La Paz, BCS, Mexico - Welcome to our Second Quarter 2014 newsletter. In this edition we have guest reporters. Both are real estate brokers; Martin Posch and Simon Loftus. Martin is a Cabo San Lucas broker, and Simon is a realty agent from La Paz, Baja California Sur. Welcome to these real estate industry leaders.

During the Second Quarter three significant real estate events took place. First, in early May was the Toronto Real Estate Board's, "Realtor Quest." Later that month came NAR's Real Estate Party and Expo in Washington DC. More recently, The Mexican Association of Real Estate Professionals (AMPI) staged the AMPI International Real Estate Summit. It was a highly successful event with attendees coming from the three NAFTA countries.

Mexico Success Stories

Mars Incorporated reaffirms its investment in Guanajuato. The Virginia-based confectionary company Mars Incorporated, which owns brands like Snickers and Milky Way, will invest $160 million in the construction of its second candy-bars manufacturing plant in the state of Guanajuato within the next two years. With this investment, 250 direct jobs will be generated. The decision was made based on the forecast of the candy-bars market in Mexico which it is estimated a 13% annual growth this year. Therefore, there is a great development potential since consumption per capita per year is steadily increasing. Mars Mexico has five factories in the country.

Magna expands Mexico power train operations. Canadian auto parts supplier Magna International Inc. is expanding its power train operations in Ramos Arizpe, Coahuila, with a $75 million plant to produce all-wheel-drive systems for Audi. The planned 172,000-square-foot operation is scheduled to open in 2016 and will create 230 jobs at full capacity. Magna Powertrain has operated in Ramos Arizpe since 1999 and employs more than 1,400 people at two plants producing AWD and four-wheel-drive systems. The Ramos Arizpe plants produced more than 2 million axles and driveline products in 2013.

Canadian BRP Inc, the former recreational products division of Bombardier Inc., reinforces its presence in Mexico by investing $51 million in a third manufacturing facility that will be located near its existing facility in Juárez City, Mexico. The investment will expand its Can-Am product offering and meet future demand in the fast-growing off-road market. The 46,000-square-meter manufacturing plant will be completed by 2017 and will employ 900 full-time workers.

Johnson Controls will expand its Ramos Arizpe plant. The metallic division of the Wisconsin-based company, Johnson Controls, is expanding its manufacturing plant located in Ramos Arizpe, Coahuila, with an investment of $10 million. Once completed, the expansion is expected to add 100 new direct jobs.

BNSF and Ferromex set intermodal service - The Texas-based, Burlington Northern Santa Fe Corp., a leading railway carrier in North America, and Ferromex, Mexico's largest railroad, launched a new international cargo intermodal service five days a week between Chicago and Silao, a fast-growing manufacturing hub in the state of Guanajuato. The new intermodal service provides customers with a reliable and fast transportation option to move goods across the U.S.-Mexican border, reducing shipping costs and delays.

KCS will increase its investment in Mexico. The Missouri-based Kansas City Southern will invest $145 million in equipment and infrastructure in Mexico this year through its wholly-owned subsidiary Kansas City Southern de Mexico (KCSM) as a response to the increasing demand. The company will purchase new locomotives and cars in order to increase cargo by 4%.

Infrastructure Projects in Mexico

Baja California V Thermal Power Plant
Sponsor: Federal Electricity Commission (CFE)
Location: Baja California Sur
Project Value: $107 million

The project consists of designing, building and supervising the operations of the Baja California Sur V thermal power plant, located in La Paz, the capital of Baja California Sur state. It will have a net generating capacity of 46.8 MW and is expected to be completed in June 2016. The project is the expansion of an existing power plant, whose first four phases are already in operation, that provides electricity to La Paz and nearby tourist areas, meeting the energy needs of some 200,000 residents. Business Opportunities: engineering, set-up equipment, steam turbine, turbo generators, control and precision equipment, electrical equipment, generators, construction materials, and transmission lines.

Obregon City Bypass
Sponsor: Ministry of Transportation and Communications (SCT)
Location: Sonora
Project Value: $54 million

The project calls for the construction and operation of a 34 Km. highway bypass connecting the Federal Highway 15 without crossing the city of Obregon, Sonora. The bypass will make cargo movement along the trans-pacific coastal corridor more efficient and reduce traffic congestion through the city. Construction is expected to start in October 2014 and finish by 2016.

La Paz Real Estate Report
By Simon Loftus, La Paz Bay

Over the last year there have been 86 recorded sales via the La Paz MLS. The following summary will give you an insight into the mix of sales to help discussions with your clients whether it is in setting pricing or in whether or not to accept an offer.

Of the 86 properties sold they break down to: 31 Homes (36%), 27 Lots (31%), 27 Condos (31%), 1 Commercial (1%) The highest value sale of the year was a commercial property located on the Malecon which sold for $840,000 USD. Congratulations to Gary Brasfield for making the largest MLS La Paz sale of the year.

In residential properties the most expensive properties were two homes listed for $475,000 USD, both sold by sales agent Robin Hodgson, one of which was listed by himself and the second by Annie Espinoza.

Although there have been a few big sales this year, the majority of the markets sales have been driven by affordable second home properties and investment properties. 67% of houses and condos sold were sold for under $200,000 USD.

Houses
House sales ranged between $43,000 and $475,000 USD, however the average sales price was $201,000 USD based on an average listing price of $225,000 USD. This shows that on average properties were sold for $24,000 USD less than their asking price, a 9% reduction in the price. The biggest reduction in the asking price was 27% from $389,000 to $285,000. Of the houses sold 32% were below sold for under $100,000 USD. On average houses are selling for $79 USD per Square Foot of AC Construction.

Condos
Of the 27 condos sold in the past year, 24 of them (89%) were Alttus Condominiums. Congratulations to Doan Cortez and Brian Westerlund for controlling the condominium market in La Paz. Because of this it means almost all condominium sales for the year were new build properties and the sales price and the asking price were the same. This is particularly important for anyone looking to sell an existing condominium.

Condominiums were sold between $80,000 and $410,000 USD, however the majority of these were sold between $100,000 and $200,000 USD. Only two condominiums sold below $100,000 USD. This is partially driven by the supply of properties as well as the demand. There are next to no options available under $100,000 USD therefore if you did want to buy in this price range you would be stuck to find an option via the MLS.

Listings Left to Sell
There are still a number of properties left to sell on the MLS, however there are also areas in dire need of listings. There are 383 Listings currently active in La Paz of which 256 are within the city of La Paz, the majority of the remaining listings are located in El Sargento/La Ventana (108 listings).

Zones such as El Centenario, El Comitan and La Posada has a large number of listings for sale for the size of the area, compared to areas such as El Centro and El Esterito which are very popular with foreign guests wanting to live near the Malecon and Downtown. This is good potential for those of you looking to search the streets for people who are interested in selling their homes.

This comparison is even stronger when looking for houses, rather than condos and lots. Of 125 houses listed for sale currently on the MLS only 5 are located between Heroes del 47 and Marquez de Leon, below Calle Altamirano and one of these is a $3.5m USD home.

There is lots of potential and plenty of clients still arriving into La Paz even as the temperatures are starting to rise, which is a great sign for the coming season. Even without an international flight La Paz is a great place to visit and to live and more and more people are coming to realize this.

Los Cabos Residential Market Report
Courtesy Martin Posch, Windemere Los Cabos

The number of sales for residential real estate has increased in the first five months of 2014. Residential listings under contract have increased by 24%.

The total sales volume from January 1 to May 31, 2014 on residential properties (condos & houses) is up by a 23 percent to $105,069,822 US Dollars. The average sales price is up by 15 percent to $555,925 US Dollars. The total number of sales is up by a six percent.

The condo market is starting to develop nicely, compared to 2013. The total sales volume is up a 116 percent to $37,029,510 US Dollars and the average sales price is up by a 45 percent to $356,053 US Dollars.

Sales for single-family homes were even with 2013 at $68,040,312. This is the first time in 2014 that we caught up to the 2013 numbers. The average sales price is up by 26 percent to $800,474 USD.

Although the numbers for single family homes have lost some steam, I believe that we will see an increase in activity and sales in 2014. But, as I mentioned above, it will be a slow recovery. Pending sales are up a 24 percent so that makes me believe that we have hit bottom and we will see prices stabilize.

The percentage of list to sold price for condos has rose from 90-92% and for single family homes from 88 - 90%.

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John Glaab is Vice President, International Market at Mexico's The Settlement Company. He is a founding member of AMPI Los Cabos and a Certified International Property Specialist. In 2013, John was named the International Real Estate Member of the Year by NAR. For further information, contact John at John.Glaab(at)settlement-co.com.