10 Puerto Vallarta Real Estate Trends by John Youden of Vallarta Lifestyles

Trend #1 – Buyer’s Mar­ket
It is def­i­nitely a buyer’s mar­ket. There’s plenty to see, time to shop around, and no hurry to make deci­sions in most cases. And that’s exactly what prospects are doing. Lower offers are now com­mon with the spread between list price and sales prices has moved from a more tra­di­tional rate of 6–7% to over 10%.

Trend #2 – Reduced Devel­oper Inven­to­ries
We went into 2008 with about 7,250 prop­er­ties on the mar­ket, a num­ber obtained from a study we per­form at the begin­ning of each year. This was after we saw 50 new devel­op­ments intro­duced to the mar­ket­place in 2007. How­ever, in the past when we cal­cu­lated on many prop­er­ties were on the mar­ket, we took the total num­ber of units that a devel­op­ment was going to con­sist of, rather than what was actu­ally avail­able for sale. Many devel­op­ments release in phases, most cer­tainly today when units are not sell­ing as they once were, before they had even bro­ken ground. We took that into con­sid­er­a­tion this time. We also saw that some projects, that never actu­ally had bro­ken ground, decided not to go ahead. We also saw some turn a por­tion of their inven­tory into another use, intro­duc­ing a hotel com­po­nent. When we took all this into con­sid­er­a­tion plus the sales that actu­ally took place in 2008, we found that actual inven­to­ries were down to 4,200 units. Still high, but work­able. And a lot bet­ter than some other places in Mexico.

Trend #3 – Shift from a “Developer-Driven” Mar­ket to a “Re-sale Dri­ven” Mar­ket
For the past five years the mar­ket has been devel­oper dri­ven with peo­ple pre­fer­ring the new prod­ucts that offer the newest con­struc­tion tech­niques, glitzy, lux­u­ri­ous extras, won­der­ful ameni­ties that were not usu­ally found in the exist­ing mar­ket and larger in size as the aver­age home and condo size increased dra­mat­i­cally. Peo­ple were so tied up in this that they would upgrade to the “newer” project of a devel­oper because it was “big­ger and bet­ter”. Well in today’s mar­ket, big­ger is not actu­ally bet­ter and if the extras and ameni­ties are going to add to the over­all cost and increase main­te­nance fees, then some buy­ers are not as inter­ested.
There is also the con­cern on whether the devel­oper will be able to deliver, not just on time, but also every­thing that has been promised. With exist­ing prod­uct, what you see is what you get. And in the past, pur­chasers were pay­ing a pre­mium of up to 20% over what a sim­i­lar exist­ing unit may be sell­ing for, just to have some­thing that’s new with the lat­est add-ons. For pur­chasers con­sid­er­ing new prod­uct and there are many rea­sons to still con­sider it, as men­tioned above, plus items such as war­ranties and less main­te­nance as its new, this is still a very good option. Just do your home­work on the devel­oper and the devel­op­ment. And a good real­tor can help you with that. A last advan­tage that the re-sale mar­ket has is that usu­ally an exist­ing home­owner has more room to play with on his ask­ing price. The devel­oper is more locked in to his price because of con­struc­tion costs.

Trend #4 – New Prod­uct going Forward

With price play­ing an increas­ingly impor­tant role in what a buyer can afford –because their net worth has been sub­stan­tially reduced, less work or scarcity of credit – devel­op­ers are already mak­ing changes, some to projects under­way and some for future projects. Unit sizes are being reduced (back to the 1,500-sq-ft two-bedroom condo), extras dropped (did we really need two dish­wash­ers in the kitchen?) and ameni­ties scaled back (such as onsite restau­rants, spas and concierge ser­vices). Peo­ple are seri­ously ques­tion­ing how many square feet they really need, since it all comes with a cost, both up front and down the line in clean­ing and main­te­nance fees. “Eco­nom­i­cal” and “effi­cient” have replaced over-sizing every­thing and lux­u­ri­ous extras.

Trend #5 – Financ­ing More Prevalent

The mort­gage bro­kers are busy, or busier than they have been in years past. The finance mar­ket in Mex­ico was not involved with sub-prime or ALT mort­gages, so financ­ing is still avail­able and is being requested much more fre­quently than in the past. Every real­tor now works closely with a mort­gage bro­ker, or should, since cash is not as read­ily avail­able as it was in past years or peo­ple are not will­ing to invest as much up front.

Trend #6 – Closer to Com­mu­nity and Being Involved

In the past, it was trendy for buy­ers to want some­thing “away from it all,” with exclu­siv­ity and pri­vacy. How­ever, it seems that after years in their home hide­away, many have found it a lit­tle too hid­den and would pre­fer to be sit­u­ated where there’s more activ­ity, desir­ing com­mu­nity and the abil­ity to get involved in social activ­i­ties, espe­cially as the amount of time they have avail­able to stay here increases.

In a study done ear­lier this year, where we com­pared total devel­oper inven­tory to num­ber of sales that have taken place and com­pared the results by region, we saw that, for the most part, there were more sales com­pared to over­all inven­tory the closer you got to Puerto Val­larta. As you moved away, to the north or south, sales dropped off when com­pared to the over­all inven­tory avail­able in the region. I think this also has to do with secu­rity, in part.

At the top of the list for sales-to-inventory was the Nuevo Vallarta/Flamingos area. With three golf courses, the bay’s longest beach, ath­letic clubs, shop­ping and good secu­rity, social net­works have been built up that are attrac­tive to new home­buy­ers. Today’s retiree is not pas­sive. I have a friend who is 81, and he just took up golf. Peo­ple want to be more involved in their com­mu­ni­ties, help out through non-profit orga­ni­za­tions and keep phys­i­cally and men­tally active.

Trend #7 – Pro­gres­sive Own­ership

Although this isn’t a trend that has become read­ily appar­ent yet, some large devel­op­ments that offer a wide range of real estate options are hav­ing suc­cess with it, and I believe it will become more preva­lent. These projects are start­ing peo­ple off with what they can afford and will use, in either time­share or frac­tional own­er­ship. And then, as they need more (size, space or time), they bump them up, giv­ing credit for the equity in their exist­ing prop­erty. It’s done entirely in-house and works well, espe­cially in a slow mar­ket envi­ron­ment; at least there are sales tak­ing place in the form of upgrades. I’ve even heard of devel­op­ers work­ing the other way for their clients, allow­ing them to down­grade to some­thing they need and can still afford (and keep­ing a sale together). I think this trend, allow­ing more flex­i­bil­ity within real estate pur­chas­ing, will give devel­op­ers who can offer this an edge and help them retain clients.

At the begin­ning of this eco­nomic down­turn, I thought the time­share indus­try espe­cially would suf­fer since it relies so heav­ily on financ­ing, but it has actu­ally held up rather well. I sus­pect peo­ple are being a lit­tle more real­is­tic with their expec­ta­tions and con­clud­ing that a cou­ple of weeks is all they can use each year, so why own for the whole year? And if the abil­ity to upgrade is there, it makes even more sense. Unfor­tu­nately, this type of pro­gram is lim­ited to very large devel­op­ments that can pro­vide such a wide range of real estate options.

Trend #8 – Mar­ket Convergence

When demand was at its peak for sec­ondary hous­ing or real estate tourism in a warm cli­mate, loca­tions that would not usu­ally be seen as poten­tial can­di­dates for prospec­tive pur­chasers were brought into the mar­ket. Devel­op­ments were being announced in places such as Nicaragua and Hon­duras. Panama, Costa Rica and Argentina became “hot” mar­kets. Within Mex­ico, Loreto, which had remained a stag­nant mar­ket for years, sud­denly had mul­ti­ple devel­op­ments, one with more than 6,000 home sites.

Well, as we’ve seen in our local mar­ket, the buy­ers (those that are still out there!) are look­ing for some­thing closer to the cen­ter of activ­ity in the com­mu­nity. Sim­i­larly, we see that peo­ple will be look­ing for some­thing closer to their pri­mary home, eas­ier to reach and with a large com­mu­nity (con­sist­ing pri­mar­ily of other second-homeowners) they can actively join. This is good for Mex­ico and the tra­di­tional real estate tourism mar­kets such as Puerto Val­larta. It’s not so good for Hon­duras and Nicaragua, or even the Lore­tos out there – that 6,000-home devel­op­ment, the Loreto Bay Com­pany, recently shut­ting down its operations.

Trend #9 – Canadian/National Mar­ket Rebound

When the mar­ket tanked last fall, there was a “flight to safety” into trea­sury bonds, and the Cana­dian dol­lar and Mex­i­can peso lost sub­stan­tial value against the US dol­lar. Since then, they have begun to recover, with the long-term trend being that this recov­ery will con­tinue. Since real estate in Val­larta is based on US dol­lars, this will make real estate invest­ing more attrac­tive for both the Cana­dian and national markets.

Trend #10 – Recovery

This is a trend that has just recently begun, and it still may be a lit­tle early. But with talk of “green shoots” of eco­nomic recov­ery in the USA, it seems our mar­ket has bot­tomed out and will see more activ­ity mov­ing into the fall of this year and into 2010. What’s not so cer­tain is what this recov­ery may look like. It will most likely fol­low what hap­pens in the US econ­omy, since that is where most buy­ers originate.

There are peo­ple who want to buy in Val­larta. Some are mov­ing ahead, but more are sit­ting on the side­lines, wait­ing to see where the econ­omy is going. They still want to have a sec­ond or retire­ment home here; they just need to be a lit­tle more com­fort­able with where they stand finan­cially and where the econ­omy may be going. It does seem that the eco­nomic down­turn has bot­tomed out, that the swine flu is a thing of the past (at least for Mex­ico) and that the trend should be for a recov­ery in the local real estate market.

So there prob­a­bly will be an uptick in activ­ity in the fall, with peo­ple who have been sit­ting on the side­lines because of the uncer­tainty prin­ci­ple men­tioned above com­ing out to once again look at real estate. It most likely will be slow, but slow can be good. It’s those vio­lent upswings that can also bring dras­tic downswings.

Let me con­clude by say­ing that the fun­da­men­tals for a strong real estate tourism mar­ket in Val­larta are still in place. Its prox­im­ity to US mar­kets, pleas­ant win­ter cli­mate, low-cost of liv­ing, low prop­erty taxes, great ameni­ties, Mex­i­can cul­ture and the wide vari­ety of real estate options avail­able all add up to an excel­lent oppor­tu­nity for Amer­i­cans, Cana­di­ans and Mex­i­cans look­ing for a sec­ond or retire­ment home some­where warm and invit­ing. This down­turn is tem­po­rary; the mar­ket will return as the Amer­i­can econ­omy begins it recovery.

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