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When I question realtors about the type of prospective buyers they are currently working with, I’m trying to find out where buyers are typically from and what they may be looking for. But I’ve been getting a different response this year – they are seeing people who tend to be somewhat bitter, a little “pissed off,” for a lack of a better phrase. For people who are looking for a second home or a retirement place, they don’t seem to be in a very good mood or state of mind. This can make it more challenging for realtors – they have to be very cognizant of it.

After a little investigation I think I’ve discovered why they are feeling this way. Primarily, it’s because they are not where they thought they’d be at this stage in their lives. They thought they’d be a little better off so they could be, perhaps, looking at more expensive properties that have more to offer, and wouldn’t have to be as concerned about the cost of maintenance fees.

Why is this? Well, many Baby Boomers, who are still the primary buyers of real estate in Vallarta, had a hard time financially over the past 10-15 years. Many got caught in the 2001 economic downturn, only to get hit again in 2008 when they’d just started to recover. 2008 not only saw their investments lose value (again), but also their home, which for many is their single largest asset. Many hesitated about getting into the markets again after 2008, only to lose out as the market recovered. And in today’s market it is very difficult to know where to invest, how to get the 4-5% return they thought they’d be able to get on their retirement investments. Ten years ago one could get that on CDs and GICs, but certainly not in today’s market in any number of investment types.

And if that wasn’t enough, they’ve become “sandwiched” between their kids and parents, who are also struggling. Rodney Brooks recently wrote in USA Today, “It seems the very things that helped define the Baby Boom generation are also working against its efforts to retire. Boomers are free-spirited, independent and active. They married later in life and had children even later. As a result, they find themselves taking care of their ailing parents at the same time many are still taking care of their children. For many, the strains on their resources are proving to be yet another reason to delay retirement — thus, the name the ‘sandwich generation’.”

A study done by the Pew Research Centre identified an increasing trends that says many Americans, (currently 57 million or 18% of the population), live in multi-generational households. And within these household potential retires are being squeezed by children who are struggling to finish and pay for school and find jobs, (42% of people ages 18 to 29 are getting some kind of financial help from their parents), and parents who are living longer and in some cases, outliving their savings.

The study found that, “Adults who are part of the sandwich generation—that is, those who have a living parent age 65 or older and are either raising a child under age 18 or supporting a grown child—are pulled in many directions. Not only do many provide care and financial support to their parents and their children, but nearly four-in-ten (38%) say both their grown children and their parents rely on them for emotional support.” And if this isn’t enough pressure on Boomers, the average person has a retirement savings balance of just $81,000, and 50% don’t expect to, or be able to, retire at 65.

Wayne Franklin of Tropicasa Realty reports, “I’ve seen a very significant shift from when I started here in the business. It all boils down to money and work. Buyers have less money and are having to work longer and harder for it. It is a frustrating dilemma for both them and us but we do our best to help them out and to make it work.”

Ten years ago developers were building condominiums primarily in the $400,000 – $600,000 range. Perhaps the above explains why today they are building condos for half – with half the size and half the amenities. For the reasons given above, that’s all they can afford. And why they are a little pissed off.

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.

The Puerto Vallarta/Riviera Nayarit region is primarily situated around the Bay of Banderas, meaning traveling nearly anywhere means traveling around the bay; meaning there are no short cuts for getting from downtown Vallarta to Punta Mita, or anywhere else. As the region has grown traffic has increased, putting a larger burden on Highway #200, which arrives from Guadalajara to Banderas Bay at La Cruz on the north shore and follows it all the way to Boca de Tomatlán on the south shore. Meaning #200 is often the only route to take getting from one town to the next. So when there is an accident, or problems with one of the bridges going over the Ameca, traffic can come to a standstill and back up.

There are currently three projects in different stages of development to improve traffic flow and at the same time, provide safer and more secure traveling times. The first is the new highway from La Cruz to Punta de Mita, the second a new highway from Jala to Vallarta, and a third is a complete by-pass around Vallarta along the southern shore that would allow pass-through traffic to avoid Vallarta completely.

The highway to Punta Mita is actually the second phase of improvements that started a number of years ago. The first half was completed some years ago but the second phase has been stalled for any number of reasons. Finally, however, it is now close to being finished with the road complete and paving now underway. It is expected to open before the end of this high season. For those that like to visit, or live in Punta de Mita or Litibu, this is a much welcome improvement. The narrow road that led from La Cruz along the coast was extremely windy and narrow, and because of this there were frequent accidents, especially at dusk. This will certainly make the journey north quicker and safer.

The second highway construction project is a major new highway from Jala to Vallarta, (actually it will be arriving at Bucerias), which most importantly will by-pass the extremely, narrow, winding and dangerous track of highway between Compostela and Las Varas. Portions of this new highway have been in development in stages for years, with the first stage to supposedly be finished sometime this year, with the whole route ready sometime in 2017. As the first stage is already late (they first said 2015), it will probably be in 2018 before we’ll have a better, safer and quicker route to and from Guadalajara. 

The total project is projected to cost 11 billion pesos and would shorten the trip from Guadalajara to Vallarta to just over two hours (it is currently about 3.5 – 4 hours). The above image shows the intended route in blue. Below are pictures of some of the construction of four viaducts that needed to be built (for those of you who may not believe – and for good reason – that the road is actually underway).

The third project I’ve been told has started in behind Vallarta, a Vallarta “periferico.” The project involves a by-pass that would allow traffic that is heading south to completely avoid the town, meaning no more huge trucks driving through Vallarta and along the narrow highway that hugs the southern shore of the bay. It would meet up with the new highway mentioned above, continue behind Vallarta in the valley, (meaning another set of bridges over the Ameca River), and on top of the foothills of the Sierra Madre that but up next to the shores of Banderas Bay; going behind Conchas Chinas, Garza Blanca and Sierra del Mar. This would eliminate a lot of heavy traffic and alleviate the current traffic problems that often occur on this route. That’s the good news. The bad news is that nothing has been released lately that says when this project may even begin. If anyone out there knows more about it, please share it with us. 

The news just keep getting better for Puerto Vallarta. It was ranked second in the Top 10 destinations in Mexico in the TripAdvisor Traveler’s Choice poll for 2015, as reported by Travel Weekly.

As well:

• In 2014, there was a total of 11,718 rooms available in Puerto Vallarta, with nearly 4.3 million room nights booked in the same year.
• Passenger arrivals totaled 1.5 million, which was a 17.6% growth when compared with 2013. Last year was just as successful, as the Puerto Vallarta Tourism Board touted a 90% occupancy rate for December.
• From Dec. 19 to Jan. 6, the destination anticipates a 20% increase from last year, and all hotels in the marina and hotel zones reported 100% occupancy from the holiday season.
• For the year, 2015 looks like it will be the destination’s best since 2008, as it recorded an average occupancy rate of 65% from January through November. There was close to 1.8 million international visitors during the same period, a 19% increase from 2014.
• Visitors have generated almost $30 million to the destination’s hotels and more than $30 million going to local businesses. This is a 350% increase from 2014.
• New hotels were added in 2015: the Grand Fiesta Americana, Hotel Mousai (Garza Blanca), Hyatt Ziva, Sunscape, Garlands del Rio, and Casa Kimberly reopened its doors after an incredible remodelation last year. Still to come for this year will be the W Punta de Mita, which will open on the Riviera Nayarit just 15 miles from Puerto Vallarta, as well as Estudio 6, which will open in March.

For American buyers this makes it rather simple for them as they can use the same currency they use back home. But for Canadian or Mexicans, it’s a different matter, that has become increasingly more evident over the past year as both the Canadian and Mexico currencies have lost value compared to the US dollar. In this situation, whatever is sold in USD currency becomes more expensive; such as real estate in Puerto Vallarta or Riviera Nayarit.

For example, a condominium listed for US$100,000 today (January 2016) will cost a Canadian $145,000 in his/her currency. The currency they get paid and save in. That’s a huge difference, especially when five years ago that condo would have cost them only $100,000 CAD (CAD was on par with the USD).

The same goes for Mexicans. The same condominium would cost them $1,800,000 pesos; a substantial amount, especially when the same condo, priced the same five years ago, would have cost them only $1,150,000.

So for Americans if there had been no appreciation in the market over the past five years for this type of condo, they’d be paying the same price today as back then. But Canadians would be paying nearly 50% more and Mexican nearly 60% more.

For the most part, these are condominiums that are built with Mexican products charged for in pesos, and they are maintained in costs incurred in pesos. But still, they are sold in American dollars.

Americans, however, aren’t getting off so easily here; it’s all good and fine when they are buying real estate, but when they go to sell they may be in for a surprise as real estate sales are recorded at the land registry office in pesos.

Let’s take the same condominium previously mentioned that hasn’t appreciated at all over the past five years. If an American couple had bought it in 2011 and now they are selling it for the same price today, they think they are breaking even, except for the real estate commission, except they are not.

In 2011 that condominium would have been registered at a value of $1,150,000 pesos at the titles office. When the sale gets registered today, when the sell it, it will be for $1,800,000 pesos. When the tax department sees this, they are going to say that this couple just made a capital gain of $650,000 peso. Now, they do get to deduct some for the cost of inflation, but inflation hasn’t been that high over the past few years in Mexico. Most likely this couple are going to have to pay $200,000 in capital gains taxes, or about US$11,000. Now they aren’t so happy.

And what about the Canadians and Mexicans? What if they had bought and sold that same condominium at the same times?

The prices would be registered stay the same, but when you take into consideration currency differences, both actually did make a capital gain – the Canadians made CAD$45,000 and the Mexicans made $650,000 pesos. On this they’d have to pay taxes, but they’d still be way ahead of the game, especially when compared to the American sellers.

In recent years, because of a tightening up of how Mexican could invest in the United States, many Mexicans who had bank accounts in the USD closed them and brought their money back to Mexico. Mexicans are always a little concerned about a depreciating peso (and history has proven them to be correct on this!) and prefer to have some of their investments in US dollars. And some noticed that if they bought real estate in tourist areas such as Puerto Vallarta they could protect some of their cash in USD price investments. The upside to this is that the peso did, in fact, do exactly that and depreciate, meaning those who bought just a few years ago have seen 30-40% returns on their investments, if they decided to cash out today.

So, although it may be a good time for Americans to be buying real estate in Puerto Vallarta and Riviera Nayarit, It’s just a good of time for Canadians and Mexicans to be selling. Makes for an interesting market…