Puerto Vallarta, Mexico - According to the International Community Foundation, Mexico is still the number one retirement destination for North Americans. "6,000,000 retired Americans will live in Mexico by 2025. That equates to an increase of 4,000,000 retirees over the next 14 years," the ICF predicts.
Recent headlines in U.S. newspapers and news agencies like CBS/AP and CNN have published articles about the Mexican government’s success in recent captures of notorious drug cartel leaders. Two of the most noteworthy arrests have come in just the last month. The head of the La Familia drug cartel, Jose de Jesus Mendez Vargas, aka "El Chango," was arrested in the central state of Aguascalientes without incident.
Of greater national interest both in Mexico and in the United States was the capture and arrest of Jesus Enrique Rejón Aguilar, known as "El Mamito," the Zetas cartel founder and leader who was connected with the killing of U.S. Immigration and Customs Enforcement Agent, Jaime Zapata, on February 14, 2011. According to Mexico’s federal police anti-drug division chief, Ramon E. Pequeño, the arrest of Rejón is "a triumph for the Mexican government. El Mamito’s capture is emblematic because he was one of the original Zetas."
The initiative that Mexican President Felipe Calderon established during his administration to eradicate narco-violence at the highest levels in the cartels has not waned. It has, in fact, gained momentum with greater success as evidenced by multiple arrests during 2010 and 2011. These arrests should be of significant news to North American tourists, retirees and second home buyers.
Mexico continues to be plagued by negative publicity in the U.S. and the perception by many that it is a dangerous country. This perception is simply not correct. Mexico must continue to increase reporting of successes in the fight against cartel narcoviolence.
Americans, likewise, need to know where the sporadic border violence occurs and the fact that it is limited to specific geographic locations that do not impact touristic destinations or retirement and second home haunts.
According to the U.S. Department of State in a recent press release on April 22, 2011: "There is no evidence that U.S. tourists have been targeted by criminal elements due to their citizenship... Millions of U.S. citizens safely visit Mexico each year, including more than 150,000 who cross the border every day for study, tourism or business, and at least one million U.S. citizens who live in Mexico... Resort areas and tourist destinations in Mexico generally do not see the levels of drug-related violence and crime reported in the border region and in areas along major trafficking routes."
President Calderon and his administration have even gone so far as to declare 2011 the "Year of Tourism." Mexico’s tourism agency SECTUR reported the international tourism income as $11.9 Billion in 2010 with an expected increase in touristic revenues for 2011. 22.6 Million tourists came to Mexico in 2010, according to the World Chamber Congress 2011. They also forecasted Mexican GDP at 4.8% growth for 2011 as compared with 5.2% in 2010. That is two percentage points higher than the U.S. forecast for 2011.
The International Retirement Foundation has said that Mexico is still the number one retirement destination for North Americans. The foundation also predicted that 6,000,000 retired Americans will live in Mexico by 2025. That equates to an increase of 4,000,000 retirees over the next 14 years.
Frontera NorteSur reported that the American Association of Retired Persons’ number one retirement destination for 2010 was Puerto Vallarta once again. It would not be hard to imagine that PV will again be number one in 2011. Canadian citizens are the predominant buyers in Puerto Vallarta, accounting for approximately 50% of its real estate transactions. The same can also be said for the Los Cabos market as well as San Miguel de Allende.
Arrivals into Mexico from Canada increased 22% in 2010 as reported by Mexico’s Ministry of Tourism. It is a blessing that the resort residential markets in Mexico have gotten this surge in sales activity from our neighbors to the north given that Americans, for the great majority, are still sitting on their wallets, waiting to see what transpires with the U.S. economy.
Mexican residential prices have continued to decline in 2011. This has created a wonderful buying opportunity for those who have the disposable income to take advantage of the lower prices. There appears to be a "bottoming out" in values in the various markets that will continue over the next few months.
Distressed sales activity still leads the way with residential prices being down 30-50% from 2008 values. Most markets are experiencing 10-15 closed transactions per month. There does not appear to be a significant increase in closings per month, but there are certainly a number of "back and forth" contract negotiations occurring in all of the markets. Purchasers know this is a buyer’s time to purchase and will negotiate to the bitter end trying to obtain the lowest price a seller is willing to accept.
A bright spot in the market has been the number of Mexican bank-financed transactions that are being consummated. Both BBVA Compass/LNB and Scotia Bank have offered competitive mortgage products for both American and Canadian borrowers at reasonable interest rates. Mortgage brokers have seen an increase in their business opportunities for mortgage financed transactions in recent months.
Distressed property sales and lower prices have reduced new residential construction, generally speaking. It is difficult to build a project that can compete with existing inventory, coupled with the number of properties available, unless the new construction price points are in line with existing values in any given market.
This scenario is not likely to change over the next 12-18 months. However, if a project can be offered at $200K-$500K for new construction, its sales activity may be brisk. There have been a few new developments in the Puerto Vallarta market, for example, that are experiencing good sales activity as a result of pricing their units in this range. It should be noted that conversion of an existing, unfinished building could be an ideal development opportunity for a retirement, independent or active living project.
If the International Community Foundation is correct in their estimate of 4,000,000 additional retirees in Mexico by 2025, developers and investors should be looking at this opportunity and what exists in the market for conversion. The "boomer" generation will be looking for retirement locales outside the U.S., but only if they’re in an affordable price range, as a fixed retirement income will dictate how they can live and what they can buy.
The vast majority of boomers will be in pursuit of destinations that offer a comfortable lifestyle with good healthcare, development and cultural amenities, safety, security and airlift capacity. Many Mexico cities will offer exactly what North American retirees and second home buyers are looking for. For all these reasons and many more, Mexico is a market that is "half full!"Editor's Note: The complete International Community Foundation Report on U.S. Retirement Trends in Coastal Communities of Mexico can be accessed at icfdn.org.