| | |  Puerto Vallarta Real Estate | November 2008 
Los Cabos: A Third Quarter Perspective
 Chris Snell - Montaña Verde
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| Chris Snell, President of Snell Real Estate in Los Cabos.
We gladly welcome other real estate professionals throughout Mexico to provide us their perspectives of their respective market places to share with other professionals in the real estate industry. | | |
Every time I go to lunch, talk on the phone or even call my Dad, the two things I am asked are, "How is the Los Cabos market holding up?" and "What is going to happen in Los Cabos this season?"
The U.S. economy has impacted the Los Cabos market. It has to. Our buyers are predominantly from the U.S. and therefore our market will be affected. The real question is, "How badly will it be affected?"
On a national average, U.S. real estate values have dropped 18% from 2006 to 2007 and most forecasters are predicting another 10% to 15% drop over the coming months. It is important to keep in mind that these numbers are a "national average" and take into account homes and condos in markets like Miami, Las Vegas, Chicago, Los Angeles, etc. and include all types of homes whether high-end, middle or low income housing.
The slow down in Los Cabos really started in April 08, however despite the downturn, we are still selling homes. Snell Real Estate has sold just over $100,000,000 (USD) in the first 3 quarters, which is still an incredible number considering other parts of North America.
So, where do we stand this year versus last year? Our 1st quarter sales were right in-line with our 1st quarter of 2007. That was the good news. Our 2nd and 3rd quarter sales are down 50%. The bulk of this drop was in the 3rd quarter. Our 4th quarter has just started, and our sales for the first month have already tripled our 3rd quarter sales. This is a solid indication that buyers are returning to the market and sensing that this is the time to start purchasing.
In 2007, Snell Real Estate gave 2,023 property tours. This number represents the number of clients that were physically toured and does not include all of the leads, phone calls, etc. that come through our offices. At the end of our 3rd quarter, Snell Real Estate had given 1,812 property tours. In October, we did an additional 156 property tours. This is telling us that we have nearly the same level of interest in Los Cabo and underscores that buyers are just waiting for "the right time" to buy.
Our average price per transaction was up just over 20% in the 1st quarter versus the previous year. Since then, our price per transaction has declined 8% to 10% over the 2nd and 3rd quarter. This is not that unusual since we normally see a decline during the "off season" (July through October). Overall, we are still up approximately 10% over last year—still not bad when nearly every other market in the world is dropping like a stone.
Our prediction for, "What is going to happen this season?"... We feel that we will have a "good" market. We will continue to sell real estate and expect to see sales increasing steadily as we move forward. Why? There are several reasons.
Location, Location, Location. As I have said in the past, there is only ONE Los Cabos. This is a proven destination that has been driven by one primary factor: LOCATION. We are within 2.5 hours from over 14 million people and within 3.5 hours of over 25 million people. We predict that over the coming years, Los Cabos will be the most sought after resort destination in Mexico for the high-end traveler.
Los Cabos has a climate that averages 78 degrees with over 340 sunny days per year, and we are positioned along one of the greatest bodies of water in the world, the Sea of Cortez.
We are not a new area in Mexico that is a "wannabe" or a "will be". Our golf courses are built, our beach clubs are open, we have three of the best hotels in ALL of Mexico, (One&Only Palmilla, Las Ventanas and Esperanza), with a fourth hotel currently under construction: The Montage.
We have two fully functioning Marinas that are built, not promised.
We have dozens and dozens of five-star restaurants to choose from.
March 08 set records at the International Airport for the most private jet arrivals and most commercial jet arrivals EVER in the history or Los Cabos. Our private terminal continues to set records and is one of the busiest private airports in North America from October thru June.
Los Cabos averages 75 flights per day and the completion of the new Taxi Way in June 08 can double our capacity and is expected to increase daily arrivals to well over 100 flights per day by the end of 2009.
Another big reason that Cabo is so resilient is due to the lack of leverage in our market. U.S. financing has only been available for the last 3 years and in the high-end market, only 20% of our clients actually use financing. Nearly 80% of our clients purchased without financing. Therefore, the high-end market in Los Cabos is very un-leveraged and for that reason, should not experience the fluctuations and softening that will be seen in markets like Miami, Las Vegas, Phoenix, etc.
Wealthy American’s will continue to invest in 08 and 09 and they will continue to vacation. That is an American trademark. We work hard and play hard. The big question now is where will they invest their money? Our clients have told us repeatedly that they are "so glad their money is in their home in Cabo and not in the market". I personally feel the exact same way. Luxury vacation homes have outperformed the S&P over the last 20 years and they are a lot more fun.
Is now the time to buy? Although I do not have a crystal ball, I do feel that the 08-09 season will be a buyers' market; the first in over 6 years. Most of our clients will not be selling, instead they will be enjoying their homes and Los Cabos. Those who do sell, or need to sell, will create buying opportunities for those that want to finally buy that dream home in Los Cabos.
My recommendations this season are to stick with proven developers. Do not buy in remote areas or in developments that are making weak promises to build and deliver homes, amenities, beach clubs, golf courses, etc. Capital Markets are tighter than ever and chances are new developments will not have access to money to even build a guard gate, much less a beach club or infrastructure.
Negotiate when you buy. Ask for a few years of paid HOA dues, furniture allowance, upgrades, etc. when buying from a developer. Developers are in the business of selling real estate and they will work with you.
Rent a few times within the community you want to buy before you buy. You will have the opportunity to meet some of the current homeowners around the clubs, at the gym, etc. Keep in mind that if the homeowners all have spec homes for sale, it’s probably not the "right place" to be buying.
If you are selling a home this year, either price it "in the market" or don’t waste your time. Home prices that cannot be supported by credible comps are not going to be selling. Those that are, will sell.
I have been in Los Cabos since 1991 and I have seen just about everything that can happen. Developers go broke, developers make a killing, spec homes that worked and others that are still for sale, pre 9/11 and post 9/11, great grand opening parties that resulted in no sales, small opening parties that resulted in selling everything, etc. Not much surprises me anymore.
The one thing I have learned is that Los Cabos is one of the most resilient and strongest markets in North America and when things are down, she is always the first to come back strong.
As I stated in June, this year will shake out the "wannabe’s" and strengthen the quality developers, solidifying investments for those that have homes located within the proven communities.
I look forward to seeing you in Los Cabos this year.
Adios,
Chris Snell
President, Snell Real Estate - www.snellrealestate.com - 1-866-650-5845 |
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