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The current real estate market has continued to be very active. Buyers are here in high numbers looking for condos and homes throughout the Bay. Sellers with desirable properties can experience more than one offer at a time. Developers have announced a number of new projects, particularly condominiums, with a range of amenities to attract the US and Canadian population. Some Europeans are in the market, looking for investments through rental income and appreciation. Nationals continue to choose summer homes in the ocean resort areas.
The biggest gains in appreciation remain in the new projects, in particular when condominiums are bought in pre-construction.*
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What factors are contributing to the demand and increase in inventory?
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Who are the buyers and where are they coming from?
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Is the market still all cash or is financing beginning to play a part in purchases?
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How does the Bay of Banderas rank in comparison to the demand world wide for second homes?
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How are transactions different in Mexico?
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What certification is available to real estate agents in Mexico?
According to the US Census Bureau, the U.S. hit a major demographic milestone recently when the resident population of the country hit 300 million. With the increasing stress of the modern world, buying a second home can be an opportunity to enjoy life in new surroundings. For some it’s an opportunity timed with retirement, for others it is an investment. For many post Baby Boomers who are still working, owning a second home is a way to decompress and relax from their high stress careers. Maybe the smart ones are those that don’t wait until retirement to begin to enjoy “time off” and the potential for investment return.
One of the most in demand countries for Americans and Canadians is Mexico. Mexico is considered one of the five top tourist destinations in the world. A large part of the demand comes from two main factors: climate and proximity. World-wide, however, the choice of countries is in a different order. According to a report from FIABCI, the ranking in 2005 was France number 1, Spain second, and the Untied States third. These rankings are in the order of the most popular choice of the world wide population for second homes.
It is estimated that one million Americans currently live in Mexico, including almost 200,000 active adults, age 55 and over. Americans of Mexican and Latin American descent are interested in retiring in Mexico. Canadians and American with no Latin roots are attracted to the aforementioned climate and proximity to their original homes.
Yes, financing is becoming more attractive and available for Americans and Canadians who want to purchase in Mexico. Most lenders right now offer Americans mortgages, but some offer financing to Canadians. One of the reasons there are fewer mortgages for Canadians is lenders have a harder time taping into the credit history of Canadian applicants. Without credit history, the traditional way of issuing mortgages, stalls for lack of information on the credit-worthiness of the applicant.
Lenders and mortgage brokers in the market have learned, in order to be competitive, to streamline the process by adding staff to manage the applications and be sure there are enough approved appraisers and notaries to meet the underwriting requirements for a loan to be processed in 60 days or less. A word of advice: don’t expect your good friend who is a mortgage broker and neighbor in the US to be able to easily process a loan for you on Mexican real estate. It takes time and dedication to learn a different process, both legally and culturally, and be able to get a loan closed in Mexico from a US lender. The companies and mortgage brokers who have taken the time and effort to learn the process will better serve you and deserve their compensation.
Why has it been so difficult for those of us who want mortgages to get them here in Mexico? One of the main reasons is that the Mexican Constitution prohibits foreigners owning land within the restricted loan (an area within 62 miles of the national border or 31 miles of the coast).
What problem did the restricted zone create for the mortgage lender? Let’s go further back in time. Years ago, in order to attract foreign investment of US dollars, the Mexican government created a renewable bank trust called a fideicomiso which allows foreigners to purchase real estate within the restricted zone. The issue for lenders has been the difficulty of having the right to foreclose, upon buyer default, in order take back the property in a timely manner. Fideicomiso trusts can be slow to respond to default, as bank trustees are very careful about taking a property from the beneficiary. Lenders have currently solved this issue by controlling the bank that holds the bank trusts for foreigners. Foreclosure will happen more quickly, thereby making the lenders more comfortable with the ability to get back the property and resell it to continue to make a return on the money they have lent. Some attorneys think this is a conflict of interest between the bank and their beneficiary to the fideicomiso trust.
For lenders, in addition to the hurdle of the fideicomiso trust, there has been the question of the quality of construction. In an all cash market, standards of construction have not been always what a lender would require. Appraisals address the quality of construction as well as location, supply, etc. Another problem has been access to factual data of true sales prices. Historically, it has not been easy to determine true sold prices.
Even with these issues, mortgages are on the increase, as demand pushes the lenders for solutions to provide product the public is seeking.
A buyer can purchase a condo or home outright or buy a fractional share. The appeal of fractional over time share is that fractional has a deed, or title, and is for a longer period of time than a standard time share week. Fractionals are usually somewhere around 30 days per. More than one fractional can be bought depending upon what percentage of ownership a buyer wants. There is not a lot of evidence that fractionals show the amount of appreciation which single ownership may have, but the lower cost to get into the property is very appealing for many. I am not aware of any major US lenders offering mortgages on fractional shares. I am sure private mortgages may be available, particularly from the developers themselves. If any of you readers know about financing from major lending sources for fractionals, please write me so we can discuss this subject further. Perhaps there are some companies who do factoring by purchasing the mortgage at a discount to free up the developer with an influx of cash.
*Pre construction legal issues should be checked out thoroughly by a buyer. We recommend good legal counsel.
FIABCI is an international real estate organization of developers, and real estate professionals organized in l942 in Paris, France.
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