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Cliff Hockley, President
Bluestone and Hockley Real Estate Services
Baja Mexico – an area surrounded by water- with flat lands and mountains, covered by sand and cactus is home to Mexicans and vacationers alike. Those that love sun, come here. A recent visit unravels fascinating details.
Such as, who needs gutters or street drains if it rarely rains? Actually, who needs paved streets, or clean drinking water for that matter? We witnessed a recent downpour and the water pooled up to 6 inches high over a two hour period. Water ran down the streets and then pooled in the low lying areas of Cabos San Lucas and eventually it ran into the ocean.
Houses are mostly built out of locally manufactured concrete blocks reinforced with rebar and covered with a cement stucco coat which is then painted. Many of the roofs are palm covered palapa, concrete, tile or metal. In Cabos, many buildings are not completed because property taxes don’t kick in until a building is finished. You also see tar paper shacks and buildings with open walls. There seems to be a shortage of housing. (see notes below)
You see lots of children and young, pregnant mothers- to-be. Our informants tell us that Mexicans from throughout the country come to Cabos to work because the pay is good and there are many jobs. They can make more here than on the mainland.
Everyone works. From the eight year old girl that sold us trinkets in the restaurant at dinner to the 14 year old boy who was making the concrete blocks with his friends at the concrete block factory. There are many entrepreneurs that conduct business from 200 to 500 square foot shops. Children are employed in their parents’ shops including the Laundromat, the grocery store, the clothing store, the uniform store, the soccer supply store, the discount pharmacy, the shoe store and the two table restaurant you find on every corner.
Did I mention that Wal-Mart and Sam’s Club just opened up this week? The place was swarming with locals who came to check it out. Let’s see how many of their businesses will close in the next five years as a result.
The children in the primary schools wear uniforms. Some schools operate on a two shift basis because there are so many children. Everyone has a cell phone, but not everyone has a car. Busses are full all day long; the resorts have private busses that pick up their employees. Most non-tourist condos, apartments and homes are very small, much smaller than Americans are used to.
The streets are not lined with beggars, only the occasional sighting. Medical care is available every where, through public or private clinics. Many doctors work at a hospital in the morning and hold office hours at their clinics in the late afternoon into the evening. Most people work six days a week during the tourist season, taking Sundays off. In the off season the pace is slower. The season is just starting, but without the cruise ships the downtown would be hurting.
Land for development is abundant. The demand from the USA, Canada and Europe for tourists who want a second home is strong, even though there are limitations on home ownership within 50 kilometers of the ocean or the Mexican borders (see an international realtor or attorney for the details).
From a real estate investment standpoint, this may be the place if you co-develop potential vacation rentals with a knowledgeable local. But with the recession on the horizon and an expected cut back in vacation expenditures, this is not the place for a short term investment. There are also opportunities for apartment development in the larger cities, but bank financing is hard to obtain. Finally, there is significant demand by Mexicans for housing as you can read below.
There is also a thriving timeshare business that supplies vacation rentals to the sun-starved tourists. The timeshare business is a cut-throat business. 10 people offered us up to $300 in cash to visit their properties for a presentation (no obligation involved). You need only have a current credit card and be over 30 years old. If you meet those requirements and happen to be married (both spouses must attend) you get a chance at a high pressure seminar extolling the virtues of your own timeshare. They try to convince you to buy a few weeks a year for a twenty year or 99 year term. They are betting on the statistics of death and divorce to be able to resell the time share interest within five to seven years. They are also comfortable knowing that you will send them a $2000 check every year for every week you buy.
So let’s work the numbers. For example: 100 units multiplied by $2000 multiplied by 52 weeks equals $10,400,000 a year to take care of your investment. Not bad for the developer, of course it includes full maid service and pick-up from the airport. Keep in mind that they have to sell 52 weeks of 100 condo units or 52,000 weeks. That is why at the Cabos/San Jose airport the timeshare “hawks” are waiting for you to get off the plane so they can send you to their upscale brand new resort.
Yes, the times they are a changing. If you are looking to have fun, this is a good place. For peace and quiet and serenity, you will need to find a place in the mountains. For an inexpensive vacation, stay closer to home, this is not the place. On the other hand, for a sunny
vacation come to Baja Sur now.
Consumer spending in Mexico rose by 12 percent in 2005, according to Jones Lang LaSalle, while the Mexican Association of Department Stores reported that sales of its members grew by 14.3 percent in 2006.
With 107 million people, Mexico is the world's 11th largest country in terms of population. While there are around 38 million people between 25 and 49 - the age that is typically associated with household formation - this number will grow by 21 percent to 46 million by 2030.
"Over the past eight years the Mexican government has restructured the housing programs, which has led to significant residential growth," explains Elliot Bross, principal of Planigrupo, a Mexico City-based developer that specializes in grocery-anchored shopping centers.
Mexico's housing development commission says the country has a shortfall of 3 million homes; others estimate the shortfall to be as high as 7 million even though the construction sector is building 750,000 homes a year. At the current speed of construction, it is estimated that the deficit could be met somewhere between 2015 and 2020, but ongoing demographic trends indicate that another 800,000 homes per year are needed to satisfy new household formation.
Beyond population growth and consumer credit, remittances from Mexico's 10 million migrant workers have also stimulated private consumption. In 2006, remittances from the United States exceeded $20 billion - the biggest flow in Latin America and the third biggest in the world after India and China. Experts estimate that 80 percent of all remittances end up being spent on consumables.
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