Paradise With a Conscience April 22, 2006 PUERTO VALLARTA, MEXICO: IT’S PARADISE WITH A CONSCIENCE. IN HONOR OF EARTHDAY, GROUND BREAKING CEREMONIES WILL TAKE PLACE ON A TRULY ECOLOGICALLY FRIENDLY PROJECT IN MEXICO. THE INSPIRATION BEHIND NATURALEZA QUELELE SPRINGS FROM A PASSIONATE GROUP OF YOUNG MEXICAN PROFESSIONALS WHO ARE COMMITTED TO THE PRESERVATION OF THEIR ENVIRONMENT, AND RESOLUTE IN THEIR REJECTION OF MEGA PROJECT MYOPIA. THE 73 HOME SITES BORDER A PROTECTED LAGOON FRINGED BY MANGROVES. THE STREETS WILL FILTER THE WATER, THE LIGHTING WILL BE SOLAR POWERED, AND THE WASTE WATER WILL BE TREATED AND REUSED FOR IRRIGATION. NO FOSSIL FUELS WILL BE BURNED IN THESE HOMES. CONSTRUCTION WILL USE REGIONAL MATERIALS AND LABOR.
A Ten Year Retrospective of Puerto Vallarta Real Estate
The last decade of the millennium has brought a multitude of changes to the real estate market of Puerto Vallarta. The effects of this can be seen by the expansion of the market itself beyond the confines of the Bay of Banderas. New phrases have been coined to describe the growing residential areas. It is no longer referred to as just Puerto Vallarta, but rather Costa Vallarta, which now defines the region between Mismaloya and Punta de Mita.
Vacation condos have been joined by luxury dream homes. New laws and international agreements have made purchasing properties easier than ever before. Up markets and down markets have been weathered. Industry professionals established an association of conformity to keep up with the demands of an expanding marketplace.
In this article several local realtors give their views on the past decade of real estate activities in Puerto Vallarta and their predictions for the future.
Major Influences of change.
Ten years ago it was very hard for realtors to explain the trust system that was then in place for acquisition of Mexican land rights for foreigners who would be purchasers This trust system, or Fideicomiso, was implemented in 1973 by the Mexican government and established a way in which foreigners could get the equivalent of an actual title. The law was codified in December, 1993, providing foreigners with the ability to acquire residential real estate through a bank trust. It requires any one of the privately held Mexican banks to act as trustee. The bank holds title to the property, in trust, to which the purchaser/s are the beneficiary. They have all the rights of ownership to the property and may sell, lease, mortgage, improve, and pass as inheritance, just as with a regular title.
New Foreign Investment Law and the North American Fair Trade Agreement, NAFTA,
In 1992, NAFTA institutionalized the consistency of how business is done between Mexico, The United States and Canada, giving purchasers investment protection and reducing the distortions of the industry. According to Silvia Elias, of PV Realty and President of AMPI, Mexico's association of professional realtors, the NAFTA agreement "was the major reason for the real estate boom in the coastal areas of Mexico. It gave security to buying real estate in Mexico. This, as well as the modernization of Mexican laws pertaining to the conversion of ejido-agrarian land to private status for investment, have increased real estate opportunities tremendously."
The agrarian law of 1992 opened up ejido beach and farmlands for foreign development. This is significant because approximately 50% of the entire land area of Mexico are ejido-agrarian lands and sale/purchase of these properties are banned. Converting ejido land for private use at one time required a presidential decree; but it is now within the jurisdiction of local municipal governments.
With the advent of increased property available for foreign investments, including rights to and deeds for, came long term financing and title insurance. These American services enabled the real estate market to gain the faith of an ever-increasing North American market. Brock Squire of Brock Squire Y Asociados states, "There was no financing 10 years ago, it was all cash or the vendor would take back short term loans of two to three years. Inland Mortgage started making loans here after 3 years of research and due diligence, allowing US residents to borrow US funds with Mexican property as collateral. These special programs are designed for Mexican property purchase with FHA underwriting standards, with long term fixed interest rates of 9 ¾ to 10%, plus points."
These factors along with a good U.S. and Canadian economy have kept the market strong and have added to its forward growth. While properties have retained the "Vallarta style and charm," they have changed to meet demands. Items such as Sub Zero refrigerators, central air conditioning, and solid wood kitchens were unheard of and unavailable ten years ago. Another new advancement is the "turn-key" concept. Condos and villas are now designed to include everything needed to move in the day of closing. These homes are completely outfitted from sheets to staff.
Unheard of in 1989 was the million-dollar plus market. According to Multi-List Vallarta, the most expensive home on the market at that time was $900.000, which sold for considerably less. In 1999, the market is off to the races with seven properties currently listed in the one to two million-dollar price ranges. The two million-dollar plus marketplace exists there are four now listed from $2,450.000 to $3,875.000 - but is the subject of controversy among industry professionals. Some say it is a case of over-reaching the market while others say that it shows a confidence in it.
The number of new construction starts in the "spec" home, custom, and pre-sale market, as well as the volume of re-sale properties in all price ranges, have steadily increased over the last five years, another sign of consumer and lender confidence.
The most sought-after property still contains the same ingredients: view, value, design, location, and price. The highest selling market remains the two-bedroom condominium and the three-bedroom single family residence, which has had the largest inventory. In 1990, there were 98 two bedroom condos withh an average list price of $116,564.79. In the second quarter of this year, the number is 74, with the average list price of $205,925 These numbers are somewhat inflated due to a small number of higher priced luxury units in the Conchas Chinas area.
The average 1999 Marina Vallarta property list price of $122,663 is a truer reflection of the 2bedroom condo market. The number of 3 bedrooms homes on the market in 1990 is the same as today, forty. Ten years ago these 3-bedroom houses had an average list price of $217,942. Today the same house would cost $241,215. The 1999 prices are within the $150,000.00 to $250,000.00 price range that the realtors agree is the main marketplace at this time.
However, houses with four and five bedrooms have doubled in asking price with very little inventory growth. That market had seventeen homes available in '90 compared with twenty three today. Yet, in 1990, an average 4-bedroom home was asking $257,000, now it is $492,626. The five bedroom market has doubled in not only price but inventory as well. Ten years ago there were only eight such houses on the market at an average price of $553,750.00. Currently, there are nineteen listed with the average asking price of $908,139.
These statistics show steady upward market growth and return of investment for foreign investors of property in Puerto Vallarta.
Today vs Yesterday
Real estate professionals agree that buyers today are more sophisticated. They have educated themselves with market trends and thus are more market savvy than ever before. Moray Applegate of Applegate Realtors defines them as a "highly successful, high end type of clientele who force us to be cutting edge". He goes on to say " more East Coast Americans, Canadians and Europeans are purchasing here, yet 60% to 70% of the buyers are from the Mid West and West Coast of the U.S. They range from 45 to 70 years old, retired or semi retired, who want to spend 2 to 3 months out of the year here."
Giovanna Mosqueda of Century 21 Giovanna concurs, adding, "We are seeing younger buyers today, buying with cash - couples in their 30's and 40's who are buying condos. And, the alternative lifestyle market is also growing substantially." Sra. Mosqueda also notes that there is "a growing national [Mexican] market of businessmen and their families who are purchasing here."
Sr. Applegate explains that, along with homebuyers, "foreign developers are also investing, as they know what the buyers want and can produce it." Sra. Mosqueda agrees, stating "the developers are answering the buyers demands." Puerto Vallarta has been and remains an attractive market due its close proximity to the United States and Canada. Buyers are also now being attracted to the properties here because of the state of the art product these developers build. They know that their investment dollar will be spent on a home with all the conveniences they are used to and want.
Expanding Residential Region
Current prosperity in real estate has driven the market beyond the borders of Puerto Vallarta. Today realtors represent properties south from Boca de Tomatlan and north to San Pancho. Local satellite offices are popping up to serve these outlying areas. Mega-resorts with residential communities including golf courses, spas, upscale club houses, and ultra modern homes can be found in varying degrees of completion all along the coast of Nayarit. Development trends between Nuevo Vallarta and Punta de Mita, according to realtor Brock Squire ,"Are being driven by the new four lane highway and pulled by the 150 million dollar Punta de Mita 4 Season resort and 1500 acre planned development."
Moray Applegate further explains this trend; "Real estate is going where the land and the nicer beaches are. Sayulita, Punta de Mita and San Pancho attract many with their sleepy village feeling. The new road is a major force that has exploded Nayarit. Soon, with the driving time reduced, Punta de Mita will only be a 15-minute longer drive (from Nuevo Vallarta) than it is to Conchas Chinas. There are gains in the north shore market as well. In 1989 a beachfront home with three lots in Nuevo Vallarta listed at $850,000. Currently there is a comparable property listed in the same area for 3 million dollars. Furthermore, in today's market just a residential beachfront lot in the same area lists for $700.000 to $950.000.
However, Silvia Elias reports, "there are only spotty areas of double and triple gains, not all markets experience this." Not to be overlooked is the even further expansion of development up the Nayarit coast to Plantanitos. Along this shoreline, two major ecologically conservative housing developments have taken the market to the pristine beaches of these outer reaches, proving that to "get away from it all" may take a little more travel in the next century. This northward expansion shows the continued popularity and security that foreign investors find in Costa Vallarta.
Estate Industry Changes
Estate markets are cyclical. It is a matter of supply and demand. The last upswing began ten years ago with the development of Marina Vallarta. This took the stress off the downtown area by providing a new type of residential product, the beachfront and/or golf course home. This saved the downtown core for hotel chains and condominium projects without sacrificing the colonial village image. Within six years the Marina was basically sold out, just as market demand was dwindling. By 1994, there were essentially no new developments or projects starting and the Mexican economy soon put a stop to whatever market there was. Transactions then consisted purely of re-sales, which ultimately took care of the excess supply. Prices reflected this down swing and began to moderate and in some markets show a loss. By 1997 there began to be more of a demand for product than what was available. Now at the dawn of a new millennium Puerto Vallarta is experiencing unprecedented growth.
With growth comes issues.
The main issue on the minds of realtors today is the need for more regulation within the real estate industry. AMPI was formed ten years ago to provide a professional structure for a uniform industry and to maintain a measure of congruity and ethical values. Today, many realtors agree that real estate practices need to be more closely policed. Moray Applegate explains: "Real estate practices are not regulated by the government for licensing, and, as owner of the oldest real estate office in Puerto Vallarta, it irritates me that people come in here with no real estate background or training and try to sell. This leads to unethical and unknowledgeable people selling real estate and needs to be addressed, as it effects national and local interests."
Giovanna Mosqueda further states: "The biggest concern within the industry is the need for AMPI to deal with professionals who get into trouble. Suspensions, fines, or other tactics need to be imposed; there is a real need for regulation. It does not cost more to do things right."
Look into the future
Realtors agree with Brock Squire who states: "If there continues to be perceived value in the market place, and if the US economy maintains itself and lasts for another two or three years, the future of real estate in Puerto Vallarta could be very positive." Moray Applegate also says:"The market strongly depends on the economy of the United States, as well as the Mexican elections in the year 2000."
The internet is also contributing to the future of real estate in Costa Vallarta. Nearly all of the local realtors maintain web sites promoting this area and their businesses. Many prospective buyers have and will continue to use this invaluable tool to research the area when choosing a foreign investment. List Vallarta, the oldest multiple listing service in Mexico, will soon be available for local realtors online. They will then be able to download specific listing information electronically to keep them informed of new property listings. Frontiers in land, properties, and acquisition have contributed to the sophistication, advancements, as well as the difficulties of a progressive real estate industry in Puerto Vallarta. All of these have been accomplished in the last ten years without losing the charm and truly Mexican feel that has attracted people to this area, and will attract more for decades to come.
Reprint from "Vallarta Lifestyles," Summer 1999
Real Estate Trends Update 2005 - 2006
The growth of the Vallarta real estate market continues to be very strong, with sales tripling for the local real estate association’s MLS (Multiple Listing Service) and doubling for developers compared to the 2003-2004 season. This type of growth is unprecedented for Puerto Vallarta and their doesn’t seem to be an end in sight. If anything, as many realtors and developers state, there are strong reasons to believe it’s here for awhile. “This is just the beginning of something really big. We haven’t even got going yet,” says Wayne Franklin of Tropicasa Realty and the president of the Vallarta real estate board.
In 2004 there were an estimated $300 million USD in new construction sales and nearly $100 million USD in sales for the MLS service. That total of $400 million is destined to be surpassed in 2005, with $250 million in sales already registered by developers and realtors as of the beginning of June. Roughly two-thirds of this new development is condominiums. Larger projects of 150 or more units are being built around the bay, with smaller boutique projects scheduled for the South Shore as space and availability allow.
Strong demand has created a weak supply of both homes and condominiums in the $300,000 - $400,000 USD price range. Most condominium developments’ starting point for view properties is now at or above $400,000. The increase has been driven by a demand for larger units and better quality construction and finishing. Units with more than 3,000 sq. ft. are now common, whereas 10 years ago it was a 1,500 sq. ft. cookie-cutter, two-bedroom standard unit. Buyers now expect full ensuites, Sub-Zero appliances, marble flooring, a third bedroom and perhaps a TV/study, as well.
Although the strong Mexican economy has created a market for national buyers once again, the buying that is taking place is predominantly by Americans, especially on the North Shore, Nuevo Vallarta and along the hillsides of the South Shore. The new condominium towers in Marina Vallarta and now in the Hotel Zone, however, are the preferred real estate choice for the national market.
Across the board, most realtors say the buyers they are working with today are more sophisticated, less intimidated by the trust/purchase system and ready to make a buying decision quickly. Today’s buyers come into the office with a good understanding of the market, so less time has to be spent explaining how purchasing real estate in Mexico takes place. They have a lot of confidence in the Puerto Vallarta real estate market and are ready to make a buying decision.
Why is the market so strong? There are many reasons the market is so strong. It can be attributed to hurricanes in Florida and tsunamis in Indonesia. The 9/11 disaster is partly responsible for making people think about their future, about having a vacation home somewhere warm, where they could drive back home if need be. The burst of the Internet bubble and crash of the stock markets have people looking for alternative investments. The size of the US debt, social security issues and an out-of-control trade balance have people concerned about their financial future.
In Mexico the economy is surprisingly robust. The budget deficit has been reduced each of the past four years, and a balanced budget is expected in 2006. Economic growth is well on track, expected to exceed 3.88%, and inflation should drop below 4%. So far this year, the peso has proven itself to be stronger than the US dollar.
Why Puerto Vallarta? The variety of real estate available by price, type, area and location make Vallarta very desirable when compared to other destinations, such as Los Cabos and Cancun. But the primary reason is the people. Carl Timothy of Timothy Fuller & Associates explained this very well, “When you are in large cities, such as Los Angeles or New York, you feel that people just want something from you, the people are takers. In Puerto Vallarta it’s the opposite; the people are giving, and you can feel that throughout the community.” Therefore, it is primarily the people of Puerto Vallarta that make it such a wonderful destination for tourists and second-home buyers.
Trends for 2005-2006
#1 Younger Buyer Profile There is much talk about the aging Baby Boomers and how they will be spending their time and money as they enter retirement. And their numbers are remarkable: There are 70 million of them, and they control more than $7 trillion USD in wealth in the USA – 70% of the total. They are the most financially wealthy generation of mature consumers the world has ever seen.
And what do they want? Well, a second home in a resort area seems to be high on the list. We have experienced their influence with the development of condominiums consisting mostly of three-bedroom units. Ten years ago the mix was basically just two-bedroom units. A good example is Marina Vallarta, where it is difficult to find a three-bedroom unit. Very few were built, and the few that do exist are the result of purchasers joining together two units to create a three- or four-bedroom condominium. Today, projects such as Punta Vista, Hacienda de Mita, Shangri-la and many others are nearly exclusively three-bedroom condominium projects. The Baby Boomers are traveling, and when they do they like to take the family with them.
An interesting trend is evolving regarding how Baby Boomers are living their lives, especially the younger Boomers who are still in their 40s. With life expectancy surpassing 75 years, they are not waiting until their 60s to begin some form of retirement. In the past, aging patterns have been linear, following a set trend of raising a family in the 20s and 30s, building investments during the 40s and 50s, and retiring in the 60s. Today, we are seeing Baby Boomers deciding to “semi-retire” early, but to continue in the work force in some manner.
This trend, which was recently written about in the “Harvard Business Review” by Ken Dychtwald, who has a book about the subject coming out soon, is exactly what is being reported by realtors. Their buyers are younger, in their 40s, and are perhaps financially capable of retiring or close to it, but have no intention of doing so quite yet. So they do a preliminary semi-retirement, spending more time at a second home or perhaps even moving the family to the second home for a year or two for a cultural experience. The kids pick up a second language, while dad commutes back and forth. And while they are in Vallarta, they continue to be active with further real estate investing. For others, it involves taking a few years off to build a home and enter the job market later on, perhaps returning to their past employer on a part-time basis or as a consultant.
“They’re looking for different blends – three days a week, for example, or maybe six months a year. Many want or need the income, but that’s not the only motivator. People tend to identify strongly with their work, their disciplines, and their careers. Many wish to learn, to grow, try new things, and be productive indefinitely, through a combination of commercial, volunteer, and personal pursuits.”
This quote from Dychtwald’s article is basically how local realtors describe their buyers recently. They are not retiring in the traditional sense, but are taking a mid-life break to try something different, perhaps to return to work later on, although most likely in a different manner than before.
#2 Downtown is Trendy In the late ‘80s and early ‘90s, when Marina Vallarta sales were going strong, sales for the downtown neighborhoods of Los Muertos, El Cerro and Gringo Gulch were adversely affected. These markets remained quite stagnant right up into the late ‘90s. Today, the downtown areas are hot, described by Silvia Elias of PV Realty as “trendy.” “There is such a lack of supply that we have a list of people waiting for good properties to come on the market.” Despite the strong demand all around the bay, the downtown area has not been negatively affected, rather the reverse – the market is stronger than ever. People are buying up older homes to renovate or whatever lots are still available to build. With traffic congestion getting worse for Vallarta, the downtown area has the advantage that you can park your car at home and walk to many restaurants and shops.
#3 South Shore Niche Market There are fewer and fewer good building lots available in Las Amapas and Conchas Chinas, as most have been picked up by developers for small condominium projects. One of the more successful developers in this area is Terra & Mare, with La Cima and Horizon condominiums. Modern, larger and very chic, their style is now being copied by others, not just in this area but all around the bay. One of their newest developments, Avalon, has not even broken ground as of this date and already half of the project’s condominiums are spoken for. The steep terrain and lack of large building sites have held back larger condominium developers, which has added to the uniqueness of this area. The real estate that is available tends to be single family homes or condominium projects with less than 50 units.
#4 Nuevo Vallarta/Flamingos Popularity Twenty years after its initial launch, the mega-development of Nuevo Vallarta is finally becoming what its original developers had hoped for. With a large marina, three golf courses, the longest beach in the bay and plenty of developable land, today it is the most comprehensive real estate development inside the bay. Prospective real estate buyers can choose from oceanfront, golf course, marina or canal condominiums, homes or home sites – something no other development can presently offer. The driver of this growth is predominantly Paradise Village and the Sovernigo family. Along with first-class real estate options, their amenities are very complete, with a full-service spa, El Tigre golf course, a shopping center, a beach club and the recently opened Sports Club, which offers an incredible array of activities that cannot be matched by any other regional development.
#5 North Shore Growth Sixty-five percent of the new construction in 2004 was in Nayarit, primarily in Nuevo Vallarta and along the North Shore. That trend will continue into the future, as this is where land is available to build the larger, higher-density developments. Access is certainly better now with the four-lane highway and the widening presently taking place on the road from Costa Banderas to Punta de Mita. And with the announcement of FONATUR’s (Mexico’s federal resort development sector) mega-development in Litibú, outside the bay just north of Punta Mita, the back coastal highway that leads to Sayulita is also being upgraded from a gravel road to a wide, paved highway. These improvements mean that Punta Mita is less than 40 minutes from the airport and open up access to the incredible coastline that stretches up to Sayulita.
To get an idea of how strong growth has been, Tierra & Armonia, developers of Punta Esmeralda and Real del Mar, sold 100 properties in the first four months of 2005, and Punta Mita matched their 2004 sales just midway through 2005.
#6 Condominium Towers Bay View Grand started it all a few years ago with their 14-story condominium project in Marina Vallarta, and then following it up with 15-story Porto Fino. Extremely successful, BVG sold out in just over two years, proving there was a strong demand for these types of developments. Shangri-la soon followed with 18 floors, and now two projects have pushed the envelope even further with 24-story towers breaking ground beside the Holiday Inn. Although these two projects are just getting started, they have already generated more than $25 million USD in sales. With this kind of success, it seems the trend will be for more towers in the future.
#7 Price Appreciation Appreciation has been a strong trend for the past three years and quite consistent over the past 15. We are still below competitive markets like Hawaii and Los Cabos, so this trend should continue, especially for beachfront properties. Average condominium and home sales in the MLS showed a 25% increase since 2002; however, this increase would be even higher if it included the recently constructed projects, which have selling prices above the MLS resale market. Strong demand will continue to drive up prices, at least until supply can begin to catch up, which doesn’t look like it will happen anytime soon.
#8 Multiple Property Buyers In active real estate markets, it is common for people to take advantage of quickly increasing appreciation by buying multiple units in condo projects and then doing what is commonly referred to as “flipping” the units. This practice was very popular while Marina Vallarta was being built up, for example. Today, buyers are again purchasing more than one property, but in a different manner. They are buying a home for themselves and then a second or third property that may consist of raw land or a home that needs to be fixed up. The difference is that the buyer of the past did it purely as an investment, a passive investment. Today’s buyers are pro-active. They are buying the properties so they can be involved in the construction process of building or renovating. It follows another trend: People are moving to Vallarta to live, but not to do so passively by spending time on the beach, tennis court or golf course. They want to be kept busy, and real estate development is an interesting outlet for them. It has also proven to deliver a much better return than they have traditionally earned in the money and stock markets.
Financing For the past 10 years, I have written regularly that accessible financing is just around the corner. Well, financing is still not available after all these years, although there are certainly many large lenders and banks that are trying to make it happen. With the market we currently have, with waiting lists and multiple offers on properties listed, we really don’t need financing! The market is doing just fine on a cash-only basis. With financing coming online, the market may just start moving faster than would be best for it. Therefore, I’m of the opinion that if it takes a few more years to get easily accessible financing here in Puerto Vallarata that’s just fine, and I’m hoping that will be the trend for 2005 and 2006.
