High-End Real Estate Quandary

The owners of high-end real estate in the Vallarta and Riviera Nayarit regions (and especially in Punta Mita), are in a bit of quandary over whether they should sell or not because of recent market conditions. There has been a noticeable increase in demand for high-end properties in Punta Mita, as reported by Jonathon Smart at Riviera Partners and Marc Sinanian of La Punta Realty, and also just south of Vallarta, primarily in Conchas Chinas, as reported by Wayne Franklin of Tropicasa Realty. But they add they are having a hard time finding properties for buyers as some owners are hesitant to put their properties on the market.

They give primarily three reasons for this.

First, the rental market for high-end properties has been exceptional in recent years, to the point where homeowners like the cash flow that is being generated by their properties when they are not using them. Why sell when the properties not only pays for itself, but even pays back to the owner?

A second reason, they state, is if they were to sell, because of the volatility and low or negative returns experienced last year in the stock or bonds markets, and uncertainty regarding this year, they don't know where they would reinvest the money they would gain from the sale. Add that to the rental income and you have two good reasons to hold onto the property.

Thirdly, because properties are registered in pesos but sold in dollars, and because the peso has lost so much value to the US dollar over the last couple of years, it has a created an artificial capital gain, meaning if they were to sell for the same price as they bought the property for five or ten years ago, they still could end up paying a substantial amount in capital gains (I cover this more extensively in the previous blog post).

Taking all this into consideration, some owners have decided not to sell, even taking their properties temporally off the market.

Will this drive up real estate prices for high-end properties? It is still to soon to tell. Franklin says that there are still some very good deals in the high-end market in Vallarta, which was hit quite hard in the last market downturn that started in 2008. Smart and Sinanian say that it is starting to drive prices up for beachfront properties in and around Punta de Mita, but pricing for ocean view or fairway properties still remains quite attractive.