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South-of-the-border sales pitch
February 8, 2004
Corrie M. Anders

San Francisco Chronicle

Real estate reforms make Mexico a good place for second home, investment.

Do you dream of owning a beachside pied-a-terre, or a retirement home in a picturesque community, or a nice investment property without having to pay tycoon prices?

Then consider Mexico.

That's the message a panel of bankers, developers and other Mexican real estate professionals delivered in Las Vegas in mid-January at the International Builders' Show.

Their presentation on investment and business opportunities in Mexico was one of the most popular educational seminars at the trade show, sponsored by the National Association of Home Builders.

The discussion stretched an hour past its scheduled 90 minutes and continued in the hallways for an additional 30 minutes.

The session was geared toward large and midsize home builders. But the panelists emphasized that individual consumers also could take advantage of real estate reforms in Mexico.

"You have properties that are very well located, and it's cheap" compared with U. S. prices, said Gene Towle, president of Softec, a Mexico City real estate consulting company.

New homes cost as little as $50,000 for a casita in central Mexican towns favored by American expatriates and more than $1 million for luxurious villas on the beach in resort towns.

In the past, buying or building property in Mexico was often a nerve- wracking, if not perilous, undertaking. Challenges ranged from government bureaucracy to bewildering land ownership laws to virtually nonexistent mortgage money.

To be sure, foreign buyers should always exercise caution, but barriers that once made real estate transactions difficult are being pushed aside. For one, mortgage money is much more readily available. So is title insurance, which is offered through major title companies in larger cities.

"The pieces of the puzzle are starting to move together," said Manuel Campos, co-founder of the Hipotecaria Su Casita, a Mexico City mortgage banking firm. "It's easier. and the investment is much safer. There's less red tape."

Mexico's task is to keep up with the strong housing demand stemming from population growth, a swelling middle class, and young marrieds eager to leave the nest to start their own households. About 800,000 new households are created each year.

To meet the need, Mexico President Vicente Fox has set a goal of building 750,000 houses each year. But new foundations represent only half the annual number Fox wants -- thus the push to attract outside home builders and investors.

For Mexican residents and foreign buyers, the availability of mortgage money in recent years has played a significant role in their ability to purchase real estate. In the past, buyers needed cash to build or purchase property because there were few real estate lenders.

"There are lots of financing options" today, Campos said.

Buyers can obtain mortgage loans from government institutions, traditional banks or relatively new mortgage banking firms known as sofoles. The mortgage banks, established only a decade ago, along with traditional banks returning to mortgage lending, have captured about 15 percent of the residential market by making loans primarily to middle- and upper-class buyers.

Panelists said mortgage bankers can offer 25-year loans at a 15 percent interest rate with as little as 5 percent down.

"It's the first time since 1976 that we've had fixed-rate and fixed-term loans," Towle said.

A 15 percent mortgage may seem inordinately high, considering that the 30- year fixed-rate U.S. mortgage rate has hovered around 6 percent since July 2002. However, speakers noted that the current rate for mortgage loans in Mexico represents a huge drop from 65 percent in 1995.

Sofoles also makes home improvement loans. Previously, "the only way to get a better house," said Campos, "was to move into a new one."

Panelists said U.S. retirees looking at Mexico prefer fairly established locations. They include the central towns of San Miquel De Allende, known for its artist colony; Lake Chapala, the country's largest lake, 30 miles from Guadalajara; colonial Merida, capital of Yucatan and a two-hour flight from Miami; Cuernavaca in the state of Morelos; and Ensenada on the Baja coast south of California.

Towle said investors also might investigate properties in the beach resort towns of Cancun and Los Cabos, as well as Mexico City, the nation's capital. He specifically cited investor opportunities in downtown Mexico City and west of the city. Apartments there cost from $100,000 to $400,000, he said.

"But you get the better price appreciation in the $100,000 to $150,000 range," he said.

Typically, a developer might build a 100-unit building and, to raise construction capital, presell units to investors, who in turn sell them to the public. An investor would put up 30 percent or more of the purchase price and pay the remainder as the property is being built.

Towle said an investor's total profit could average 25 to 35 percent profit over the life of the development -- which could take anywhere from six to 24 months to complete.

Towle is also an investor. He and a group of partners are building a 24- unit apartment complex in Cancun, with $90,000 to $120,000 price tags, 10 percent down and 15 percent loans. "It's five minutes from the beach," he said.

The group broke ground a year ago and has sold 14 of the two-bedroom units, with no advertising.

And it's not just U.S. residents seeking more bang for their housing buck. A growing number of Mexican nationals in the United States are returning to their native land to retire or enjoy second homes.

"It makes much more sense to buy a house in Cancun for $60,000 than an apartment in Miami for $300,000," Campos said.