Puerto Vallarta, may promote growth in the nearby small town Higuera Blanca.
Finally, “financing for developers at competitive rates is more difficult to arrange and more expensive than in the U.S.,” therefore cash buyers willing to purchase condos on a pre-construction basis can benefit from significant discounts of up to 30 percent, according to Kimball.
5. Oaxaca, Oaxaca
After its recent bout with political unrest in 2006, Oaxaca’s has seen double-digit growth in property prices, and new-home construction is marching onwards. Furthermore, the Mexican government has taken an active interest in strengthening Oaxaca’s infrastructure by improving utilities and sewer systems, promoting cleanliness and investing heavily in improvement and expansion of its road network.
Historical and cultural attractions in Oaxaca include pre-Hispanic ruins, 16th century Dominican churches and monasteries, weekly town marketplaces, craft villages, regional art, museums and fine Mexican cuisine. Outdoor recreation and ecotourism can be enjoyed in the mountains and valleys that envelop the city.
With 450,000 people, Oaxaca is less than one third of the size of Guadalajara, but it has a similarly pleasant climate, with average high temperatures ranging from 77 to 88 degrees Fahrenheit in the course of a year, according to Weather.com.
As in Merida, opportunities to purchase colonial homes in the city or plots of raw land are available for a fraction of the cost for similar properties in the U.S. Tourism and jobs are returning to the area and property values are expected to rise as the city gains popularity among the expatriate community.
In order to reduce exposure to the possibility of future political demonstrations, investors might consider purchasing property in Oaxaca’s suburbs.
For more information about Oaxaca, read our previous article Oaxaca, Mexico Real Estate Investment.