Puerto Peñasco Real Estate: Bordering Growth

Puerto Peñasco, also known as Rocky Point, has become a popular destination among American vacationers—especially Arizona residents—for its beautiful beaches and convenient proximity to the U.S. Yet in …

Puerto Peñasco, also known as Rocky Point, has become a popular destination among American vacationers—especially Arizona residents—for its beautiful beaches and convenient proximity to the U.S. Yet in spite of its prime location, real estate prices in Puerto Peñasco are surprisingly affordable: beachfront condos in the complex Puerta Privada, for instance, are selling for less than $500,000, whereas a similar unit in Los Cabos easily costs more than twice that amount, according to Branden MacKenzie, real estate agent for RE/MAX Legacy, which is based in Puerto Peñasco .

“With prices being that of three, four, five years ago, this is a wonderful time to be looking at [Puerto Peñasco real estate],” he said.

Investors need to be aware, however, of market conditions that have resulted in downward pressure on prices; namely, a considerable slowdown in sales compounded by the large supply of condos that have entered the market in a relatively short period of time.

Nevertheless, local experts remain optimistic about Puerto Peñasco, pointing to advances such as the international airport and major coastal highway as factors that will promote growth and appreciation. A recovery in hard-hit U.S. real estate markets such as Phoenix is also expected to boost buyer activity in the area.

About Puerto Peñasco

Puerto Peñasco is located in the Northwestern region of the Mexican state of Sonora, nestled on the shore of the Sea of Cortez. It has been called “the second-fastest growing city in the country of Mexico,” according to Bill Barvitski, a local realtor with RE/MAX legacy.

The municipality has certainly grown; what was once a small fishing village became a hotspot of almost 45,000 people, according to Mexico’s census data for 2005. Census numbers most likely underestimate the residential population, however, as a large constituency of vacationers—traditionally from nearby U.S. markets—take frequent trips to Puerto Peñasco .

The market’s prime advantages are its beaches, which offer a rich variety of sea life and coastline, and its proximity to the U.S., according to Jonni Francis, broker and owner of Coldwell Banker Rocky Point. Phoenix and Tucson are both within a four-hour drive of Puerto Peñasco, and visitors have made the journey from farther reaches such as Utah, New Mexico and California. The distance between Puerto Peñasco and the U.S.-Mexico border point at Lukeville is 66 miles.

Resort development in Puerto Peñasco has flourished, with three 18-hole golf courses, 60 three- to five-star hotels and a number of large condo projects that have added thousands of condo units to the market. Developments in local infrastructure, such as improvement of streets and expansion of utilities, has followed, “mirroring the growth and mirroring the needs of the city,” Francis said.

Recently, the center of public attention has been the forthcoming completion of two major projects—a new international airport and four-lane coastal highway—that are expected to promote tourism and “bring more people into the community,” according to Francis.

The new airport, which is scheduled to make its debut in 2009, will be big enough to accommodate jets and should open up the area to the presence of major commercial airlines. As it stands, Puerto Peñasco welcomes only three commercial flights a week from Los Angeles International Airport on small turboprop planes, according to an article by the Los Angeles Times last February.

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In addition, the 375-mile, four-lane coastal highway connecting Puerto Peñasco to the border at San Luis Rio Colorado will effectively shorten the driving distance from Southern California by approximately 100 miles and should generate new traffic to the area. The $200 million project began in 2005, according to the Arizona Daily Star, and should be completed by “the end of this calendar year,” Barvitski said.

In spite of the staggering growth that Puerto Peñasco has seen over recent years, a rich culture of hospitality and warmth has been preserved in the area.

“If you walk down the street today in the morning…you’d have a 50-50 chance to be invited to go out on boat to go fishing, for [no other reason than to] just have company on the boat,” Barvitski said. “It’s still that heart-to-heart, warm area. It doesn’t have the beat-you-on-the-forehead timeshare [feel] and I don’t think it’ll ever have that.”

The Puerto Peñasco real estate market

“There’s a saying that [when] the United States gets the flu, Mexico sneezes,” Barvitski said. “And that’s true of any place in Mexico.”

Puerto Peñasco , like many other real estate markets in Mexico, has felt the secondary impact of the U.S. housing crisis. American buyers, who have traditionally refinanced their homes in order to purchase property in Mexico, are now finding it difficult to access that money because of the lack of stability in the U.S. market, according to Francis.

“It’s definitely impacted our market and…overall I would say our business is down maybe…35 percent over the last couple of years,” she said.

Massive building has also contributed to the slowdown in the Puerto Peñasco market. When the market was strong, a number of large-scale developers all “came in at about the same time,” and it is now estimated that a four-year supply of condos is on the books, she said. But unlike the relentless pattern of building found in markets such as Panama City, building patterns in Puerto Peñasco have entered into “sleepy mode,” as local residents call it, in response to the lowered demand, according to Barvitski.

“As it sits right now, there are units that are on hold,” he said. “For example, Marriott came in and bought a large parcel of land, [but] they have not started scraping there yet….It’s senseless for them to do that at this moment, but in the spring of [2009] they’ll be out there in full [force].”

Overall, high supply and low demand have fueled a buyer’s market in Puerto Peñasco, and investors may take an interest in the “wonderful prices” and opportunities that are available, according to Francis. Furthermore, it appears that foreign investors from outside the U.S. have already begun to buy up property in large quantities, according to Barvitski.

“The surprising thing is [that] a lot of Europeans…[and] wealthy Mexicans are coming to this northern state and…[heavily] investing in huge acreage, just bare land, knowing that this is a golden opportunity,” he said.

Although prices have clearly dropped, the real estate market is expected to stabilize by the end of the year, according to Francis. Furthermore, the completion of the new international airport and coastal highway, as well as a cyclical rebound in nearby U.S. real estate markets, should all contribute to a return to growth in the near future. There’s “just not a better time to be looking at Peñasco, [and] I don’t see another market like this for Peñasco ever again,” MacKenzie said.

Puerto Peñasco real estate also shows potential for long-term growth as an attractive destination for those who want to retire abroad. In addition to the lower cost of living, coastal landscape and proximity to the U.S., amenities such as more “sophisticated health centers” will appeal to retirees, who are a “target market” for Puerto Peñasco real estate, Francis said.

Investing in Puerto Peñasco

A wide variety of investment opportunities are available, but condo resales seem to present the most compelling properties on the market at this time, as previous buyers with dried-up second mortgages place units on the market at a considerable discount, according to Barvitski. A 1,200- to 1,400-square foot condo on the beach, for instance, can sell for less than $250,000 on the resale market, he said.

Investors may also be interested in purchasing raw land at relatively affordable prices. Beachfront lots, which have previously sold for $600,000 to $900,000 dollars, may now sell for less than $500,000, according to MacKenzie. Second-row lots can be priced anywhere from $89,000 to $150,000.

Raw land also offers the opportunity for investors to develop campgrounds or RV parks, which Puerto Peñasco lacks, according to Barvitski. In this way, investors can generate cash flow through the rental of space and have the option to re-purpose the property at a later time.

Investors who are interested in buying property in Puerto Peñasco should work with licensed real estate agents, who are not hard to find thanks to a government initiative that has begun in the state of Sonora.

“The growth [in some of the cities] in Sonora has been so fantastic in the last in the past three or four years, that the Mexican government has asked Sonora to be the leader on the…licensing of realtors and real estate agents,” Barvitski said. “And in July…based upon the results, they’re going to go ahead and spread this out to the other states of Mexico as well.”

Although Puerto Peñasco may be a safer place to buy property, it’s still “not 100 percent safe,” Barvitski said. A year and a half ago, for instance, a condo development began to sell units at pre-construction for a 20 percent discount; eight months later, the project went into foreclosure.

“The people who have bought those condos are shaking in their boots but … they bought directly from that developer,” he said. Thus, investors should find a licensed real estate agent to represent them and help evaluate the property, and they should also hire a Mexican attorney to review the contracts.

For more information about buying property in Mexico, read our Top 5 Mexican Real Etsate Markets.


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