Puerto Vallarta
Live & Retire in Mexico

Questions from Charles Sloan to Puerto Vallarta resident Robert Foster:

"Could you tell me what one would would expect to pay for new construction per sq ft in Nuevo Vallarta today?..."

There is a lot next to us in Nuevo Vallarta that is listed for $95,000 US. It's a wedge shaped lot, about 750 sq. meters, I believe. Non-beachfront lots range from $140,000 US to $40,000 US in Nuevo Vallarta, depending on whether they have waterfront (canal) or not; whether it's primary or secondary canal; size; shape; amount of fill dirt (if any) needed to raise it to proper level, etc. Beachfront lots in Nuevo start at around $600,000 US, I believe.

Construction here is extremely challenging. Under Mexican law you, as the property owner, are the employer of all your construction workers. No matter that they work through your architect. YOU are responsible for negotiating the contract with the labor union; for the contract and payments of Mexican Social Security, etc. etc. It's a bureaucratic nightmare. Easier if you speak really good Spanish of course, but still difficult. You can of course sign a power of attorney to your architect to handle these matters, but then you won't really know what's going on and are quite vulnerable.

Construction cost in Nuevo averages around $50 dollars a square foot ($4,500 pesos a sq. meter). Most people wind up spending more, I think, to get the stylistic touches and quality they want. It takes about 8-10 months minimum to build a good-sized house.

Areas like Nuevo Vallarta have higher taxes, water and electric rates than traditional areas like Coapinole. Nuevo also has a monthly maintenance fee, and no cable TV is available. (Have to get a dish.) So, there are some downsides.

•"I understand that PV is not a commercial shipping port, but relies largely on tourist business. I view PV as being a luxury to Estadounidenses (U.S. citizens). If we get into a major recession in the US, how would PV be affected? Would real estate plummet in value? Would crime soar?..."

Hmmm...let me polish the old crystal ball and take a whack at this one. If there is a major recession (I'm more optimistic about this than you are, by the way, but, quien sabe?), here's what I think might happen, based in part on what happened here in the peso crisis of '94-'95.

PV would inevitably see some softening of its magnificent economy, but less than you might think. Gringos tend to think of Mexico as a bargain destination, and belt-tightening times actually tend to increase bookings of foreigners here somewhat. Instead of going to Barbados, say, they'll opt for much cheaper PV.

A global slowdown would almost certainly result in a flight to currency quality - weakening the peso vs. the dollar. This makes everything more affordable here in dollar terms...at least in the lag time before local inflation kicks in. That makes packages here seem more affordable than ever.

Real estate sales would slow somewhat, as many boomers like ourselves feel the reverse of the "wealth effect."

BUT, don't forget that the majority of tourists and property buyers here are still Mexican. Even in Nuevo Vallarta, 75% of my neighbors are affluent Mexicans. They will be affected by a global slowdown, but less directly perhaps. Their biggest worry is peso devaluation. And do you know what they do when they fear a looming devaluation? They take their cash and liquid assets and buy hard assets (real property). Because, in Mexico, real estate holds its value better than almost any other asset.

Another aspect of this is that the vast majority of real estate here is not mortgaged. It's owned outright. So, there is no major tsunami of de-leveraging and foreclosures that follows a financial shock. Anyway, the attractiveness of hard assets causes a rush into the real estate market as a "safe haven" for the locals.

So, the best strategy is just move on down, knock back a few margaritas on the terrace, and then you won't worry so much. :) (Just kidding. I share some of your concerns, but am more optimistic.)

•"Is title insurance available...?"

Private title insurance is not generally used in Mexico, as the Notario Publico office performs the title search and warrants that the property is free from liens, etc. Still, to satisfy foreigners who are not familiar with the Mexican system, some realtors have begun to offer policies through Stewart Title Guaranty. I hear it's quite expensive, but have no specifics.

Personally, I think it's superfluous. Stewart may or may not do a more thorough search than the Notario office, but the trust system of foreign ownership is in itself a guarantee of your and your heirs' unassailable rights to the property. At the very least, I'd sit down with an English-speaking Notary and discuss this issue before automatically buying private title insurance. Perhaps you'll decide you need it, but, I doubt it.

Robert and Deborah Foster