Vallarta/Riviera Nayarit Real Estate Study 2011
Published Feb 3, 2012 - (Updated Jun 28, 2012)
The real estate market in Vallarta and Riviera Nayarit continues to make adjustments, primarily brought on by external forces such as the downturn in the American economic and real estate markets. These have affected local real estate dramatically, as Americans have provided more than 60% of the buyers in the past, the remainder split between Canadians and the Mexican national market. As the number of American buyers diminished, some of the slack was taken up by Canadians, who did not experience a national real estate downturn, and Mexico’s continually growing middle class from places such as Guadalajara and Leon, Guanajuato. But that has not been enough; American buyers are needed, and 2011 was the year they started to return.
The results that follow were generated from two local MLS systems: Multi-List Vallarta (MLV) and Multi-Dev Vallarta (MDV), which have been providing MLS service to realtors and developers in the region for more than 20 years. MLV is for re-sale properties only, while MDV is designed for the needs of real estate developers. Although all properties in both systems are available at MLSVallarta.com, having two separate MLS services allows for in-depth market studies, comparing the two against one another.
It should be noted that these MLS services include only tourism-related real estate; they do not take into consideration the larger part of the regular market, hence the lower number of sales.
It has always been difficult to get good sales reports, as information is not easily available from the Land Registry office. Instead, we have to rely on realtors reporting their sales—which they don’t have to do—and—when they do—reporting it accurately. Every year, realtor reporting gets better, which means more information to work with. They only report their exclusively listed properties, so we have no data on “pocket” or “open” listings, nor do we have information on sales by offices or developers that are not part of our MLS, although the majority of them are members of MLV and MDV.
The two MLS systems reported 225 sales last year, enough to generate some statistical information on what went on in the past year.
2008: 500 sales reported (MLV and MDV)
2009: 373 sales reported
2010: 302 sales reported
2011: 225 sales reported
Note: There is often a lag between when agencies report sales and when the sale actually took place. We estimate that by the end of the first quarter of 2012, total sales reported for 2011 will be closer to 275.
The number of sales has been declining since 2008, with the drop primarily related to new product, or developer properties. The number of re-sales has remained quite consistent, down just 10% since 2008. Developers have been hit the hardest, with their sales down 80%. But it’s important to put this in proper perspective, as there are a number of reasons for this.
Since 2008 a number of developers have completed their projects and are now sold out. They have not moved ahead with any new projects because there is little demand for it. So there is less inventory on the market than there was four years ago. However, some developers have been left with product that does not fit into what the market is demanding. Four years ago, buyers wanted big units, with at least three bedrooms, plenty of extras offered with the units and common areas rich with expensive amenities. Today, for the most part, demand has gone in the other direction: smaller units, bedrooms sacrificed, standard furnishings, few amenities on the property and low maintenance fees.
Activity was primarily centered on condominiums, as in years past, with roughly two condo sales for every home sale. However, four years ago, when the market had peaked, 70% of the sales generated were by developers, primarily new condominium units. In 2011 they generated only 35% of the sales, with the remainder being re-sales. It is common to have this reversal in the down cycle of a real estate market. Developer sales will come back, but first for developers that can best adapt to what the new market demands: condos under $300,000, without all the frills and amenities and with low maintenance costs. There are a few who have done just this and were reasonably successful in 2011.
Realtors had informed us that last year there was more demand for one-bedroom units; however, our study showed that the split remains the same as it was four years ago, with 60% of sales for two-bedroom units, 20% for one-bedroom and 20% for three-plus units. However, this will probably change, as new developer inventory coming onto the market will mostly be for one- and two-bedroom units, compared to past years when three-bedroom units were the norm, and some projects built only three-bedroom units.
There are six primary regions where most tourism-related real estate is situated: Costa Nayarit (north of Punta de Mita), the North Shore of the bay (Bucerias to Punta de Mita), Valle Nayarit (primarily Nuevo Vallarta and Flamingos), Vallarta North (Hotel Zone and Marina Vallarta), Central Vallarta and the South Shore. For more information about these regions, visit the regions section at MLSVallarta.com.
When considering overall listings, Valle Nayarit has more properties for sale than any other region. However, looking at the number of listings and also the number of sales in 2011, this region did not do as well as others, selling only 8% of its total inventory. Vallarta Central, on the other hand, managed to sell 22% of its inventory; Vallarta North, 22%; and the North Shore, 18%. It seems the farther properties are from downtown Vallarta, the worse the selling ratio is, with Costa Nayarit and the South Shore selling only 5% and 8%, respectively.
Wanting to be closer to larger communities was a major trend we identified a couple of years ago. In the past, people were looking to get out of downtown Vallarta and more populated areas. Today, that’s reversed for a couple of reasons. Concerns about security are definitely one of the reasons, but people also are realizing they want to socialize, so they want to be where people tend to be. It also is convenient to be closer to shopping and services, as well as the airport.
The graph shows the most popular areas. The area with the best selling ratio was Marina Vallarta, followed in descending order by Amapas, Vallarta Central South (south side of the Cuale River) and La Cruz de Huanacaxtle. Marina Vallarta offers the advantages mentioned above: proximity to shops and services, good security and its location right beside the airport, plus the added advantages of a marina and golf course in the center of the development.
In 2011, 40% of condominium sales were under $300,000; 30% were from $300,000 to $500,000; and 30% were above $500,000. There was virtually nothing over $1 million, at least not reported in the MLS. The range values are lower than years past, but the split is about the same.
For homes, it’s a different story. There seem to be two distinct markets for homes: under $300,000 and above $1 million. In 2011, 50% of home sales were under $300,000, and 25% were over $1 million, leaving just 25% in the $300,000 to $1 million price range. That’s a very large gap. Cost per square meter of construction is also far apart, with homes under $300,000 averaging costs of $1,200/m2, while homes over a million were close to $4,000/m2. There obviously are a lot of extras going into those million-dollar homes.
The average price of a re-sale condominium peaked in 2008 at $356,000. In 2011 it was down to $262,500, back to 2005 prices. But that’s just for re-sales. New condominiums, with their larger sizes, amenities and extras, have traditionally sold for more and continue to do so. The average sales price for development condominiums was $577,000, which would raise the overall average condo price to $370,000. (See graph).
For homes, again it’s a very different story. To make average prices more realistic, we separated sales into those under a million and those over a million. For homes under a million, the average price was $237,000 less than that of a re-sale condo. But the average sales price for homes over a million was $2,200,000. Is this what they mean about the 1% and the other 99%?
Building lot sales follow a similar pattern to home sales; there tends to be a lot of activity under $300,000 (over 55% of the sales), with the remainder at $1 million (nearly 40%). When talking with realtors last year, many identified this trend: more and more people are looking for a lot to build their own home. It’s an interesting trend, especially with prices dropping so an existing home could cost less than it would to build it in some cases. But it seems people want to build something specifically for them, enjoying building their dream home in paradise. It also implies that people are more comfortable with the market, as they are willing to invest long term—a good sign.
Making predictions in this day and age seems rather foolish, as there are so many issues the world has to deal with right now. As I write this in January, there’s a lot of good news coming out of the USA regarding its economy. The same goes for Canada and Mexico. Things are actually looking good for North America, but perhaps that’s just because it doesn’t look great elsewhere.
I think there’s a lot of pent-up demand out there. People have been looking and waiting for years—waiting to feel more comfortable with the economy, with security issues and with their own investment portfolios. However, they are tired of waiting, and prices are looking better. They want to make a buying decision, and many are. I also believe there’s a certain amount of “mainstream media fatigue” regarding security issues in the country. I think people now are realizing that this is between drug cartels and the police and that the majority of the action is taking place nowhere near this region.
While 2012 won’t be like 2003-2008, it should certainly be better than 2010-2011. Perhaps one prediction could be that, with fewer sales than in years past, there is likely to be some consolidation taking place in the real estate industry with real estate offices. And new development will likely still be on hold, unless it’s for a product under $300,000; there’s still a good amount of new inventory that needs to be sold first.
For more information about the local real estate market, check www.vallartarealestateguide.com for articles, news items and information regarding real estate developments. For MLS searches, visit MLSVallarta.com. And be sure to read the Summer/Fall edition of Vallarta Lifestyles, our real estate issue, where we’ll be updating this article and identifying new and ongoing trends in the market. And if you are not in town, you can read the digital version at www.vallartalifestyles.com.