A South of the Border Bubble

The San Diego Union Tribune recently had an interesting article on the housing boom that's happening to San Diego's southern neighbor, Baja California, Mexico. The article - Baja's Building Boom - looks at the latest real estate boom in coastal Mexico and, thankfully, takes a fairly balanced looked at the pros and cons. (It's nice that media outlets have gotten over the "OMG! Real Estate roxs, it is da bomb! Buy and be rich!!!!!11!!!!!1!!")

What attracts real estate investors south of the border is, simply, the low prices. For example, one can land a beautiful ocean-side single family home in Mexico for around $200,000 US dollars. Such a home in coastal California would easily surpass the million dollar threshold. Of course, in California US citizens can own coastal property and there's much less chance that the government can seize your land, which might explain the price differences. Some other reasons might be that in the US the economy is stronger, the government less corrupt, and the real estate laws more favorable to US citizens. But what do I know - I only own one piece of property, after all (my primary residence).

The article does a good job of highlighting the "issues" with a US citizen buying property in Mexico. From the article:

The Mexican Constitution bans foreigners from owning coastal residential property, so most oceanfront buyers hold title as beneficiaries of long-term trusts through a Mexican bank. Financing is more difficult and expensive, and required down payments can be as large as 50 percent of the purchase price. Real estate agents are not licensed as they are in the United States, and they have no legal obligation to disclose potential problems with a property.

Scary. But these conditions aren't scaring off everyone. As the article notes, "More and more are drawing equity from their primary homes in the United States to finance second homes in Mexico."

In addition to the Union Tribune article, there was also a good episode on the KPBS radio show These Days - How secure is buying land in Mexico? (Don't know how long this MP3 file will be available, but you can listen to the show at http://stream.publicbroadcasting.net/production/mp3/kpbs/local-kpbs-484927.mp3.) Host Tom Fudge had on three guests:

• Adrian Martinez, Mexican Attorney licensed to practice both in Mexico and California
• Nicolas Renard, independent real estate agent specializing in the Rosarito/Ensenada corridor
• Serge Dedina, Ph.D. Executive Director of Wildcoast

The first two guests talked about real estate law, title insurance, and the process of a US citizen buying property south of the border. The third guest, Serge Dedina, talked about the environmental impact of the increasing building along the pristine Baja California coastline. Overall, a very interesting half hour discussion - check it out!

My end opinion, which is, of course, bearish - when the US property bubble bursts, prices will plumit in Mexico. What's keeping these prices afloat other than foreign investors? (Interesting factoid from the These Days show: prices in Rosarita have increased nearly 100% in the last three years, due solely to US investors.) When the burst occurs, expect investors with Mexico holdings to attempt to sell those first, before having to liquidate their US-based assets. And who's going to buy in Mexico when the picture is so dire stateside?