VIEWPOINT |
What's Been Happening? - What 2005 Gave Us?
By Harriet Cochran Murrray - Cochran Real Estate - April 2006
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“A study of economics usually reveals that the best time to buy anything is last year”
Marty Allen, 1972.
Beginning with January 1, 2006, we knew that we were facing large issues of oil prices for the coming year, as well as important the federal elections in July, 2006. These two issues will be major influences in the economy this year.
 The Three major parties competing for power are the National Action Party (PAN), the Institutional Revolutionary Party (PRI) and the Democratic Revolutionary Party (PRD). The frontrunner at the moment appears to be the major of Mexico City, Lopez Obrador.
Healthy business indicators for 2006 came from the economic growth of more than 3% in 2005, wholesale and retail figures rising steadily, and a high consumer confidence index.
Total direct foreign investment (DFI) in 2005 was between 17 and 18 billion dollars in preliminary figures. Some business leaders are saying direct DFI could reach 25 billion dollars in 2006. Key interest rates remain low and more than 750,000 new permanent jobs were created in 2005. The Mexican Stock Market (Bolsa Mexicana de Valores or BMV) gained more than 30% in 2005.
In December 2005, the nation’s international reserves were close to 70 billion dollars, an all-time high. The 2006 budget set goals of 3.4% growth in GDP, with 3.6% inflation, and an exchange rate of 11.30 pesos to the dollar at year-end.
A huge commodity affecting housing is cement. Major cements manufacturers Cemex, Holcim Apasco, Cementos Moctezuma, Cementos Cruz Azul, Cementos Chihuahua and Lafarge have invested over a billion dollars over the past 5 years in increased capacity and updating of plants. A portion of this total investment has been used to reduce atmospheric contamination and figures show that emissions have fallen by 6%.
Natural gas production is expected to rise by 4.8% in 2006. Even though this is not enough to meet future demand (rising by 5.7% a year), the shortfall will be made up by imports of natural gas from the USA fields through pipelines, and Liquefied Petroleum Gas from ocean-going tankers.
Recent contracts awarded by the Federal Electricity Commission include one to General Electric Company to boost the output of the Laguna Verde nuclear power plant by 20%. CFE has awarded contracts worth 63.6 million dollars to the Spanish company Iberdrola for kilowatt substations and high-voltage transmission lines.
Large-scale real estate developments such as shopping centers, residential complexes and industrial parks continue to be built in Mexico. One of the largest specialists in these types of real estate developments is Grupo Inmobiliario Gicsa, founded in 1989. Its latest project is it’s mixed-use of residential and commercial development in City Santa Fe, a 42,000 square meter property behind the corporate headquarters of Daimler-Chrysler in the western Mexico City district of Santa Fe. The project will include housing for several thousand families in eleven tower blocks. The first three towers, with up to 36 stories with 460 apartments, are due to open next year. Condominiums will range from 80-240 square meters in size at an average price of 2,000US dollars a square meter. The mini-city will include a full spa, business center, gym, swimming pools and gardens, as well as a commercial zone.
Mexico City developers and builders are now in our market place - the Bay of Banderas. Two projects are being handled by them on the south shore: Amapas and Conchas Chinas. The Barceló is the new name for the La Joya Mismaloya Hotel. The new name is a clue of the country and city where the owner resides: Barcelona, Spain. Developers from Guadalajara also continue to be a major force in real estate development in the Bay of Banderas. Americans and Canadians are here, as well.
For the first time, we have data analizing developer projects in addtion to the MLS, Multi-list reporting of sales from cooperating agencies in AMPI, our national real estate organization.
In a comparison to 2004 and 2005, we have seen an increase in the sale prices of developer new projects: up to 40% more than resale prices. Prior to 2001, resale inventory through the Multi-list network was estimated to account for about 50% of the total market. In 2004 Multi-list sales tripled, and accounted for 25% of the total market. In 2005, Multi-list sales accounted for 13% of the total market. This can mean several things, but it does indicate for sure that development is big in our market place at the moment. More types of properties with more selection of amenities, sizes, colors and shapes, are available to the consumer.
Why can the new development average price be 40% more than most resale prices? New construction is a more modern product fitting the tastes and lifestyles of the buyers. Short-term financing is available, and the prime locations being offered are beachfront or prime ocean view.
 The sales price in the Multi-list product in 2005 was an average of a little more than 200,000USD for condominiums and over $450,000USD for homes. In 2004, when more sales price information was recorded by participating agencies, the list vs. sales price difference was 8.6%. In 2005, the difference was 6.7%. These figures show we have been moving into a sellers market in resales, as inventory has been reduced.
More three bedroom condos have come into the market as new product. The average listed price is between $400,000USD - 450,000USD. In contrast, the average listed price of a three bedroom resale home is under $250,000USD for 2005. Four bedroom homes listed averages of over $800,000USD for 2005. It appears three bedrooms are becoming more a condominium product and four bedroom plus homes are more in demand and command a higher price point. More new five bedroom plus homes were built in 2005 than previous years since 2001.
A new successful condominium development on the north shore, (outside of Punta Mita,) went from a beginning average sales price of $300,000USD in 2002, to almost $700,000USD a unit in 2006.
Condo prices per square meter: Listed prices were $1,580USD per square meter for a Multi-listed 2 bedroom condo in 2005 and $2,400USD per square meter for a two bedroom condo sold owned by developers.
Home prices per square meter: Three bedroom plus average listed prices were $1,400USD per square meter in 2005.
Luxury million dollar plus homes have risen from a list price of $2,300USD a square meter in 2001 to $2,450USD per square meter in 2004, and $3,020USD per square meter in 2005. Sales prices per square meter for 2004 were $2,150USD and $3,000USD in 2005.
Resale Market Appreciation:
Condos in general have risen 47% since 1999, or at 8% a year in the Multi-list database. Strongest growth was with 3 bedroom condos which rose by 81% since l999, or 14% per year.
Homes in the Multi-list have risen 18% since 1999, or 3% a year. Strongest growth was in 4 plus bedrooms, rising 65% since 1999 or 11% a year.
Homes with three bedrooms or less have seen little appreciation.
Who are the buyers in this market and where will they continue to come from?
In the United States, in a poll of 2,000 people, 72% said owning a vacation home is the ultimate status symbol. The NAR (National Association of Realtors) found in 2004, that more than 1/3 of residences purchased were second homes bought for investment or retirement by baby boomers aged 55 and up. Some 78 million American baby boomers are now middle-aged.
It is estimated that between $7 and $10 trillion dollars will be in the hands of baby boomers over the next 10 years. This does not take into account the amount of money being invested by Canadians who would qualify as baby boomers by age and income.
Historically, big markets for second homes or retirement homes for baby boomers in the US have been Florida and the Southwest. Over one million Americans live in Mexico and are the ages of baby boomers. They are attracted to the weather, quality of life and affordability. Mexico has seen housing productdion and investments increase almost 45% in the past few years. Recent strengthening of property rights and contract laws are making it more feasible for non-citizens to conduct transactions.
Financing, being now offered by major lenders, will open up another market for North Americans as well. More variety of mortgage products will be available as more mortgages are placed on our Mexican real estate.
The market in 2006 is vibrant, exciting and very busy. Come see what is happening!
Harriet Cochran Murray
E-mail: harriet@casasandvillas.com
Information for this article has been furnished by: Operadora de Fondos LLoyd, S.A. and Producciones Viva.
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller conduct his own due diligence and review.
For additional information on properties, for sale or lease within the bay please visit Harriet Murray Website, call or e-mail me at: harriet@casasandvillas.com
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