I often call, only half jokingly I might add, the Riviera Maya, Orlando Mexico because of the giant hotels, golf courses and corporate style tourist attractions. One could also point to their real estate markets as very similar as well. Both gigantic, with property owners enjoying long and very nice appreciation periods, much longer and greater than averages found almost anywhere in the world. Both are vast areas that grew and expanded as time and the market went. Both, in recent years, have suffered falling real estate prices, lowering due to global recession and an overbuilt and over inflated market. The Florida adjustment has been much greater without question. I then often juxtapose that with the Costa Maya area as being more like Aspen Mexico, a real estate market that is small and always will remain so because of geography, creating a very tiny but very dynamic real estate market.
What I mean with that metaphor is that Aspen is a small town in the middle of the national forest, an area that it is almost impossible to encroach on commercially. With the growth limits, as well as other carrying capacity issues such as water and air quality, the town can get no larger. However, the area is spectacular and the demand to live there has remained constant. The original miner families, who started the town, were bought out by skiers, who tore down their homes and replaced them with their ski cabins. Those were soon bought out and torn down to build second homes for other wealthy skiers. After time, the millionaires were buying two or three of those to tear down in order to build their mansions. Now, only movie stars and CEO’s are doing the same. The carrying capacity that was set many years ago by geography, created the local real estate market’s high demand and low inventory situation that still drives the market today. If you want to live in one of the most beautiful places in the US, and Aspen is certainly one of them, then get out your check book and get ready to write a big one.
That same sort of real estate market is what is destined to happen in Costa Maya/Mahahual, and again because of geography. The area is framed by some of Mexico’s most beautiful and pristine beaches and jungle flora on its east. The north boundary is the Sian Ka’an Bio-Reserve, a protected and un-encroachable area and part of a future eco-tourism area called Zona Maya. To the south is Chetumal Bay, the body of water that separates Mexico from Belize and another un-encroachable boundary. To the west is protected wetlands that provide the nourishment for the reefs that line the entire western Caribbean coast. The result is that Costa Maya’s small geographical area is set, and because of new regulations put in place about 10 years ago, development is very limited because of low environmental impact regulation and a very limited amount of water. Does this sound familiar?
Costa Maya has been developed under regulations intended to limit and contain environmental impact on the wetlands and of course, the ocean and its marine life. Residential building regulations are designed with the idea that bedrooms are the best way to determine the environmental impact a particular dwelling’s inhabitants will have on the environment. The entire Caribbean shore’s carrying capacity has been carefully calculated and each piece of land has been set for only so many bedrooms per area. If you want to build a larger house than your lot is allowed, you will need to buy more adjacent property to spread your larger homes environmental impact over a greater area. What this means for the local real estate market is that as the small 75 mile area that makes up the Costa Maya’s Caribbean oceanfront fills with smaller houses, just like the original skiers cabins filled Aspen, they will need to be bought and torn down to allow room for larger homes. Beautiful beaches, plus low-density building regulations, equal the inevitable building of an exclusive real estate market, just like in Aspen.
Costa Maya/Mahahual’s real estate market experienced remarkable growth during the years from 2004-2007 in response to the rise in number of cruise ships visiting the area’s Puerto Costa Maya. People began to visit on the ships, return later for a week land visit and fall in love with this magical place. The result was the demand for real estate put pressure on the available market and prices began to rise at abnormal rates. By 2007, before Hurricane Dean’s direct hit category 5 powers destroyed the town, the port was the second highest volume port in Mexico and gaining fast on Cozumel. Dean closed the port indefinitely, and Puerto Costa Maya lost all the contracts that were to bring over 600 ships to Mahahual the next year. This was followed up by a global economic crisis in which our main source of buyers, those from the US, was hit the hardest. Throw in a few other tid-bits, like a swine flu and a drug war that is fought up along the US border, far from the peaceful and friendly area that is also called, “almost all of Mexico”, and you can stall an areas entire economic growth, and especially its real estate market, pretty easy.
Finally, more ships are returning to Costa Maya. Ships that had been contracted away from the US market the past few years, to what was a healthier European market, are now returning as the US economy speeds back up and Europe’s slows. The unpopularity of ports that require tender transports onto shore, like Belize and the Grand Caymans, are also bringing new contracts to Puerto Costa Maya. The town’s real estate and construction market’s are coming back to life in stride. Owners of partially built structures that stopped construction after Dean, seeing that until the ship volume increased, the justification for the capital expense to finish their projects was not worth it, have begun to finish their buildings and new ones are popping up everywhere.
Over the past year, the primary developer of Nuevo Mahahual, the immediate area outside the port, has also picked up where they left off after Dean. Street’s median strips have been converted into walking trails, and pedestrian areas and street lighting have been improved. The entrance has a new grand stone facade and many of the undeveloped streets have been sold to builders who are starting new gated communities of single family dwellings, small hotels and even condominiums. Most recently, after an extensively reviewed environmental impact study was completed, a new eco-themed water park has been approved just outside the port, and will provide a huge attraction for even more cruise ship contracts, as well as regional visitors. This park is set to have water slides, zip lines and all sorts of jungle fun, and do so while also meeting the low environmental impact regulations the area is bound to. Another stimulus for the local economy and real estate market.
Available oceanfront property in the area is such that a “buyers market”, one that the supply is greater than the demand, is currently in place in the area. Prices for oceanfront property since Dean have mostly held firm but in the last year, has seen an actual slight fall in prices. Given this larger inventory with a price point of around $500,000 USD for an average oceanfront home, I expect a buyer’s market for another year or so, on that product. If the US economy continues to gain strength, the increased visitors from the cruise ships should bring about the “Aspen” phenomenon once again though, as the demand begins to exceed the inventory that only 75 miles of shoreline can produce.
In Nuevo Mahahual, the demand has already begun to exceed the inventory of homes. This is a fully developed area just outside the port, with paved and curbed streets, underground utilities and even gated community areas with nice new homes being built for under $100,000 USD. Builders have plans starting at $70,000 for 2 bedrooms casitas. The popularity of fractional ownership, where friends form an ownership entity corporation and split ownership and expenses, give small investors an opportunity to own a home in a tropical ambiance just a few blocks from the ocean. For $20-25,000 USD, a 25% owner/investor can have the use, or the rental income of the property for 13 weeks a year. At a price point that low, the already almost non-existent inventory will get even more difficult to maintain and drive prices even higher, faster. So if you are thinking of buying in town, unlike the oceanfront market, you need to do so sooner rather than later. That already sellers market will only get more so from this point forward. For those interested in beach property, investors have another year or so before the shift from the buyer’s market to more of a seller’s. But make no mistake about, the Aspen phenomenon will kick in and for those who got on early, get ready for a great appreciation run. For those wanting to get into this market early, the 5 year slow down that stunted the towns economic growth has made it such that you can still do that. Might want to hurry as well!