Ohhh… Mex-i-co: Baja Norte’s Surge in Home Building Activity

04/10/2017

While it may be easy to overlook from here in the United States, our neighbor (or roommate?) to the south has become a bustling metropolis of seemingly insatiable demand for new homes. Low cost, coupled with high demand, is yielding strong sales in Tijuana, with some developments selling as many as 14 units in one day. This flurry of activity has been driven by the strong economic and population growth that occurred there over the past decade (350,000+ people), and this growth is driving a bustling and ever changing culinary and cultural “scene” that is enjoyed by patrons throughout the region.

We recently sent our Research Consultant Sophia Roberts to her native Mexico to visit numerous new home communities up and down the coast, from Tijuana to Ensenada. While there are notable differences in sales activity and buyer profile between each of these areas (Tijuana is mostly a primary housing market, while Rosarito, the Valle de Guadalupe—Mexico’s wine country—and Ensenada tend to attract more second home buyers), we uncovered some interesting trends.

At the outset, we identified over 50 new home developments. Many of these did not have sales offices and most were still actively under construction, but they all had some degree of presence from a marketing standpoint. Collectively, we surveyed roughly 20 of them, and found product that ranged from entry level single family homes to luxury condos, prices that ranged from $75,000 to $800,000 ($USD) and a buyer profile that included both primary and secondary/investment home buyers.

While meeting with the various sales agents and managers, we not only asked the traditional questions about product, pricing, absorption and buyer profile, but we queried each location on the state of the market and what they expected for the region going forward. Overall, we found that the market in Tijuana specifically is very strong. This is based on:

Trump
The biggest question we had before conducting our research in Tijuana was related to President Trump and his effect on the housing market there. Surprisingly, we found his policies and presidency are actually helping the local market. The reasons for this phenomenon focus on the fear that:

  • A cap will be placed on the amount of money that can leave the United States once invested
  • There will be cross-border limitations on travel
  • Assets in the United States will be seized

There is also some general anger and backlash about investing in what is perceived as a country where Mexicans may not be welcome.

Lack of Supply
After the global market crash of 2008, when the lack of security around Mexico became front-page news both domestically and abroad, development in border towns like Tijuana ground to a halt. This sent local investors and developers out of the country and into the U.S. in search of safety—both physical and economic. Over the next several years, Tijuana continued to grow as people from all over Mexico poured in, attracted to the significant job opportunities and proximity to the U.S. border. But like San Diego and most markets around the United States, development did not pick up again until the past few years, leaving a large level of pent-up demand.

Unstable Currency
Given the instability of the peso, there is a desire to invest in something more tangible and stable. And since the peso is at a relative low, now is an excellent time to invest in Mexican real estate.

Undocumented Workers
Some of those that are working in the United States illegally view their deportation as inevitable, and since they are making a much higher wage in the U.S. than they can in Mexico, they are sending the money back to their extended family to the south and buying homes now for when the deportation comes.

Legal Cross-Border Workers
There is another segment of the Mexican population that lives in Tijuana but commutes to the United States daily for work and is paid in dollars. The higher incomes allow them to buy real estate at a significant value compared to home prices in the United States. For example, the typical new home community we visited was priced in the mid-$200,000s (USD)—this is well below the median price for even older/existing homes in San Diego ($380,000 for attached homes and $540,000 for detached homes in 2016). This poses an interesting question: does an opportunity exist for Tijuana to serve as the new submarket of San Diego, for those in search of affordability?

Over the next two years, there will be over 2,000 new condominiums completed in Tijuana, and pre-sales in many of these communities are strong. For example, Levant, a high rise in Tijuana, started pre-sales in February 2017 and sold 27 units in one month. Another project, Adamant, sold 42 units in the last three months.  Distrito Revolucion is a third example that sold 14 units on their opening day of presales. This is clear evidence of pent-up demand, which is influenced by the factors above. While the future remains to be seen, every agent we surveyed had a favorable outlook for the local market and if anything, had a positive reaction to the impacts of the Trump presidency.

¡Ándale!

Contact us to discuss how we can help with your next project on either side of the border.

Sophia Roberts, Research Consultant – Advisory San Diego
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