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Baja California Real Estate, a Retrospective - 1984 to 2008

By Jose Perez (Mexicomatters)

A lot has changed since I moved to Baja in 1984, from my hometown, Oakland.  When they changed the name to Cokeland,   I moved to my beach house in Ensenada.

Too young to retire, I established a Mexican corporation under then ridiculous foreign investment laws: I would provide all the capital and hold a minority position to four Mexican partners\shareholders.  “Such a deal, I must be crazy”, were my thoughts

I did not know four Mexicans at that time, so who would be my partners? I had just arrived, with only my record collection and a fantasy of developing a beach property in Punta Banda, Ensenada. My newly contracted Mexican attorney, advised me to meet women in discos, invite them to lunch and, over desert and cognacs, request they sign corporate documents as shareholders. All as a favor to a - “cute guy Americano”.  He assured me that I would, in all probability, never see them again.  And he was right.

Changes in foreign investment laws in 1993, allow foreigners to own their corporation without any Mexican shareholders. No matter, I failed as a Mexican developer with or without Mexican partners.  All of us lost our foreign buyers in the wake of the Punta Banda scandal (see Punta Banda scandal).  Two hundred U.S. families were evicted from their homes. A total investment loss of 80 million dollars.  For many, it cost them their retirement dreams. For us, as developers in Punta Banda, it cost us: buyers, investors and our shirts.

Like so many business failures, I became a consultant in the field I failed in - foreign investment in Mexico. As one of my clients, Barney Karger, said to me: “If you want to become a millionaire in Mexico, bring two million”.  But seriously, changes in foreign investment law since 1993, protect investors with family trusts, financing, escrow, due diligence and title insurance from major U.S. title companies (see title insurance in Mexico).

In 1984 there was only a handful of crazy “gavachos” (yanks) willing to take the risks of doing business in Ensenada.  Commerce was tightly controlled by the government. They owned almost everything: transportation, banking, communications, energy and major manufacturing.  Tariffs on foreign goods were too high for merchants to import.   Mexican friends would offer to buy my Levis for double or triple what I paid in the U.S.

Now, because of privatization and NAFTA, foreign investment is everywhere: real estate development, the exploitation of fisheries, mining, agriculture, banking, manufacturing, and all the retail outlets we are familiar with in America. Wall Mart, Cosco, Mconalds, etc. etc., changing the landscape and culture Mexicana.

As a foreigner, I feel blessed in having “Close Encounters of a Mexican kind”. I have a unique perspective working and living in Mexico. I deal with almost all the government’s institutions and business sectors.   My family is Mexican, except for me.  My boys and wife speak little English. My wife has 12 siblings and they all live a short distance to our home.  The family gathering place is our 6 bedroom 6 bath home designed for fiestas.  I listen and read Mexican media and have Mexican intellectual friends who have a profound understanding of U.S. Mexico relations and history. My American friends, no matter how well educated, know little about Mexico or U.S. history with Mexico.   I mention all this in an effort to help frame the observations I am sharing with you.

Most of my work is directly related to the real estate industry: bank trusts, foreign owned corporations to purchase and develop land, title insurance, escrow and due diligence.  I have been through all the busts and booms of Baja real estate in the last thirty years the last boom was the biggest and brightest.  It started in 2001 and ended in 2007. The downturn in U.S. real estate is the primary cause of the Baja Real Estate Recession.  But the border waits and media coverage of Tijuana/Rosarito violence is not helping matters either.

 Border crossings have become intolerable.  And relief is at least two years away, when construction of more traffic lanes are expected to be completed. The problem is hurting commerce on both sides of the border. San Diego merchants are suffering a significant loss of Mexican buyers.  In the past, they crossed with ease to shop.  Baja realtors and developers suffer foreign buyer cancellations after a three hour torture wait at the border.  One developer, who offers bus tours to his project, Claims as many as 40% will cancel their deposits on the trip back to San Diego. 

The security “process” at the border is an absence of process.  An example is the SENTRI pass,  a great innovation but  too few of us have one. Frequent border crossers can obtain a pass to a special sensor gate.  You are electronically screened and on your way without waiting.  The pass is not promoted and the process for obtaining one is a “customs secret”, (see sentri pass on how to obtain). 

The additional processing time at the border for “security” reasons is the major problem.  Inspecting cars and interviewing potential undocumented without sending them to secondary inspection, if suspicious, is a waste of time for us legit border crossers. Why not dedicate separate lanes for folks with passports who are U.S. citizens?  In brief, introduce processes to reduce wait times.

The borders between the U.S. and Canada do not have this level of “tight security”, yet the 911 high jackers came across from Canada.  Also, it is still as easy for a foreigner to get a pilot’s license in the U.S., without a background check, as it was when the Arab 911 (not Iraqi) terrorists got theirs’.  Mexicans view all of this and the “crazy border wall” as racist and xenophobic.

The security fear of foreign buyers has definitely been an added “downer” to our market.   Addressing and overcoming those fears is critical to our success.  It is important to note, that not every town in Baja is affected. For example, the Ensenada Remax office has outsold the Rosarito office in the months of January and February (2008).  In the past, Ensenada sold only a fraction of the properties sold in Rosarito.  Now buyers want the family ambiance of Ensenada and the hour and a half, 80 mile distance, from the border madness.  San Felipe realtors also report that the fear factor is not seriously hampering sales.

I am not going to minimize the risks. But, I am honestly not fearful for me or my family.  I frequently do business in Tijuana and Rosarito and my wife travels there to visit family.  I use all my Oakland street sense when I travel anywhere, even the streets of San Diego.  Avoid late hour trips to these locations, don’t flash money or bling and be aware and alert about your surroundings. Given the homicide and assault rates of most U.S. cities, the state department should issue warnings about traveling within the U.S.

Wealthy Baja California Mexicans are most at risk for kidnapping. In the past three years, I personally know four Mexican businessmen who have been victimized. Every Mexican, in my circle of contacts, can recount a kidnapping or attempted kidnapping of a friend or relative.  It has reached pandemic proportions.  Most of the rich Mexicans, I know, have moved to San Diego. When traveling in Mexico, they are accompanied by body guards.  The number of incidents of foreigners being kidnapped is minimal.  It is easier to target a rich Mexican or one of his family members. Their families, typically large in number, live in Mexico (known and accessible to kidnappers) and are more likely to raise the ransom. This is an abhorrant situation but represents little risk to foreigners. 

The fear among foreigners is mostly media generated. As mentioned, this level of violence is not new.  It has been going on for at least three years. I have been telling friends,  “It is hard to believe that it has taken  so long for the U.S. press to - get the story”.  But, not surprising:  given what little importance the U.S. media places on Mexico.  But whether it is Britney Spears or violence in Tijuana, once the U.S. media gloms onto a story, they work it to death.  You will not see San Diego homicides receive near the coverage we get for violence on this side of the border. 

As a surfer, the thought of a shark attack is pretty scary, and shark attacks have increased.  But, so has the number of people who recreate in the ocean. The chance of being attacked on the freeway is greater than in the water.  Likewise, you have less chance of being assaulted in Baja as you do in the U.S.

At the beginning of this year, Rosarito, TJ, Ensenada and Mexicali installed new mayors.  Each has security as their top priority.  The results have been a dramatic decrease in violence and police harassment.  In addition, the President of Mexico, recognizing the importance of this region, has taken dramatic steps to curb the violence with military presence.  You will se a lot more military patrolling the highways and byways of Baja when you visit us.  Don’t be intimidated, these guys are our friends-yours and mine.

Given the drop in home prices north of the border, you would expect the same here in Baja.  That is not the case.  Home prices are still appreciating here because they have not “topped out”.   They have not reached bubble breaking proportions yet.  Building costs are going up and demand for land also.  Baja property values were doubling every year during the boom but now it has subsided to 20 - 30% per year. Still a helluva return on investment. 

Another factor is the attractiveness of Baja to upper class Mexicans living in the interior, especially Mexico City.  Realtors report, that in upscale developments, at least half their prospective buyers are Mexican nationals.  When I look for a good Chinese restaurant, I want to see the joint full of Chinese patrons, as opposed to “round eyes”. The same with real estate in Mexico. If the Mexicans are buying, it must be a good deal.  So now is the time to buy in Baja and we need you more than ever. So, as we say in O’town, get your funky dukeys down here ya’all.

Lee Jose A. Perez is the founder of Mexicomatters, you can call him direct for a free consultation – 619 819 9369 or e mail him at leeamate@gmail.com

I wish you good luck in securing the best mortgage for your property investment in Mexico
Here at www.mexicomatters.net.  We are ready to answer all your questions about bank trusts, foreign owned Mexican corporations and most important title insurance from First American Title.

We look forward to serving you.


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