Yes, you can drink the water.
That worry usually weighs heavily on the minds of prospective U.S. buyers of vacation property in Mexico. But there also is another matter to consider.
“It’s not so much, ‘Don’t drink the water,’ but the quantity of the water,” said John B. McNeece, a partner at the San Diego law office of Luce, Forward, Hamilton & Scripps LLC’s business practice group, and a specialist on international transactions. “There is no guarantee the water will be there.”
But McNeece said he has observed growing attention being paid to upgrading the infrastructure in Mexican developments.
“We’re starting to see increased focus on private utilities, where companies will come in, for coastal properties in particular, and put in private seawater desalination and water treatment and power, so units on the coast have better assurance of water and sewage and power.”
Indeed, utilities are a major issue in Mexico, said McNeece.
“It’s essential,” he said. “A lot of people who put in projects, put wells in the ground and hope it’s enough. But the studies of water are quite old. It’s important to have utilities in place. Home buyers need to look carefully on the availability of utilities and the cost.”
McNeece also has observed more master-planned developments, using American techniques.
“For the foreign market, some high-end developers are really upgrading their product, doing very nice architecture, high-end planning for communities, the kind you would see up here, largely on the ocean,” he added.
Comforts Of Home
One of the developments that is investing heavily in such infrastructure is Punta Mita, a master-planned resort and residential community covering more than 1,500 acres on the Pacific coast of Mexico in the state of Nayarit, Puerto Vallarta.
Owner/developer Dine is investing about $160 million in new or improved infrastructure in the community, including water piped from deep wells in the Sierra Madre Mountains, and treated at an on-site purification plant; phone lines, Internet access, road improvements, electricity generated from a nearby power plant, with enough capacity to supply power to the development through build-out; natural gas, and sewer systems.
While these services usually are taken for granted north of the border, they are a major marketing tool in Mexico, which still can carry a Third World stigma even in posher areas.
“More and more people are comfortable dealing with Mexico real estate now,” said Lynne Bairstow, director of marketing and operations for Punta Mita Properties. “There is a sense of security now. We do find that people looking at Mexico for second-home ownership tend to be people more global-minded, who are used to traveling a little bit more, and have outlived the stereotype of ‘don’t drink the water.’ People think more of Mexico as an extension of their back yard, rather than a foreign country.”
While demand for prime property in Mexico is rising, developers tout that their prices are still relatively affordable.
At Punta Mita, prices range from $575,000 for a two-bedroom condo on a golf course, with ocean views, concierge, and other amenities, to $6 million, for oceanfront homes, with a private bay, pier and beach club on the cove.
“Mexico creates a lot of opportunities, not just because it’s a good buy, but because it’s a beautiful country,” said Bairstow. “Americans are not as welcome everywhere in the world, but that’s not the case in Mexico, especially Pacific Mexico.”
Among the first master-planned communities in the Las Conchas area is Pointe de las Conchas. Billed as a luxury custom-home and condo community in Rocky Point, Mexico, it’s surrounded by the Sea of Cortez, and set for groundbreaking in the fall.
The developer, Phoenix-based Canusa Homes, is marketing the mixed-use project, along with its desalination and sewage facilities, as being built to “American standards.”
Dan Baxter, the president of construction for Canusa Homes and vice president of construction for Pointe de Las Conchas, also boasts relatively affordable prices on the residential units. A two-bedroom unit, with an ocean view, for instance, starts at $385,000, he said.
“Three years ago, you could have bought it for $200,000,” said Baxter. “It has gone up, but compared to Cabo or San Diego, it’s a huge difference, and Hawaii is really expensive.”
But prices are rising steadily for property in Mexico, said Georgi Bohrod of Georgi Bohrod & Associates, a San Diego-based marketing and public relations firm with many clients in Mexico.
“Prices are going up quarter by quarter,” she said. “They have gone up $150,000 in each price range in four years.”
Still, she said, buyers can get good deals, compared with north of the border, complete with “five-star services, huge units and sweeping ocean views.”
Market Forces
Pat Butler, a developer whose properties include El Dorado Ranch in San Felipe, Mexico, said that the majority of U.S. buyers in Mexico come from California.
“As real estate gets more expensive and less available around the coast regions in California, and good retirement spots, prices have gotten to the point that they are out of reach for a lot of people,” he said. “By them going to Mexico, their money will go six times further.”
Land values, too, are considerably lower, said Butler.
“By the time you put land and construction costs together, you can be in for $350,000,” he said, compared with more than $1 million north of the border.
Butler recently sold a home on a golf-course fairway on a quarter-acre lot, near the sea, for $225,000, compared with about $1.5 million in a California coastal community, he said.
He also has a property management program where buyers can rent out their homes when they’re not using them.
“We have people who buy with us, with changing situations,” said Butler. “We created our own resale department on homes and home lots. In the past five years, average appreciation has been in the double digits.”
In addition to full-purchase transactions, some buyers are investing in so-called fractional property, an alternative to time shares and whole ownership, designed to give buyers more time in their units, and higher profitability from appreciation.
“People aren’t buying fractional property only because of price, but for convenience,” said Bohrod. “They’re buying fractional property because of the management. They aren’t there all the time, so it doesn’t make sense to have something standing idle six months of the year.”
Well-Heeled Boomers
Butler said his typical customers are 50-year-old-plus baby boomers.
“They are at an income point where they are starting to think about retirement or semi-retirement, or vacation-home investments,” said Butler. “They are baby boomers, and we see this trend continuing. That will be our core market.”
Why a variety of boomers?
“A lot of my owners own their own businesses, have had tenure in companies for a good while, and are secure in their jobs and incomes,” he said. “If they’ve been in the California market very long, they’ve all had tremendous appreciation in their own real estate through the years. Even though it’s softened, it’s still very strong pricing. For Californians, they can see bigger difference in values.”
It’s a mixed bag.
“Our buyer tends to be younger,” said Bairstow. “We see a lot of people looking for a resort home, and they think they can get more value in Mexico. It’s also a multi-generational trend, sharing the property with children and grandchildren and bringing the family together.”
Younger buyers, she said, are more apt to want to disconnect from the stress of daily life, including traffic.
“Most of our buyers are in investment, technology, real estate, entrepreneurs , forward thinkers,” said Bairstow.
As for retirees, Butler said that they appreciate the relative lower cost of living in Mexico.
“It’s at least half as expensive in Mexico as here,” he said. “Labor costs are lower, people are able to afford things, like gardeners and house help.”
Add to that, he said, are lower food and utility costs, all of which gives retirees on fixed incomes the extras they might not enjoy as much up north.
Butler isn’t fretting about any downturns in the market.
“That primarily is for the first-home buyer, not for second-home buyers and retirement- and leisure-home buyers,” he said. “We have not seen a big, big slowdown in marketing activity and attraction for Americans that know something about Mexico, and have been to Mexico before.”
Butler, who was named 2006 Ejecutivo Distinguido (Distinguished Executive) for his contributions to the San Felipe community, is a veteran in the market, and is in for the long haul, he said.
“We are community developers,” he said. “I’m not going in and doing 200 houses or lots and then we’re finished. I own 35,000 acres in San Felipe. We have at least 15 more years of community inventory to sell and develop.”
