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Mexico is fast becoming one of the best options for international investment, both for internal and global situations. Diversity and vastness are its main features, besides its really low prices, compared to the global market.
When comparing a property in Europe, with another one with exactly the same features in Latin America, we can talk about prices differences that range from four, six, or even ten times cheaper. For example, a two bedrooms apartment in London costs about US$600,000, while a similar one in Mexico City, is around US$90,000.
In the long term, terrorism and environmental issues are just some of the reasons to see the whole of Latin America as one of the most safe and sustainable resources in the world.
The Prices for Property in Mexico
Property prices in developed countries can’t grow forever. They are more likely to stabilise, if not, to drop after the well known “real estate bubble” bursts.
On the other hand, in Latin America property prices have just started to react to the increase of demand. Despite circumstantial economic ups and downs, price tendencies are definitively on the raise.
Profits for Mexico Properties
The average rental yield for a property in Mexico is about 10% to 12% a year, over the value of the property, for permanent rentals. For holiday rentals, it may vary, depending on the area the property is located and the demand it faces in a particular period of time. Despite seasonal variations the profits are commonly higher.
In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.
Buying Real Estate in Mexico
Foreigners dominate the real estate market in Mexico
The U.S. housing market is quickly losing heat, but across the border, Mexico’s real estate shows no signs of slowing down. Vacation homes are especially popular with American buyers, which comprise the bulk of the market.
In the last three years there has been a 60% increase in vacation home investments. Many retirees are opting to buy property in Mexico, lured by cheaper house prices and lower cost of living.
Tourism, a major income generator, increases interest of foreigners in investing in Mexico real estate, and boosts the development of luxury homes, hotels, and resorts, mostly in coastal areas.
Canadian and European buyers have also been joining the market recently. The recent investment of Donald Trump in Baja, the Trump Ocean Resort prompted many to buy properties, banking on the inevitable price.
The Mexican government, under the new president Felipe Calderon, strongly supports real estate market expansion and tourism development. Foreign investment is much encouraged, backed by friendly laws. Foreign individuals can buy properties through bank trusts, called the "fideicomiso" system.
Unaffordable local housing
Aside from the focus on foreign investment, the government is continuing to help the local population buy houses by providing inexpensive housing. The government is pushing to make mortgages more affordable as well. For 2007, Calderon’s administration is set to grant one million mortgages.
The government-run financing institution INFONAVIT (Instituto del Fondo Nacional para la Vivienda de los Trabajadores) targeted to provide up to 750,000 mortgages in 2006. However, only 435,000 were successfully granted. The demand for mortgage financing last year was estimated at 900,000.
Banks entered the market again in 2004 after ceasing to grant loans since the 1994 crisis. In turn, private financing agencies called ‘sofoles’ dominated the market. Sofoles provide lower interest rates and can grant loans up to 25 years. These niche mortgage lenders can take assets from the informal economy through deposits.
Filling the deficit
There is still a huge housing deficit in Mexico today. The current deficit is estimated at 4.2 million homes.
Around 25% of housing units are built by large developers, such as HOMEX and PULTE. Two-thirds are self-built, and the remaining portion is built by smaller developers.
Mexico’s Housing Market
House Category / Price Range (1000's pesos) / Avg. Price (2004, pesos) / Units (1000's)
Minimum / 80 (US$7.3) / 74,000 (US$6,768) /1,900
Social / 80-200 ($7.3-18.3)/ 179,000 ($16,371) / 7,360
Economic / 200-380 (18.3-34.75) / 296,000 ($27,071) / 6,630
Middle / 380-1,000 ($34.75-91.46) / 649,000 ($59,355) / 7,150
Residential / 1,000-2,000 ($91.46-182.9) / 1,451,000 ($132,703) / 1,210
Residential Plus / 2,000 ($182.9) / 3,330,900 ($304,632) / 83
Small rental sector
Rental units comprise 13.5% of national housing, almost half in Mexico City and other larger cities, according to the CONAVI (Comision Nacional de Vivienda or National Housing Commission). This is an estimate of 2.9 million housing units.
It seems that the people who rent are those so poor that they are unable to buy the raw materials to build their own shanties. Since 70% of rental households have income below the minimum wage.
Middle segment houses are still 7% cheaper now than in 1994. Rents dropped by 13% between 1994 and 2001. They rose by 4.6% from 2001 to 2003, before falling again. Rents are still about 11% lower than their 1994 level.
Economic fundamentals
The rising demand for houses is based on economic and demographic fundamentals. Real wages have been growing by an average of 6.75% annually between 2000 and 2005. Unemployment is at 3.6%, down from 5.75% in 1995. Inflation has been tamed at 3.5% in 2006, from 35% in 1995.
Buyers have benefited greatly from the drop in short-term interest rates, from 48.2% in 1995 to 7% in the first half of 2006. Further reductions are expected in 2007.
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