Learning from ‘The Path of Progress’

Before Cancún was transformed into a popular vacationing area for people all over the globe, it did not have the infrastructure or amenities that could handle a world …

Before Cancún was transformed into a popular vacationing area for people all over the globe, it did not have the infrastructure or amenities that could handle a world class vacation area. Cancún immensely benefitted from a ‘Path of Progress’ that provided the roads, bridges and airports to become a top spot for tourists. Anticipating new Paths of Progress can give you an edge on where to invest. See the following article from Pathfinder International for more on this.
 
Anything that improves the accessibility of a piece of real estate increases its value. By infrastructure I mean roads, bridges, airports, air and rail routes. Anything that improves amenities in an area will also increase real estate values. I’m talking about amenities like major resorts, theme parks and conference centers.

We can profit… by positioning ourselves ahead of the Path of Progress.

Let’s take Cancún, Mexico. Cancún was “ a small, swampy finger of land in an isolated part of the Mexican Caribbean”. Land here sold for a song. Folks thought it was good for nothing. That was before the Path of Progress came along, and turned Cancún into one of the world’s largest resorts. Today, Cancún airport welcomes 100 international flights each day. Those visitors need somewhere to stay and eat. Workers catering to those visitors also need somewhere to stay and eat. Real estate values went through the roof.

More recently, the Path of Progress moved further down the coast to Playa del Carmen. Today, a modern highway brings you right to Playa. Back in the day, $10,000 bought you a building plot in the unpaved village center. Today, a 1000 square-foot oceanfront condo could set you back $600,000.

It’s not just Cancún. Remember what happened when direct flights from the US started landing on Roatan (in the Bay Islands of Honduras) and Liberia in Northern Costa Rica? Property prices went through the roof.

To profit from a Path of Progress play you need:

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-Credible Research: In practically every locale that I scout I hear tales of a new airport…or road…or bridge. To profit from the Path of Progress we need to make sure that the funds are in place to deliver the new infrastructure and that the country or region has the capacity to deliver the project.

-Vision: You need to be able to detach yourself from what the area currently looks like and visualize what it could be with delivery of the new infrastructure and amenities. You need to be able to picture what that swampy spit of land could look like if the plan comes off.

-Finally you need to be able to Stay the Trade. By this I mean you need to be willing to sit on your investment for the medium term. Infrastructure projects take time, particularly if you are looking at a less developed country. Take a conservative time-line for exit…double it…and if you’re not happy with that timeline, walk away. Particularly in the pioneer days, you’ll see very little liquidity in the market. There will be few transactions and buyers. That can make selling tricky even if you are sitting on a real nugget.

As the Path of Progress comes rolling into town, we see the market move through various phases. Each phase calls for a different strategy.

First comes Pioneer Land Banking. The early speculators swoop in, and snap up large tracts of land. These guys take on the biggest risk, but can also make the biggest profits.

As land values rise, we start to see Pioneer Retail Development. This typically involves the sale of raw lots to speculators.
Next comes Mid-market Retail Development. Now we start to see some construction as part of projects.

Finally, the Mature Market is dominated by end users… people who will live or spend time in the units. End users pay a premium as they are buying to suit their tastes. At this stage, the early investors have taken their profits and moved on to the next place.

Mexico’s Caribbean coast is a particularly interesting case study to look at. It had a good start, with a solid base: intrinsic value in a Caribbean coast, and accessibility to a large potential market (the US). And they had an added bonus: the backing of the government’s tourism development agency, FONATUR. FONATUR made good on their promise to deliver infrastructure and amenities. They used tax incentives to attract major international hotel groups.

Bottom line: FONATUR had a vision and the capacity to deliver. Their promises were considered credible by international investors.

As Cancún maxed out, FONATUR’s development plan was extended down the coast to Playa del Carmen. Cancún was built as a mass-market tourism destination. The market was now becoming more sophisticated. Playa del Carmen was developed differently, to cater to that new market.  More chic…less spring break.

Today, we see development moving even further down the coast to Tulúm. New roads will connect Tulúm with Cancún. Tulúm is slated for a new airport. Development here will be even more boutique and upmarket.

Today, Playa del Carmen is at the mature stage. Investors have moved on. They’re now eyeing up Tulúm. And there is a good chance that history will repeat itself with Tulúm. That’s because the guys behind it are the same ones who turned Cancún from a coconut plantation into a gleaming tourist Mecca. Their track record of success in Cancún and Playa proves that they have the means and capability to deliver on their promises.

This article was republished with permission by Pathfinder International.

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