Is Vallarta On Fire, On Sale, or Having a Fire Sale?
 Darryl K. Bowie - cblacosta.com
Very interesting dynamics in the Real Estate market amongst NAFTA members going forward in an economic crisis. Canadians and Americans come to Mexico and they expect to see similar fire sale prices. Not so, not true. We do have bargains, the proverbial 'steal of a deal,' and some listings as much as 40% off, however this is not a characteristic of the market.
Why? Because the Puerto Vallarta Bay area is so diverse from a cultural, lifestyle, amenities, action and access perspective that once a buyer has focused on a specific area, the inventory is actually fairly limited, and, not all sellers here are desperate.
One option the sellers have here is to refinance. The Mexican banks are lending. Thus a seller here can go to the bank and take a mortgage, assuming credit scores intact, and recover their equity to make up the equity withdrawal up North. Use rental income to maintain their property in Vallarta, which incidentally has not dropped in value as much, and cover the mortgage payments here.
Another option is to refinance and convert the proceeds to the Peso and leave funds here in the bank for future living expenses at 15 to $1, this adds up to a windfall.
In order to understand why our market is not characterized as a 'fire sale' is to understand the value of market knowledge. For example, if you zero in on a specific area, say the Romantic Zone, you will find that this geographic area is attractive because of the nightlife, easy access to the Malecón, shopping, beach action, live music and dining, which attracts a lot of people. Funny, they come for one reason... they can walk everywhere, get everything, and the key elements in the purchase decision are; pool, view, walking distance and security.
The vacation home buyer is now actively pursuing a bargain in paradise. This is not at all like buying an apartment building in Cincinnati or Calgary, where the seller is facing bankruptcy. Our market is characterized by the person looking for lifestyle at a discount.
Waiting for another 3 to 6 months to see if prices will go lower is speculation... you could be right, you could be wrong. However, when the perfect place appears in your preferred area, the smart buyers are ready to jump in and make an offer. You have to be ready with cash or approved financing to strike the deal while the iron is hot.
Recently, a couple from Vancouver toured the area... they were tired of rain, tired of winter and wanted a place they could use and one that would generate rental income when they were not here. Their plan was perfect, stay 3 or 4 days in the preferred neighborhoods where they had previously visited, heard positive things about, and researched on the Internet.
They concluded not only the Romantic Zone, but the development, Selva Romantica... nothing else would work... maybe Gringo Gulch, but they liked the price points, the infinity pool, security, city and ocean view and the fact that they could walk everywhere.
When a buyer is qualified, they are ready to make an offer. When the perfect listing appears, these buyers will go in fast, low and firm. Since there are not a lot of buyers in the market, those that are here, are funded, motivated and ready to grab their dream vacation home.
The news about the market presented at our recent Real Estate Conference was disheartening. The news is bad everywhere, and here, we are affected by the MEW - Mortgage Equity Withdrawal. It seems that when we were all feeling flush up North, that the banks were only too happy to give us cash... the proceeds of the cash were to consolidate debt and pay down credit cards... not for Plasma TVs and Jeeps and vacations.
There are those buyers who used the home equity loan to purchase their sunny vacation dream home in Vallarta, thinking, "hmmm... collect rent until I retire, visit 2, 3 or even 4 times a year, and watch my equity grow during my free vacations." And, over time, this will prove to be a sound investment strategy.
It is true. Home equities here have grown. They are slowing, maybe stagnant, but not crashing. The market up North has everyone thinking Vallarta is in the same boat as Canada and the US... not true, we are not desperate. However, we needed a price correction, but with the peso exchange rate, these homes have net increases.
We are moving into more of a resale driven market compared to a developer-driven market. Gross Sales and Number of Sales were up in 2008 compared to 2007. Inventory has nearly tripled in the past 2.5 years. Median Average Sales Price of Condominiums has risen. Median Average Sale Price of Homes, based on list price has declined. Spread between Listing Price and Sales Price increased from 6.8% to 9.2% (a 35% jump over last year.)
What does this mean... BUYERS MARKET?
No one can predict the bottom of a market; those that wait always miss it... so why try to be the Guru? Instead go by the credo: "A good deal in a bad market Is STILL a good deal!"
Here is how to buy your dream home in Vallarta. Decide you do not want all of your cash invested in Vacation Home Real Estate... instead; do like all Boomers do, since they have never met a loan they didn't like, borrow. Yes, the banks in Mexico are lending!
Think 20% to 30% down and use the bank's money, even at the higher interest rates, you will still be making the safest investment possible. Are you going to invest in the stock market, under the mattress, or at a bank at 1%? No. You want something you can access, meaning everyone else in the US, Canada and Mexico can access as well.
That destination is Puerto Vallarta.
Puerto Vallarta, in 4 hours, is accessible from over 35 major airline hubs. Our airlift capacity is astonishing. Add the culture, the people, the food, the amenities, the arts; the time of your life and a climate on par with Hawaii... and you will not go wrong investing in Vallarta.
Another serious consideration for Boomers: "Can we afford to live our retirement in the US?" The dream of having a retirement home, a vacation home, in a place with perfect weather and lots of activities, is not going to be stalled, stopped, or cancelled... delayed at most.
So let's think. The global market is in the tank, your stocks are in the tank, you still have home equity because you did not go for the MEW (Mortgage Equity Withdrawal) on the first round, so what are you waiting for? Yup... the deal of the century!
Well, you can find that deal here in Vallarta by searching for someone who has a MEW financed condo and needs to liquidate... in a hurry. When you do, don't pay cash, borrow from the Mexican bank, keep your cash, minus the down payment, and when not in residence generate vacation rental income.
Using the bank's money in this market is wise. Smart buyers know this and are getting pre-qualified - Before Shopping. This way, they know exactly what they can afford and it also places more buying power in the hands of the buyer.
What Can I buy?
I would look for a desperate seller that has new product, oceanfront/ocean view, and make one offer, firm and low, closing in 30-days.
The fundamental values must be there - view, pool, walking distance, security and amenities. Those attributes that make the property comfortable for personal use and incidentally those attributes are the keys to generating vacation rental income.
Why? Because that is what everyone wants, a place in the sun! Real estate has proven, over time, to be the best investment, solid, better than the stock market.
The market is reeling. There is a ton of negative news every day; jobs, bankruptcies, stocks, bonds, auto industry... add to that the cost of living and a Northern climate, and our buyers are saying, "To heck with it, I am moving to Vallarta."
The neighbor is envious and cautious, "what about the drug wars?" and your answer... "Vallarta is not a border town and it is very well protected by two state governments, Jalisco and Nayarit, neither of which want to see their quality of life diminish. Tourism and Real Estate are essential ingredients to long term success in this region - and in all of Mexico. Avoid the border towns and most destinations are safe, sunny and warm.
There is plenty of creativity in the marketplace to get the deals done. Sellers are motivated, accepting paper on full price offers with 30% down, 3 to 5-year terms at 6% with anniversary payments. Others are taking paper with different terms and offering all kinds of incentives. With Seller Financing, ensure that your agent is writing an ironclad Purchase Contract clearly stating terms and penalties.
The Vallarta - Banderas Bay area has been driven by the developer over the last 5-years. There has been lots of shiny new product, with all the bells and whistles, recently built by Developers - and it is ready for occupancy. This Developer product is now finished and this is where the deals can be found. If the developer started late into this construction boom, they could find themselves in financial trouble, unable to start construction, unable to finish construction. These are not the deals you want. The developer market is now a case of the survival of the fittest.
Borrowing costs here are higher than up North. The good news is that the banks here are lending. When you combine the fees built into the interest rate and combine this number with property taxes, you'll find the monthly carrying costs are actually lower than they are in the US or Canada. This is another economic stimulus in the Vallarta marketplace, and combined with the stricter lending policies of the Mexican banks, the likelihood of a US style meltdown are remote.
As the cost of living continues to rise in the North and boomers retirement funds dwindle, Mexico looks more and more like a bargain and a place for retirement. It looks like the time to buy is NOW! Use the property to generate vacation rental income between now and retirement; enjoy the property while the retirement day approaches. Why not build your equity with a vacationer's holiday budget?
The airlines are offering terrific flying incentives and the last thing to go in your budget should be the vacation... it is the only thing that holds your soul together in these turbulent times. Meaning you will have rental income with the right property in the right location - and Puerto Vallarta is a place in the sun - Your place in the sun.
We are in a Resale Buyers Market now. The Developers will struggle, but the proven experts will survive, and they will survive because they have been through market downturns in the past. Real Estate is cyclical. It is the Developers' inventory that we have now, and there are great deals to be found.
Happy hunting!
For more information, please contact Coldwell Banker La Costa Realty General Manager, Darryl K. Bowie at +52 (322) 223-0055, or visit CbLaCosta.com.
About Coldwell Banker La Costa Realty
Coldwell Banker La Costa Realty is located at 480 Mismaloya Highway on the South side of Puerto Vallarta, and can be reached at +52 (322) 223-0055.
Since 1906, the Coldwell Banker organization has been a premier full-service real estate provider. The Coldwell Banker System has approximately 3,600 residential real estate offices and 111,500 sales associates in 65 countries and territories including 52 full service offices in the country of Mexico. The Coldwell Banker System is a leader in the industry in residential and commercial real estate, and in niche markets such as resort, new home and luxury property through its Coldwell Banker Previews International division. It is a pioneer in consumer services with its Coldwell Banker Concierge Service Program and award-winning website, ColdWellBanker.com. |
Vallarta Weddings
Puerto Vallarta Real Estate | April 2009 
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