On Prospects of Mexican Real Estate
Topics: Real Estate
Published: Thursday, May 5, 2011
This is a transcript from an interview given to Club Acquisition Company (CAC), the owners of El Dorado Ranch in San Felipe, Mexico. The interview touches upon topics related to real estate in Mexico, including ownership, security issues, eco homes and the future prospect of realty in Mexico.
We recently interviewed Matt Harrup, founder of Mexico’s award-winning source of independent information, Mexperience.com. Matt grew up in Mexico and has devoted the last decade of his professional life to providing foreigners with knowledge about the country.
CAC: Matt, thanks for joining us today. With all the negative news out there I thought it would beneficial for our members to hear what’s going on behind the news stories through an independent source and that is why we are having this interview. I suppose you could start by telling us who you are, what you do and exactly what Mexpience.com is all about?:
MH: Sure, first of all let me thank you for offering this opportunity to address your members. Mexperience.com is a website that publishes independent information about Mexico. We provide expert knowledge that enables our readers and members to make informed decisions for travel, lifestyle, and real estate in Mexico, and we connect them to services and people to help them realize their plans. We started this work in 2002 and, in less than a decade, we have created one of the most respected web sites about Mexico.
CAC: Matt, can you tell our members about some of the bigger issues facing Mexico and then I want to get you to address issues that are more closely.
MH: The biggest issue, as far as foreigners are concerned, is the security situation brought about by the drug-related violence in Mexico. That’s because it’s being reported on TV screens almost every day and the drug violence continues to make headline news in Mexico and abroad, as human conflict tends to.
CAC: You mention drug-related violence and it just happens that Northern Baja is one of those areas we see on the Travel Alerts. As members would need to travel through Northern Baja, this is obviously a concern. While we try to distinguish traveling through Calexico/Mexicali, the main route to the Ranch, versus the western border town of Mexicali, it would be good to hear your thoughts.
MH: The violence reported in the news is principally violence being played out between rival drug gangs. Ninety per cent of homicides in Mexico are drug-gang related. For most people living in most places in Mexico—foreigners and Mexicans—life is unfolding normally. The majority of visits to Mexico come to pass with no trouble at all; it’s just when there is a flare-up, it’s magnified because of the back-drop of the drug violence. Your members need to exercise sense and caution when traveling in that area, but there are no advisories telling people to stay away from Northern Baja, because the situation doesn’t merit them.
CAC: What are your sources communicating to you about cartel and violence in San Felipe or anywhere near the area? Is San Felipe a high risk area? Are there travel warnings issued for San Felipe?
MH: There are no travel warnings issued specifically for San Felipe and it’s not being labeled as a high-risk area, although foreign consulates are advising caution when people travel in the North Baja area. I understand that none of the residents at EDR have been affected by any of the violence. The only city currently on the no-go advisory lists is Ciudad Juarez on the Mexican mainland. People can get security updates from our Mexico Safety page which contains information gleaned from foreign embassies and also links to foreign consulate’s travel advisory sites.
CAC: We are all familiar with the Great Recession, but how has it affected Mexico real estate in particular?
MH: Realty prices in Mexico are down from their highs, just like everywhere else. However, Mexico’s building boom was nowhere near as extensive as Spain’s, for example, so the situation here is not nearly as acute as the one the Spanish are facing now. Depending upon where you purchased in Mexico and who you talk with about the local market, prices are down between 10% and 40%, and the places most affected are the places which saw the highest gains; for instance, the popular vacation resorts.
CAC: In follow up to your answer, what are the experts saying about the longer term outlook for Mexico real estate and vacation products – resort and expat destinations obviously?
MH: Well, Carlos Slim gave an interview last week during which he said that his investment group is actively buying Mexican real estate now, so it seems that they think there’s some value in the market at current levels. He didn’t specify where or what he was buying, but when you have a major investor like Slim saying he’s buying, it’s a signal. There is a need now for residential property markets which boomed to undergo a period of consolidation. The fact is that when the market became overheated some people overpaid for some properties. However, long term this process of price consolidation will enable Mexico’s realty markets to regain some composure and bring about a more mature and stable market environment. That will carry long term benefits to everyone who’s invested.
CAC: Matt, before the NAFTA agreement in 1994, foreign ownership of land was very difficult to attain and that is one of the biggest reasons why members received a Deed of License, which as you know, is similar to a land lease. Since the late 80’s a lot has changed and as you may be aware, the Ranch Developer, made US/Mexico history in 2001 by privatizing a large section of the Ranch so there is now an option for members to upgrade their Deed for a privatized lot through a Fideicomiso. All of this terminology is confusing but it is rather significant. In simple terms, can you explain the difference between having a Deed of License and a privatized piece of property in Mexico?
MH: Sure. If you buy property in Mexico away from land and sea borders, you can buy it in your own name on the Title Deed. If you purchase near the land or sea borders, you purchase through a property trust, known in Spanish as a Fideicomiso. With this, under Mexican Law, you own the property in every way except in title—and you, as sole beneficiary of the trust that owns the asset, have the right to do whatever you wish with the asset wrapped inside of it, for example: sell it, rent it develop it, etc. It’s a perfectly normal and safe transaction; all banks sell and administer these and you can get Title Insurance on a property inside a property trust; the industry would not be touching these instruments if they did not have a high degree of surety.
CAC: As our members are most concerned about San Felipe, what is your insight into the town, the potential, and the differences between San Felipe and say some of Mexico’s more known destinations such as Cabo?
MH: They are quite different markets. Los Cabos is one of Mexico’s most visited beach resorts, whereas San Felipe is quieter, more laid back, and tranquil. San Felipe is closer to the U.S. and can be reached by driving from the border, whereas Cabo is a flight or a very long drive away. The two places attract different kinds of people. Personally, I can foresee San Felipe becoming one of the world’s premier ‘Eco Home’ building regions. With all that’s happening with fuel and energy right now, the Eco sector could grow into a significant market its own right—indeed, demand for low-energy homes could soar if fuel prices remain persistently high over the long term, because people just won’t be able to afford the fuel bills on homes which consume copious quantities of energy.
CAC: I think our members will really appreciate your straight forward answers as often it is hard to know what is really going on outside of the news . Are there any publications or independent sources of information we can refer our members to so they can become better informed on the issues facing Mexico?
MH: As a rule of thumb, you get what you pay for, so publications like the Wall Street Journal and the Economist are likely to provide people with better barometric readings than anything you see on a television screen these days. Our blogs are a great source of regularly updated information, and there are some great personal blogs out there too, written by expats who are living full-time in Mexico and publishing their experiences.
CAC: Matt, I know I speak on behalf of all of our members in giving you a big thanks for your time and your insight into Mexico. Last question. Would you be willing to do future interviews with us as I believe this would be of great service to our members?
MH: Thanks for giving me the opportunity to speak with your members; I’ll be pleased to do another interview in the future.