Made in the Shade?
 Mark Keast - The Toronto Star
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| John Chicoine, formerly of Brampton, now lives and sells real estate in Mexico. “Getting a mortgage can still be tight,” he says. "In many areas the rule of thumb is still cash deals." (Seabreeze Ventures)
Closing Costly
Estimated breakdown of closing costs on a $400,000 (all figures U.S.) condo in Cancun area:
» Notary fees: $3,400
» Expedition of deed: $35
» Certificate of no liens: $25
» Transfer of property tax: $8,000
» Deed registration at public registry: $4,000
» Appraisal: $1,300
» Trust agreement fees: $880
» Set up of fideicomiso and first year trust fee: $1,300
» Miscellaneous: $50
» Total of notary fees, bank fees and taxes: $18,990
» Stewart title fees (closing costs): $5,280 *
» Total: $24,270
* Stewart fees include 0.7 per cent optional owner's title insurance policy costs, which is recommended Source: Stewart Title Riviera Maya |
Cancun, Mexico – For Roberto Flores Castrejón, owner of an Isla Mujeres luxury resort called Casa de los Sueños, the gaudy four-level home next door that blocks a quarter of his pool-deck ocean view is daily confirmation of his worst fears.
"The builder is a cardiologist from New York," Castrejón says. "When he built it, I told him he broke my heart."
But questions about architectural taste aside, the cardiologist appears to be a wise investor. Isla Mujeres – an eight-kilometre-long, 750-metre-wide island off Cancun – is undergoing a building boom, re-shaping what was a sleepy fishing village just a decade ago.
Appreciation on an average-sized oceanfront lot (20 metres by 20 metres) has been well into the double digits since Hurricane Wilma in 2005. Charles Simpson, an American retiree and his wife built a 3,500-square-foot home on the ocean in 2006. They paid $350,000 (all prices U.S.) in total for their land and to custom-build their dream home. The property would now list for more than $700,000.
But while politicians and many locals are focused on the money and jobs lured by the sudden growth, Castrejón and others on Isla Mujeres say the boom that's driving the worth of their investments has come at a steep price. Too many days are spent in a tug-of-war with local government officials as some developers thumb their noses at the four-storey building restriction. Many see overdevelopment as a threat to everything that made the island special in the first place.
As for the increasing numbers of boomers from Canada and the U.S. – the people who are largely driving real estate frenzies in Isla Mujeres and across the country – there's a lot to learn about investing wisely and safely in Mexico.
Canadians and Americans are looking to Mexico – from the Riviera Maya and Yucatan on the east to Puerto Vallarta and Baja on the Pacific coast.– as a cheaper alternative to traditional retirement locales in Florida or Arizona. And it's not just the land prices that appear to be a bargain. Property taxes on a $400,000 condo will run you around $500 a year, with a discount if you pay it up front. (However, closing costs can be hefty and capital gains are taxed heavily).
A recent Fortune magazine naming Yucatan as one of the best places in the world to invest has only heightened the buzz – not only in Yucatan, but in other hotspots across the country. The red-hot buying and flipping craze in Baja prompted newspaper headlines in the U.S. last month after the U.S. sub-prime mortgage debacle spooked would-be buyers, causing speculators to sweat.
Mexican property brokers, including Mark Mercieca of Mundaca Real Estate, estimate that there are more than 100,000 foreign property owners in Mexico. "Sixty per cent of that total is American, 20 per cent Canadian and the rest European and other countries, with higher concentrations in places around Cancun, Puerto Vallarta, and Baja Peninsula," Mercieca says, adding that the loonie's parity with the U.S. dollar only stands to boost the Canadian percentage.
But while the weather is beautiful and the people friendly, the buying process requires a heightened level of due diligence.
"Mexico is not for everyone," says Mitchell Keenan, operating broker for Mexico International in Merida, Yucatan.
If you talk for long with locals in the industry you'll hear tales of developers suddenly jacking up prices during a buying frenzy and would-be buyers' deposits disappearing without a trace. Purchasers are said to have discovered liens on properties after making their commitments. One Canadian buyer was told she had financing but then found it was anything but a sure thing. In Baja, some buyers didn't discover until after the fact that they had purchased ejido land – communal property, bequeathed to agrarian communities by the government.
"You might buy something legally but whether it gets recorded properly is another story," says Jeff Riegel, an American developer building La Isla Condominios.
It's buyer beware throughout the country, in large part because the real estate market is still relatively new in many regions.
"Too many people leave their brains at the border," says Jim Botaish, a Re/Max agent on Isla Mujeres. People get island fever, he says.
"It amazes me how many people will be so careful with their property purchases back home, then come down here, talk to a bartender and buy something with a signature on a napkin," says Ron Brown, a native of Vancouver and president of Isla Realty, who has lived on the island with his wife for 10 years.
"There's a slower pace here," says John Chicoine, a native of Brampton who moved to Mexico and now is part of Keenan's stable of agents.
He says it's important to get a sense of how pricing can vary – sometimes wildly – for seemingly similar properties. For example, a lot and home that would go for as low as $35,000 in the area near his home in Chuburna, near Merida, might be a completely different deal across the street, all based on location, type of property, additional investment in remodelling and property maintenance.
"I know buyers who bought small, run-down colonial homes in Merida for $20,000, invested $10,000 in remodelling and fairy dust, then resold in 12 to 18 months for three times the total investment," Keenan says. "That is the positive. That is nearly impossible to do these days. Nonetheless, we are still in an appreciating market and I don't see that trend ending any time soon."
There are areas of the Yucatan without landlines for phones, then there is Riegel's project – a planned five-star, 69-unit, oceanfront condo development on Isla Mujeres, which will offer most amenities North American buyers might demand – if you're willing to pay the average $475,000-per-unit price.
Riegel says his objective is to put in place infrastructure that covers off those popular concerns he hears from North Americans, such as lining up a mortgage lender, building a hurricane-proof structure, providing title insurance, and property security. "Simple is king," he says.
Clear title is only as good as the attorney, notario or title company you hire to close the deal, he adds.
The buyer will need a notario to execute the fideicomisos – the primary vehicle for owning property in Mexico's restricted zone (all land within 100 km of international borders, or within 50 km of any coastline), a trust agreement one establishes with a bank to hold title of the property, renewable every 50 years.
"Things are changing rapidly," Chicoine says. "Getting a mortgage can still be tight. In many areas the rule of thumb is still cash deals. The biggest thing I find is a lot of people don't understand the rules and regulations that surround purchasing. It's totally different down here, and a lot of people find out the hard way."
But Mauricio Guerrero, a spokesperson at the Mexican embassy in Ottawa, stresses it would be wrong to view the real estate markets or his country's legal system as anything akin to the Wild West. Mexico is part of more than 30 international free trade agreements he says, adding that the country guarantees property rights, the government doesn't interfere with the currency and the central bank is independent, as are the three branches of power – the executive, legislative and Supreme Court.
Mercieca, who works as a broker on Isla Mujeres, argues that the international community ensures Mexico respects rule of law.
"Look, Mexico is too tight to that umbilical cord," he says. "Today in a global world you can't fight an enemy like Europe and America, not for a few parcels of land. With its wealth, labour, location, natural resources, Mexico will be among the top developed countries in the world over the next 15 years."
Keenan says younger buyers are now entering the market, with the slow onset of more reasonable mortgage products. "Eight to 10 years ago, almost all our foreign buyers were retiring couples or singles in their 60s," he says.
Young couples like Toronto's Floydilou Kerr and her husband, Michael Carlyle, who bought their condo new, say they have found the experience to be positive. Owners of a 1,600-square-foot condo in Bucerias, north of Puerto Vallarta, for a year now, they say the biggest obstacles have been organizing unit owners from across the continent into a cohesive, dedicated condo corporation, plus making sure they don't under price the nightly rental price for their unit once they reset it in a few years.
More Canadians are opening up to the possibility of taking a chance and buying here, helping to fuel the appreciation in the marketplace. Whether the locals benefit or get caught under the wheels, as Castrejón fears, is another thing entirely.
Mark Keast is a Toronto freelance journalist who has purchased a property on Isla Mujeres. To learn more about buying real estate in Mexico, email him at questions@isla-mexicoproperties.com. |
Vallarta Weddings
Puerto Vallarta Real Estate | October 2007 
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