We recently had the pleasure to interview Mitch Creekmore, a licensed real estate broker and one of the most respected names in Mexican real estate. He co-authored the book Cashing In on a Second Home in Mexico: How to Buy, Rent, and Profit From Property South of the Border with Tom Kelly, and the book as become a major success.
LatinWorld: First of all, whats the real estate market like right now? How has it fared during the economic crisis? What are homeowners, Realtors, and the Mexican government doing to shore up the housing market?
Mitch Creekmore: In Mexico, the real estate market that sells to foreigners can be best described in two words; depressed and challenging. Markets like Cabos San Lucas, Puerto Vallarta, the Riveria Maya and even San Miguel de Allende have seen 50-75% reductions in residential sales activity. It is not the fault of Mexico. It is not about Mexico. They are the victim of the financial debacle in the United States coupled with “bad” press concerning our southern neighbor. What had been a robust and vibrant second or retirement home market to North Americans for more than the pastdecade has become painfully quiet and dormant. The simple fact is Americans have lost their desire and enthusiasm for a second home purchase…, anywhere! Mexico hasn’t changed, buyers have. With a 30-40% diminishment in personal net worth, debt coming due and no ability to refinance or restructure home equity loans or mortgages, liquidity and disposable income for the “dream” home acquisition have dried up. At least for the next several years. There is nothing the Mexican government can due to thwart the demise of their second home market to North Americans. Mexico can only wait out the crisis that has Americans sitting on their hands and each day monitoring the status of their own domestic situation. Canada isn’t in any better situation with an ongoing diminishment of their dollar. Americans, for the most part, are going be cautious and reluctant to make any financial move until they can see a return to normalcy in their personal status or predicament. Financial risk is not the order of the day. Too many Americans already have plenty of that.
LW: What is the future of Mexican real estate? Where specifically can we expect to see a boom in sales?
MC: Real estate in Mexico will once again be vigorous and dynamic once the financial crisis in America stabilizes. When Americans can feel good about their personal net worth and disposable income, they’ll look to our neighbor south of the border for that second home purchase. There will also be a number of Americans that will look to Mexico to be their retirement destination in the years to come. The cost of living and everyday affordability that Mexico offers grossly surpasses that of the United States. Many U.S. citizens that will be living on fixed incomes or simply have not saved enough for their retirement will look to Mexico to be their residential locale, their safe haven. And for good reason. Mexico and Mexico’s national tourism agency get it. They understand the inherent value of what Mexican property acquisitions by foreign buyers provide for their country and their citizens. They are acutely aware that Americans will need an alternative to remaining in the U.S. With Mexico’s close proximity, improved health care, infrastructure, airlift and geographic diversity, many North Americans will make Mexico their home.
LW: What are some of the current popular trends? i.e. larger homes, condos, rentals, etc etc.
MC: There are not a lot of new trends and especially in a dormant market. One area that will be more in demand will be fractional ownership. With limited potential buying power and possible disposable income issues in the near future, buyers will look for greater affordability. Fractional ownership is one such avenue given the limited vacation time Americans normally have and carrying expenses on a unit in whole ownership. Another market type or innovation is condo hotels. What lenders there are in the market for financing Mexico residential projects, and those are virtually non existent today, will require an income stream via nightly rentals. They need to proforma occupancy income to make with loan perform. They just can’t wait for sales to occur and with greater potential for loan default given the dire sales landscape that exists in Mexico right now.
LW: Describe briefly title insurance in Mexico. Your company, Stewart Title Insurance, was one of the pioneers in title insurance south of the border. How does it differ from title insurance in the United States?
MC: The concept of title insurance in Mexico basically emerged in 1994 with the inception of NAFTA and Mexico’s strategic changes in their foreign investment law. With a vision toward the future, Stewart Title Guaranty knew there would be an opportunity to introduce and sell title insurance policies to foreign purchasers of Mexican real estate. Title companies have never existed in Mexico or in any other civil code jurisdiction for that matter. Notarios publicos are the title companies in civil code countries as well as in common law jurisdictions outside the U.S. Federal governments empower these individuals, as attorneys, to transfer title to property and establish judicial certainty in one’s real property rights. The difference with our American system that utilizes title companies to convey title is that notarios do not provide a monetary indemnification or a warranty of title in the event of a title defect or loss. American title companies provide this protection to buyers and stand behind their acquisition or sale from a legal and monetary standpoint via the title insurance policy issued to a buyer. Though the concept of obtaining a contract of indemnity (a title insurance policy) has existed in the U.S. for more than 135 years, it has only been available in foreign countries for about 20 years. Stewart’s title policy issued on Mexico land is very similar to the basic policy issued in the United States. It can contain affirmative coverage’s, endorsements and modification like the U.S policy, subject to underwriting approval, and has its own particular additional insuring provisions created for Mexican title issues like “ejido” land matters. As with U.S. title policies, it provides for legal defense costs in the event of a title claim or assertion of ownership and the insured can bring their claim directly to Stewart in the United States. Moreover, Stewart’s Mexico title policy can be issued to anyone on either side of the border.
LW: What kind of advice would you give to someone buying their first property in Mexico?
MC: First and foremost, educate yourself about real estate in Mexico. There is a world of good information out there so you can learn and know about all aspects of purchasing and owning property in this beautifully diverse country. DO NOT rely solely on the advice of the real estate agents in Mexico. One must remember that 95% or more of these individuals have never held a real estate license anywhere nor have they ever attended a real estate class prior to selling properties in Mexico. You need to be the knowledgeable person. This is precisely the reason why we wrote the book on Mexico. A prospective buyer needs to know “what’s wheat and what’s chafe” as I often say. It may be more about the agent’s commission than your security and good title. It always depends on the agent just like in the U.S.
Secondly, don’t get in a hurry. Take your time. Purchasers are not standing in line right now given the dynamics of the market. Buyers are still going to get “pushed” to move quickly by the seller and by the real estate agent. Request a copy of the owner’s deed, require a due diligence period of at least 30 days in the sales contract, get a title examination done on the particular property to be purchased with issuance of a commitment for title insurance on same, and put money(ies) into an independent, third party escrow account. These services didn’t exist in Mexico in 1994, but they do today. It’s been Stewart’s evolution of the process to create a U.S. standard of title assurance applied on Mexican real estate. There is no reason why Americans can buy, own, enjoy and profit from a residence in Mexico…., proved they know how the process works and what safeguards are available. If nothing else, read the book we wrote!
front photo provided by Gabriel Daniel at http://www.flickr.com/photos/gdgstudio/2649145346/
first internal photo provided by Gabriel Daniel at http://www.flickr.com/photos/gdgstudio/2648315259/
second internal photo provided by Video_vik at http://www.flickr.com/photos/57768426@N00/2142305668/
third internal photo provided by violet and ivy at http://www.flickr.com/photos/babyfrank/2138913337/