Is now the time to buy in Mexico?
Can you get a good deal on real estate now? Some people are looking for the deals out there with the impact of COVID-19 and a financial downturn. The real estate market in Mexico is different than many other countries and because of this, the market just might surprise you now. It is a little complicated, but we will break it down for you.
What surprises us about the real estate market now
We have been surprised by the amount of emails we have gotten about real estate inquires and questions lately. It could be because of several factors. The first being that many people have been at home and have time to surf around online, thinking about their next move. Or it could be that many people have taken the past few months to rethink where they really want to live and would rather pursue their ideas of living or investing in the Riviera Maya. It also could be pent up demand since for a few months everything seemed to stop and peoples attention was elsewhere. After all, the Riviera Maya has been a popular spot to buy in and live for a while and when nothing could really happen, the several months dry spell has created a backlog of people looking around.
One of the last possibilities could be people looking around to take advantage of the situation and possible get a good deal on a place. Whatever combination of the aforementioned things is the cause of all the interest, real estate does seem to be the bright spot in the economy right now. As tourism has taken a long pause people are still shopping around and buying properties. But at what prices?
Are prices dropping on properties?
As you probably know, most real estate in Mexico is cash sales. This means investors and buyers have cash in hand to purchase a property. Because of this, Mexico is different than many other countries real estate markets. A real estate bubble is hard to form in Mexico because so many of the properties are paid for (especially properties sold on the coast and tourist areas).
Prices on older condos
By older we mean things built in the past 20 years. This is the time period when most things have been built in the Riviera Maya, Mexico. Most of the time, older condos go on the market because an investor is looking to sell or an owner is looking to move or upgrade. Since property taxes are very low in Mexico (many people pay only a few hundred dollars a year), owners are able to wait for the asking price and are not forced to sell quickly.
What about people that have condos for an investment and now there is a drop in tourism? Since these properties are all paid for, there is not stress to pay the mortgage, they are just not getting the ROI they hoped for. Some have turned rentals into long term rentals, other are using their condos or loaning them to friends. It has been interesting to see how many people have been looking for long term rentals. Both people looking to move locally and people looking to take a long break in Mexico or move here.
Real estate is not a quick game, rather it is a long term game. In Mexico the idea of flipping a property is not really thought of. Most people need to have a property for at least two years to sell it with some kind of profit after expenses. However, most people hold properties (including investors) for a longer period.
Prices on newer properties
Over the past few years the prices have stayed steady for new condos of similar standards. What has changed some is the sizes. New construction condos now often have good design, but less square footage. Where some newer condos lack as much space, they make it up in building amenities like rooftop pools and decks. Another thing that is always changing is location and prices. Some neighborhoods the prices are rising and others rising much faster. Tulum real estate also is competing with Playa Del Carmen for some upper end segments of the market.
So new condos are offering more and there are areas that are going more upscale with new development and this is helping to increase the prices or hold them steady.
Did you miss an opportunity?
The most savvy buyers always know when to jump on a good deal. This means knowing what you want and what a good price is. It can be a little frustrating buying a property in Mexico because there are not many ups and downs in the market. Most of the properties are priced in USD and when there is a downturn in the economy, people can hold out to sell later, both by developers or owners.
From about March 18th to May 18th, 2020 the exchange rate for the peso to the dollar changed dramatically. This influenced the real estate market in two ways.
- Mexicans, especially, moved assets into real estate. Historically, Mexicans have favored real estate over peso currency holdings and other investments. During the dates mentioned above, many Mexican investors bought property to stabilize their investments. Since a lot of property is priced in USD, some developers offered better rates for the peso to dollar for purchases during this time.
- Some developers also were a little more flexible on prices for foreigners. This resulted in some discounted prices or more included upgrades.
It was a time of uncertainty and this lead to movement on both sides of the table. Of course during this time, many were focused on other things and not traveling to shop for real estate. Earlier this year did provide a brief window of opportunity for some. So if you missed this opportunity, how can you jump on the next one to get the best deals possible?
How best not to miss an opportunity in the future
Real estate in Mexico has pretty stable pricing due to the fact that most properties are priced according to the USD and a cash market. There are a few opportunities to get a good deal, here is how.
Tip #1. Educated investors make the best decisions.
Investing in a condo or other property in Mexico can be a leap for some. It might be daunting and a little bit of a leap of faith. Knowing all the facts and details will take most of the apprehension out of the equation. Knowing the area and what is available will give you a more sure decision. Doing your research will give you the confidence to jump on a deal when you see it.
Some people have had opportunities in front of them, but were to wishy washy to make a decision. Some jump at what they think is a good deal, without knowing all the details and by just going by what their realtor told them. This is also why a good agent is important.
Tip #2. Work with a recommended realtor.
Being ready to jump on a good opportunity starts with two things. It starts with knowing the market and have a good realtor.
Having a buyers agent can be even better. This is a realtor that works only in the buyer’s interest. This might seem confusing because don’t all real estate agents work in your interest? It can be that agents have divided interest. They might be representing the seller also or work directly for one developer and push people toward that developer.
A good realtor will be unbiased and give you good options for you. We have some recommended real estate agents here that work in the Playa Del Carmen/Tulum areas. If you are interested in buying something and starting your search, these can be good people to work with.
Tip #3. Be prepared to buy pre-sale.
About 20-30% of real estate sales in the Riviera Maya are pre-sale. Why is this? Pre-sale is done in part to raise financing and/or to give incentives to buyers. Sometimes 20-50% of a condo building is sold before it gets off the ground. Buying pre-sale can be hard for first time buyers because the concept of buying something that is not even there yet is a little freighting. This is where a good real estate agent comes in. They can direct you to developers with good reputations, check financials for the project and also possibly fly a drone to show you the views from your unit and roof.
Buying pre-sale is almost a requisite to getting a better deal on a condo. By the time a building is finished, the most desirable units are normally sold and prices do not really negotiate that much.
Tip #4. Buy older condo only if you want to live in it.
Most of the time, newer condos rent better for an investment. Since many people are looking to live part time and rent the other time of the year, in this case, it is good to buy a good investment property. Newer condos offer the latest features to attract vacationers. Older condos often work better for longer term rentals and if you are looking to live in it.
If you are looking more for a place to live in, here is how you can find the best opportunity. The best case scenario is finding an owner who is ready to sell and perhaps moving out of the area. These are usually the best examples to buy an older unit, when the seller is ready to move on and is more likely to sell at a good price. This does not happen a lot, but does happen.
Note: Especially with older condos, it is important to view them in person. It is good to see what the entire condo building looks like and the area. As most condo buildings age, rents go down or are stagnant and more long term rentals open up. We have seen some older units for sale that look nice because the owner renovated it, but the surrounding condos and building were in much worse state.
Tip #5. Watch the exchange rate.
This tip is more for our Canadian, South American and European readers. Since most real estate is priced in USD, your currency will fluctuate against the dollar. The Canadian dollar has been weak in recent times, but now the Euro is gaining strength. Small fluctuations can mean thousands of USD in savings. It does mean being ready to transfer funds, so having a plan for how to do this is key. A good real estate agent can best explain how to be set up for this.
Even though there is no MLS (multiple listing service) in the Riviera Maya and most of Mexico, you still can compare prices. Most new condos are priced fairly within a narrow range of what things are going for per square meter and features of the condo. This means, with some research or help from your real estate agent, you can know what is a decent price for a property.
By being prepared, knowing what you want and how much you can afford, you can be ready to jump on a listing when it comes online. In the end, a good deal is a property that you are happy with. Buying real estate, especially if you are going to live there, is part passion and part sensibility. If you are new to looking at real estate in Playa Del Carmen or the area, see our guide here with a lot more articles and information for you.
There are always opportunities for you to get a nice place in Mexico. How good of a deal you get compared to what other people pay depends on how you do your research and follow some of our tips above. There are rare moments when you can get a extra good discount. Right now, prices are holding steady and not much has changed in the real estate market. This is following the trend in many countries now as values hold or rise. It seems that a lot of people are restless and looking to have a little more peaceful life.