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The devaluation of the Brazilian currency, the Real, was the major event that colored virtually all Latin American economic reporting in 1999. However, the real touchstone in the discussion of any aspect of Latin American markets still remains the Mexican economic crisis of 1994-95. Tequila Monday remains the byword for all of the economic chaos that resulted from the sudden 35% devaluation of the Mexican peso in late-1995, and Mexico's worst recession in 60 years in 1995 - the country's GDP shrank 6.2% in that turbulent year. Popular memory in Mexico and Latin America generally has not fully recovered from this period, and neither has the Mexican real estate market. Nonetheless, economic recovery began as early as 1996, and though continuing shocks to the region's growth take their toll, Mexico offers good long-term real estate investment prospects both financially and in terms of use-value: it is costly to build in Mexico.

The strength with which Latin American markets have rebounded from the aftereffects of Tequila Monday surprised the American financial community in general. For example, in 1997 equity offerings in the real estate sector grew to become a distinct subset of their own for the first time ever within overall Latin American equity offerings. Even the U.S. investment banks involved in the specific real estate equity offerings expressed great surprise at the high level of interest. Over the past 20 years, Hines (Houston), a major U.S. developer, has remained active in the Mexican real estate market. To date, Hines has invested US$300 million in Mexican real estate and plans to continue investing at US$40 million per year.1

As far as other forms of foreign investment in Mexican real estate are concerned, interest in second home/vacation property is expected to grow. Individual foreign buyers have greater security in property rights, although as discussed below there remain risks and areas that need important legal and institutional strengthening. Some areas of immediate future growth in Mexican are logical though initially surprising. For example, one growth market in Mexico is expected to be in senior retirement communities, including assisted living facilities, due to the dual attractions of warm climate and the lower costs for living and care provision. The industrial real estate market also offers growth because existing stock in Mexico City and Monterrey is outdated. The need for real estate infrastructure for manufacturing, warehousing, and transportation is increasing each year due to NAFTA-stimulated intertwining of the Mexican and U.S. economies.2

There are of course significant marketplace differences between the United States and Mexico in both the commercial and residential real estate sectors. One is what initially appears the irrationally high value of land in Mexico. In fact, due in significant measure to the high price of land, construction costs are as high, if not higher in Mexico as in the U.S. This is counter to American expectations for construction costs to reflect the lower costs of the Mexican labor market. This is a good reminder that economic valuations of any commodity or product, in any country, always contain a significant cultural as well as psychological element. In Mexico, land has been and remains to great extent the traditional site of investment. By contrast, in the U.S. and Western Europe, the conversion of land value into industrial and securities investment has been arguably the main historical driving force of the last four centuries. Land in Mexico therefore seems overvalued when using American valuation systems and perspectives. Commercial real estate services are also not developed in Mexico to American expectations. There are only some 40-50 commercial real estate brokers in the country and they are almost all in Mexico City. Commercial real estate in Mexico is also not a turnkey operation as is expected in the U.S. - commentators are not joking when they write that in Mexico the tenant leases a series of white boxes and does the alterations themselves.3

REALTOR® - A registered collective membership mark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics..

The National Association of REALTORS®, 430 N. Michigan Ave., Chicago, IL 60611   Telephone: 1-800-874-6500


DISCLAIMER:  Note:  This is not a legal document.  This write-up may contain errors and omissions and is for informational purposes only.  The above information is deemed correct, but is not guaranteed and is subject to changes and corrections. The property is subject to withdrawal from the market without prior notice.  Seller makes no presentations, warranties or disclosures as to the property except as to title.  The property is sold as is, where is with all faults and without warranty, representation or guaranty as to suitability, express or implied, (as to the condition or fitness of the property) for buyers’ use.

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Copyright © 2008 Jacob R. Casanova
Last modified: November 15, 2011