Friday, October 26, 2007

Puerto Vallarta Real Estate Trends

As the high season draws near there are number of key trends investors should consider:

Buyers market - there are 3 years of supply presently for sale, under development or in the pipeline. And pipeline is growing much faster than sales.

Softening prices - virutally every new development has either reduced price or introduced significant discounts from list. Icon Vallarta has dropped its entry level product from $240M to $190M, Grand Venetian from $220M to $190M. Villas de Colina II has been repriced from $450M to $385M. Molina de Agua is down 15% since last April. Punta Esmeralda is offering discounts of 9-15% from list as well as very flexible financing. An exception is Tower 1 at The Peninsula which has increeased prices slightly, but has pre-sold only 3 of 80 units in 6 months.

Financing options - the mortgage brokerage business has experienced slower growth than expected. Developers are much more often now offering financing options. Cash is still king.

Shakeout - projects such as Monte Verde have been pulled from the market due to slow pre-sales and the absence of full permits. At least one mortgage broker has closed. Real estate offices are closing. GMAC has indicated it will retreat from lending in Mexico. However, New Earth Capital, a very experienced California based brokerage business, is entering Mexico.

Continued absence of full disclosure - sales offices and developers continue to fail to provide full disclosure, whether it be strata (condominium) legal structures, proper deeds subsequent to closing and selling prices.

Absence of infrastructure development - despite continued promises, the governments of Puerto Vallarta and the states of Jalisco and Nayarit are hesitant to invest in infrastructure. Property owners in Amapas will not get new roads for at least 3 years and the nearly 600 new owners will have to compete with construction vehicles, on a one lane cobblestone road to reach their homes. Nayarit owners face a bigger issue. Their only fresh water source, the Ameca river, came close to drying up last winter. There are at least 10 new developments in Nayarit that are served by just one road which I can only navigate in a truck despite it being paved. In addition, Nayarit owners still must drive 10-15km to reach a drugstore or foodstore. The one jewel is the new airport which was recently privatized and expanded.

Canadian dollar parity with USD - Canadians can now afford to buy in Mexico. Many are entering the market. My lawyer has advised that his Canadian client list has grown by more in the past 3 months than it did in the past 3 years.