Featured in Vallarta Lifestyles Magazine, Summer/Fall 2007 issue.

For the past five years, we have prepared a list of trends we perceived to be taking place in the Vallarta real estate market. Information is gathered through interviews with real estate agents and developers, then compiled and reviewed for trends. Each year, interestingly enough, brings new trends, which perhaps shouldn’t be surprising considering the activity Vallarta has experienced since 2002. What follows are those trends we consider to be the most prominent and important for 2007 - 2008.

US Real Estate Turndown – How Does This Affect Vallarta?

What seems to be on the mind of everyone I’ve talked to is how the slowdown north of the border will influence our local market. Many areas of the United States have been affected by a fall-out in key real estate markets, triggered by the abuse of subprime and other adjustable-rate mortgages. Borrowers either bought or refinanced homes with subprime loans that offered artificially low introductory rates. Now facing re-pricing, borrowers are experiencing their payments doubling or are having to pay off large balloon payments, just as their homes values are declining.

So how is that affecting Vallarta’s market? First, Vallarta’s real estate market has been driven primarily as “cash-only” – mortgage financing yet to become really popular or necessary for many purchasers. Most realtors we spoke to said that less than 10% of their sales involve financing, except for new product developments, which may offer short-term financing. So, Vallarta doesn’t have to worry about a subprime meltdown; it doesn’t exist here.

What has proven to be the primary reason for the turndown north of the border has actually protected our local market, because of the fact that financing is still difficult to get in Vallarta. Realtors report that it still takes too long to obtain approved financing and not enough has been done to improve the overall application process. There are good brokers, and there are not-so-good brokers, and finding the right one can make a world of difference. But it still is not working as efficiently as all would like to see it.

Second, the people caught up in this subprime meltdown got there because they couldn’t afford the terms of a regular mortgage or even the down payment. This has never been, nor will it be any time soon, the profile of the typical Vallarta homebuyer. Americans who have the money to buy a second home still have that money – this turn in the market has not affected them to any great extent.

When asked if the market has slowed down, most realtors expressed that it is slower than last year, but then last year’s market was exceptional. Some stated it has been busier, but mostly for new real estate development. Some said they actually welcomed a slowdown so they could have some time for themselves instead of working until midnight most nights. The market has normalized. Condo projects aren’t selling out before the developer even breaks ground as we saw last year, but they are definitely selling and selling well. Overall, it makes for a healthier real estate market.

High-end Luxury Boutique Condominiums Very Popular

Although high-end homes still remain popular, it is the luxury condominium market that has really seen exceptional growth. Sale prices have been reported over $2.5 million USD, something just unheard of in the past. These developments can be found all around the bay, from Punta Mita to the South Shore; however, Conchas Chinas has received much of the attention. Developers have been taking older homes on large estate lots both on the beach and on the hillside of Conchas Chinas, tearing them down and building small, high-end luxury condominium projects. Purchasers are people who can afford to own a house, but prefer the “lock up and leave” aspect of owning a condominium. Overall sizes have increased so that condos, with 3,000-plus to 6,000-plus sq. ft., offer nearly everything a home can. And because condo developments are usually four to six floors high, they can offer superior views.

Resales Lag Behind New Product Sales

Practically every office we spoke to informed us that the re-sale market is lagging behind new sales, or development properties. People prefer the new construction and often-ideal locations offered by new developments. Some purchasers start off with a unit in a particular project, and when the developer starts a new project, the purchaser buys there as well, offering their unit on trade. It’s the “new car” phenomenon – people want the latest styles and models and all they have to offer. This allows developments to get premium prices; however, sooner or later the re-sale market will begin to offer strong competition.

Purchasers Are Informed, Thanks to the Internet

Thanks to the Internet, people are more informed than ever. If they are interested in real estate in Vallarta, they do their homework before they come down, checking out real estate sites such as www.vallartarealestateguide.com, which offers information on nearly every development around the bay, the MLS database, descriptions of popular neighborhoods, and articles on how to buy real estate in Mexico. When they find properties they are interested in, they email the realtor or developer for more information. When they arrive, they have a file full of printouts about properties. Although this has made it easier for agents in some ways, it also means they spend a lot of time answering emails, not knowing which are qualified and which are just people with a lot of time on their hands.

More People Choosing to Build Their Own Homes

Realtors report that there has been a lack of homes priced between $600,000 and $900,000 USD on the market, forcing some homebuyers to decide to build their own homes. They purchase a lot, and then find an architect and contractor to build it. In some cases, it may be the developer of the land who offers this service. The end result is that they get much more home than they would have from what was available on the market. And they get it for a price within their budget. Building a home in Vallarta, however, can be challenging, especially if you don’t have the necessary time to dedicate to the project, don’t speak the language, or are short on patience!

Lack of Product in the Lower-End of the Market

There also is a lack of new condominiums priced between $250,000 and $350,000 USD in or near Puerto Vallarta. Most of the new high-rise condo projects now have price points above this. So, people in this budget range have been looking north to places such as Bucerias and La Cruz de Huanacaxtle, where units can still be purchased for these prices, many coming with an extensive amenity package.

Fewer “Flippers”

A trend we witnessed in the past few years was the entry of the real estate flipper, or professional real estate buyer, who buys short-term to try to make a quick profit. Realtors report they are seeing less of this type of buyer. Because of the lack of financing in Mexico, it’s more difficult to do. Another reason is that developers have made it more difficult for buyers to flip properties quickly. Developers discovered that flippers became their competition, putting their unit(s) on the market while the developer was still trying to sell his remaining inventory. So, many now include clauses in their sales agreements that do not allow anyone to sell until the developer has sold a certain percentage of the project.

Developments:What’s Your Unique Selling Feature?

With so many new developments in construction, there has never been so many options and choices available. This is going to make it more difficult for developers – they needto have an edge on the competition or they aren’t going to sell, or at least not as quickly as they would like. We have seen developers offering extended short-term financing and special property amenities, such as gyms and spas, clubhouses, even a new vehicle with the purchase of a home or condo!

These can certainly sweeten the deal, but it really comes down to who can best offer the style of life, the “lifestyle,” that prospective purchasers are looking for. People want more than a condo or home, they want special services to go with it, services that you traditionally would find only at a luxury hotel. In-project concierges are becoming popular and very appealing for homeowners who are only using their properties for short periods of time. The concierge can arrange restaurant recommendations and reservations, as well as tours and activities. Personalized service is becoming more and more important; it’s not just about the home or condo anymore; much more is taken into consideration. Some projects have taken to offering this type of service in-house or contracting it out.

High-end hotels noticed this trend early and many are now offering a real estate option on their properties. The Four Seasons at Punta Mita has the Four Seasons Villas and fractional ownership; the new St. Regis also will have real estate available; and smaller boutique developers, such as El Banco, are offering a similar package of a boutique hotel with upscale real estate and the option of having all the services the hotel has to offer. It’s a strong trend and we suspect we will be seeing a lot more of this going forward.

Vallarta Suits American Travel Habits

Two trends in US travel will certainly prove to be positive for Vallarta and other destinations in Mexico. The first has to do with the new rule that Americans must have a passport to travel abroad. In the past, this was the case to enter many countries, but not Mexico, Canada or the Caribbean. The US government has received such a strong demand from people trying to obtain passports that they had to delay this requirement until the end of the year – they have not been able to process the large number of applications so far received. This indicates that there are a lot of people out there interested in visiting these countries, with Vallarta most certainly included in some of their plans.

Another trend, according to PhocusWright, Inc., is that Americans are taking shorter vacations. They are working hard – so hard, in fact, that many don’t have time for extended periods away from the office. Long weekend trips, on average four a year, are now the most popular type of leisure travel. This is fine for trips to Mexico, but it certainly wouldn’t be to Europe or Asia.

So, shorter vacations and the strong demand for passports will prove positive for Vallarta’s real estate market. People won’t be buying real estate that involves traveling for more than six hours if they only have three days of vacation. They’ll be looking for a place that is a maximum of three to four hours from home, has good airline connections and offers competitively priced real estate. Vallarta fits the bill.

Transfer of Wealth

The trend that will have the biggest impact on Vallarta’s real estate market is the transfer of wealth now taking place in America. The economic boom of the 1990s created an unprecedented amount of personal wealth in the USA — currently estimated at more than $33 trillion USD. At the same time, today’s retirees constitute one of the wealthiest segments of the US population, with more personal wealth than any previous generation.

This wealth will significantly boost the resources of the 76 million Baby Boomers. Every seven seconds, another Baby Boomer turns 50, bringing them that much closer to the time when they will be thinking about retirement and what they want to do with the rest of their lives. Second-home ownership in a warm location with convenient access back to family is high on their list. And as wealthy as they may be, the cost of living here is also important to them. It’s worth mentioning that for what property taxes may be back home, Vallarta homeowners can often pay not only their taxes but also their house employees and part of their utilities.

In Conclusion

Although the market is not as “sizzling” hot as it was last year, it is still very strong and there does not seem to be any reason it will not continue to be so. Vallarta has much to offer prospective purchasers, with a wide range of pricing, a great variety of types of real estate and locations, proximity to key markets in the USA, a low cost of living, and a warm, temperate climate. In short, Puerto Vallarta offers an excellent “lifestyle,” and that’s exactly what many second-home buyers are looking for.

This article was written by John Youden, with the valuable feedback of many realtors and developers in the Vallarta area. This article is not to be reproduced, in print or online, without his permission. The writer would like to thank David Pullen, Silvia Elias, Tere Kimball, Alex Urrutia, Wayne Franklin, Brock Squire, Claudio Leone, Benjamin Beja and Miguel Angel Lemus for their time in helping put this report together.