For decades, foreigners have been buying: land, homes, condos and commercial properties in Mexico… Some apply due diligence to their purchase, most do not. Those that do realize Mexico can provide a safer real estate investment than a comparable purchase in the United States.

Baja real estate is a great opportunity for Americans who want the attributes that motivate so many Americans in moving to the West coast. The world is in a bad economic moment. Millions of US homeowners are losing their homes or their jobs. The same is occurring, but to a lesser extent, in Mexico. While US real estate values plummeted almost 60%, Mexico’s decline is in the 10-15% range. Baja prices for condos, homes, lots and commercial properties are at about the same or a little lower than last year.

Mexicans own properties as a long term investment not a speculative “roll over”. They traditionally live out their lives in one home and then leave it to their heirs. This creates a more stable real estate market. In the U.S., the average home buyer moves to a new one every four and one half years. Also, Mexican banks are much more conservative than stateside institutions. Making sure the borrower can repay the loan. The U.S. is a more speculative real estate and property financing market. The results are obvious in the home value and banking crash that the U.S. is experiencing. Mexico’s markets have remain relatively stable…

Realtors everywhere are being asked the same question: GIVE ME YOUR OPINION, SHOULD I BUY NOW OR SHOULD I WAIT?

I am not a sales agent or buyer. As a telecommunications specialist in the real estate industry, I have a particularly unbiased, “close hand” view of the market. My answer – Now is time to buy. Americans and Canadians that have their life savings in a bank, are not receiving the interest they need to preserve a decent lifestyle. A chocolate bar that had a price of 20 cents , 10 years ago, now costs a dollar. REAL ESTATE values may decline for a period of a few short years. But historically, real estate will recover with the economy and surpass values at the peak of past markets.

At the RE/MAX Office in Ensenada, we are beginning to see investors moving their money from US/Canadian Banks and investing in Mexican REAL ESTATE that has real value. The lower cost of living in Mexico provides home owners with a quality of lifestyle unaffordable in the U.S.. Foreign Investors are also buying commercial income producing properties. And once paid for, will provide more than enough income to live well or the option of selling it at a substantial return on investment.

Visionaries are buying now. Prices are at a recent history low and sellers are motivated to sell. Seize the opportunity to own something REAL. Real Estate in Ensenada, Rosarito or any other part of Baja Mexico is a good investment. Call your confidential sales professional for investment options. There are lots of “urgent to sell” properties available (look for Foreclosures at any of our websites); seller financing is available with low interest rates (ask your realtor for this option); highly negotiable prices when buying cash (just try it).

New year 2009 is almost here, many baby boomers took their opportunity and grasped the moment – investing in Baja. Now is the time for the post baby boomers. If you have savings, use it for something REAL.

The old adage of the United States economy contracting the sniffles, causing pneumonia in economies around the world, is especially true of Baja California. And especially the Northern half of Baja California. To be even more specific, the economic barometer for Baja California Norte is Southern California.  When Southern California’s aerospace industry took a dive in the late 80’s the demand for gringo “second homes” in Baja was significantly impacted.

As a foreign investment specialist in Mexico since 1984, I have seen my share of real estate booms and busts for “gringo” homes in Mexico.  I mentioned the 1980’s.  That was followed by another boom in the early ninety’s.  The halo effect of Mexico privatizing its economy and the passage of NAFTA inspired unprecedented foreign investment.  That boom ended in 1995 with the devaluation of the peso and the loss of foreign investor confidence.  After the U.S. bailout of Mexico (Mexico paid back uncle Sammy the loans made to salvage her economy) trust was restored and real estate investment enjoyed another short boom.  Until Punta Banda in 2000, when the oceanfront dream for 200 American families turned into a nightmare.

The Baja Beach and Tennis Club, a development located on the Punta Banda Penninsula, just 30 minutes South of downtown Ensenada, was a scam.  All two hundred families who bought there were evicted, representing a total investment loss of 80 million dollars. (see Punta Banda http://www.mexicomatters.info/mexicorealestate/).  These families were not innocent victims.  They were warned of the legal risks when they “bought” their properties.  But no matter, the media portrayed them as victims.  And Mexico still suffers from the fears created in the minds of second home buyers.

If investment trepidation, gasoline prices and the economy were not enough, a large segment of Baja tourists have stopped coming out of fear for their safety.  They are statistically safer here than in their U.S. homes, but hysteria has been created by yellow journalists, especially the Southern California press corp.

BORDER SECURITY OVERKILL

Another major factor in reducing investment, on both sides of the border, is an overdose of border security.  Hopefully our new president elect Obama will take another hard look at how best to secure our borders.  Do we put up more fences, more agents and the resulting longer delays to process border crossers or do we put those billions to work addressing the real causes of border insecurity?  The root cause of “illegal immigration” is unemployment and underemployment.  Americans were sold a “bill of goods” when NAFTA was proposed to increase jobs and provide fair compensation as an incentive for Mexican workers to stay home.

U.S. multi-national corporations’ unwillingness to pay Mexican workers a decent wage is the broken promise of NAFTA.  Despite the increased costs of living in Mexico, since NAFTA, U.S. multinational companies still pay Mexican workers the equivalent of $65.00 dollars per week.  A strong incentive to migrate “illegally” is the result.  It is impossible for a Mexican family, subsisting on $65.00 per week, to maintain a dignified lifestyle.  So far, Washington’s answer to “the border problem” is a continuation of a failed policy of more fences, expensive surveillance technology and agents.

Homeland Security Secretary Michael Chertoff has already stated “Even if natural barriers such as canyons, rivers and shifting sand didn’t make a full border wall impossible, fencing the nearly 2,000 miles simply would cost too much”.
The office of U.S. representative Duncan Hunter, Republican –California, estimates the wall would cost 3.2 million per mile. For 700 miles of fencing, the House of Representatives proposed, the cost is $6.4 billion.  Maintaining a “virtual fence” of cameras, sensors, aerial drones and other technology, would cost an additional $5.5 billion or more, says Republican representative Harold Rogers of Kentucky. Costs for those projects could double if they encounter the environmental and logistical problems that plagued construction for fourteen miles of secondary fence in San Diego in the mid-1990s.
Fences, barriers and other equipment to seal the border would require more agents. The U.S. Border Patrol presently has about 10,500 agents on the southern border, more than five per mile.  In his 2007 fiscal year budget, President Bush requested an additional $454 million for 1,500 new agents.  Add the additional costs of relocation and training and the price per agent is  $302,806.00 dollars.  If we hired 14,000 agents, the senate has proposed hiring, the costs rise to$4.2 billion.  Providing the same coverage that proved successful when the Border Patrol slowed traffic in El Paso in the mid-’90s, a total of 100,000 agents would be required at a cost of twenty one billion dollars.

Deborah Meyers, senior analyst for the Migration Policy Institute, a nonpartisan think tank in Washington, D.C., testified:  “The government would have a better shot at stopping illegal immigration if it invested those billions in developing the Mexican economy and eliminated backlogs for legal entry”.  Judy Gans, immigration policy manager at the University of Arizona’s Udall Center for Public Policy declared: “The money also could fund a program to help employers verify that applicants are legally able to work in the United States”.  Those concepts have support from other analysts and politicians, but an expanded border fence has garnered the consensus in Washington.

Actual Costs
The cost of a 14-mile steel mesh fence in San Diego offers a reminder that projects can go over budget.  In the early ’90s, officials estimated the secondary fence would cost $14 million – one million per mile.  John Pike, director of Virginia-based GlobalSecurity.org, a nonpartisan security-information Web site states:  “The first nine miles rang up at $39 million or about $4.3 million per mile”.  With all associated costs, the Department of Homeland Security approved an additional $35 million to complete the final five miles, three and a half of which were delayed by rugged terrain and legal wrangling about environmental concerns.  As a result, President Bush requested another $30 million in his 2007 budget.

All that would push the total cost for the 14-mile fence to $104 million, or $7.4 million per mile. With steep cliffs, rugged mountains, sand dunes, deserts and crossing seven hundred miles of private land in Texas, the project could encounter similar setbacks.  John Pike states: “The San Diego precedent demonstrates that this is clearly more complicated than it sounds at first blush.  It’s not like fencing in your backyard so your dog doesn’t get out.”

Border Businesses Hit Hard
When the Silva Super Market opened in 1920, on the northern bank of the Rio Grande, a single wooden bridge connected El Paso and Ciudad Juarez. The U.S. Border Patrol didn’t exist. Today, four concrete bridges arch above the concrete-funneled Rio Grande, connecting the two cities. Customs and Border Protection officers check everyone who crosses.  For nearly eleven miles, three layers of steel-mesh fence stand between the river and El Paso.  Hundreds of Border Patrol agents monitor the area day and night on dirt roads between them.

“We are one economy. I can’t stress it enough. Any border town will probably tell you that,” says Martin Silva, whose grandfather founded the store. “You have both American and Mexican nationals shopping in Juarez and El Paso, and that just contributes to the overall health of both countries’ economies.” Money in the borderlands is fluid. Mexicans come to the United States to buy clothes, shoes, toilet paper and groceries. Americans head south for tequila, medicine and souvenirs, and to visit dentists and bars. About 960,000 people cross from one country to the other every day, the U.S. Embassy in Mexico reports.

From the late 1970s to 2001, Mexicans accounted for $2.3 billion a year in retail spending in Laredo, Brownsville, McAllen and El Paso, according to a  2006 study from the Federal Reserve Bank of Dallas.  “That’s about 26 percent of total retail trade in the four Texas border cities and 2 percent of overall Texas retail sales”, according to Federal economist Roberto Coronado.  Suad Ghaddar, an economist with the Center for Border Economic Studies at the University of Texas-Pan American, states: “Mexican visitors have a three billion dollar impact on the Rio Grande Valley of south Texas. That spending supports more than 64,000 jobs. The impact in California is about $4.5 billion, supporting 67,000 jobs”.

Please let your new president and your congressional representatives know that this irrational and inhumane approach to our Southern border hurts everyone, whether Yank or Mexican.  And let’s put the blame on NAFTA’S failure to secure the border where it belongs; what economist and former Clinton Secretary of Labor,  Robert Reich calls “Super Capitalism”.  The corporate greed that caused the housing and Wall Street collapse is alive and well among multinationals in Mexico. Without government intervention and regulation (like the mortgage industry) these modern day Robber Barons will continue to exploit Mexican workers at the expense of all “Norte Americanos”.  Remember we are all Americans, both north and south of the U.S. border.

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 leejose@mexicomatters.net

“When the U.S. economy gets the sniffles, Mexico’s economy gets pneumonia”. This is an old cross border axiom that accurately describes today’s Real Estate market in the border area adjoining California. Tijuana, Rosarito, Ensenada, and San Felipe are feeling the ripple affect of a slower real estate market in California. Between 2003 and 2006 – low mortgage rates, inflated California real estate prices and cheap Baja ocean front, created a winning formula for accessing the American dream of a home on the beach. This combination of economic forces, created a Baja buying frenzy over these past three years.

As we move into 2007, California home owners have less home equity capital to invest due to real estate values “topping out” and refinancing rates becoming less competitive. The result is less money available to buy that vacation-retirement or investment home in Baja. Add to these conditions, a tripling or quadrupling of Real Estate prices in Baja (since 2003) and the slowdown scenario is complete.

The equity crunch has caused a much higher demand for mortgage money using Mexican property as collateral. U.S. lenders, including G.E. and GMAC, are marketing such loans. But unfortunately, rates are still high (in the 8 to 9% range) and the funding process very slow. If you include loan points and “foreign investor” closing costs, your purchase could cost you another 10% of the property’s sales price.

The Northern Sea of Cortez (San Felipe – Puerto Peñasco) is still a magnet for “snowbirds” from the Northeastern U.S. and Canada, with warmer air and water temperatures than the Pacific Ocean climes of Rosarito and Ensenada. As a result, the Sea of Cortez is less dependent on California buyers. This is especially true of Puerto Peñasco which is still booming. It has the advantage of being on the border with Arizona – the hottest real estate market in the United States with home prices still escalating in value.

OTHER FORCES AT WORK

The Tijuana region, including Rosarito just 20 minutes to the South, has received a lot of bad press involving drug violence and kidnappings. Rosarito has had two kidnappings of U.S. homeowners in the last six months. The recent military takeover of Tijuana and disarming of the police has inspired Rosarito leadership to seek the federal government’s protection from their local corrupt cops. The expressed need for imposing Marshall Law does not help sell Rosarito real estate.

Sleepy Ensenada, if you believe the local real estate buzz, is about to explode. Ensenada prides itself in being a family oriented, conservative community that has not yielded to the “anything goes” party atmosphere of Rosarito. Eighty miles South of the drug wars affecting TJ and Rosarito, it is still safe to walk the streets of Ensenada at night.

The problem for Ensenada has been a lack of inventory that interests U.S. buyers. Unlike other vacation/retirement destinations in Mexico, Ensenada’s history and economy has not made “gated communities” for foreign buyers a high priority. This situation has changed with an increasing demand from “serious” developers” attracted to the lower land prices of Ensenada. Developer interest has also been peaked by the past success of Rosarito and baby boomer pronouncements that they will travel the extra one hour to live in a quieter, family oriented community. Émigrés who seek “gated communities” in Ensenada will have their wishes answered with 2,500 units planned for construction this year.

In this slower Baja real estate market, we have fewer home buyers than last year but the demand from developers has not diminished. If anything – it has increased. In the past 12 months, our small consulting firm has established 10 new foreign owned Mexican corporations with the objective of developing over 2000 acres of property from Ensenada to San Felipe. Developers are more convinced than ever that the Baja market has huge sales potential.

Other obvious developer incentives are the high costs and legal complexities of developing in California. A residential subdivision can take three to ten years for approval in California and there is always the risk of rejection due to public resistance. The Baja approval process, assuring a developer’s proposed land use request, takes two months with no public review or hearings. Once the use permit “uso de suelo” is issued you can begin to create infrastructure and enjoy advance sales.

Financing and title insurance, by U.S. firms, are also providing more assurance to home buyers and developers, that Baja has a great real estate future for foreign buyers.

Ejido Land

In the late 1980’s, President Salinas De Gortari transformed Mexico from a socialist autocracy with an isolationist economic policy to a privatized, globally competitive nation.  Prior to Salinas, astronomical import tariffs eliminated any real competition from foreign producers of goods and services.  In addition, banks, airlines, the telephone company and major manufacturing were all state owned.  Privatization was complete within the six year term of Salinas’ presidency. Only the electric company and Pemex petroleum were left in the hands of the state.

Perhaps the most controversial privatization was that of ejido lands.  Ejidos are an institution dating back to the revolution.  Pancho Villa and Emiliano Zapata recruited peasants to fight in exchange for land. When it was time to disperse the spoils of war the farming cooperative or ejido was born.  The beneficiaries of the land were given personal use parcels that would stay in their families in perpetuity.  In addition each ejido has communal land for exploitation as a collective. Until the privatization reforms of the 80’s, ejido members, either individually or collectively, could not sell, trade or encumber these lands in any way.

There is more ejido land in Mexico than the sum total of  all properties held privately or publicly. And now, thanks to former president Carlos Salinas de Gotari, U.S. investors are buying large parcels of ejido land in Baja for tourist development.  Ejidos were intended to be farm or fishing cooperatives, but most of the land in Baja is not suitable for either one.  An example is the property now owned by El Dorado Ranch in San Felipe.  It once belonged to Mexico’s largest ejido-Plan National Agraria.  Hundreds of thousands of desert acreage, unsuitable for planting, was owned in common by 216 ejidatarios (ejido members).

Pat Butler, the developer of El Dorado, bought more than 60,000 acres to create Baja California’s largest subdivision for retirees and vacationers.  Butler accomplished what everyone, including this author, thought impossible: to negotiate and gain agreement from 216 ejido families.  Folks who generally have enormous difficulty reaching agreement amongst each other, let alone accepting the offer of an outsider and a foreigner to boot.

The opportunity Mr. Butler pioneered has motivated other U.S. developers, large and small, to follow suit.  The process for buying ejido land as a non ejido member or foreigner can be time consuming and must be pursued with diligence, patience and expertise.  The “DERECHO DE TANTO” is the terminology used for making a purchase offer to a “parcelario” (individual ejido parcel owner).  These individual parcels can be quite large – often hundreds of acres.

Derecho de tanto

The first step in the “derecho de tanto” is to make a written offer in which the spouse and or heirs of the ejiditario have the first right of refusal to purchase at the offering price.  .  Once the family has accepted the offer, the second right of refusal is held by the ejido membership.  They must approve the offer by a 75% majority vote in their regularly held meetings (“asambleas).  If they vote to accept the purchase option, the written offer is posted for 30 days in the ejido office.  During these 30 days, any ejido member can exercise their “second right” of purchasing the property at the proposed price.  If no one, within the ejido, exercises the option to purchase, the offer is then posted for the surrounding neighbors who have the third right of refusal.

Buying a parcel can be difficult enough but purchasing the entire ejido requires “mucho” effort, time and money.  It requires the ejido to proceed with a lengthy privatization process that culminates in an “Asamblea Dura” in which 75% agree to privatize the ejido.  Whether an individual parcel or the privatization of the entire ejido, a government survey team from “Reforma Agraria” is necessary to assure and certify boundaries and subsurface areas.  In addition the “comisariado”, a legal watchdog for the ejido must sign the approval for sale on behalf of the ejido and that approval must be registered with Reforma Agraria.

As a foreigner, wishing to venture into an ejido investment, you must be prepared for cultural idiosyncrasies along the way.  First, getting an ejido quorum together to vote on your offer can be difficult to accomplish.  It may require a monetary incentive paid to the ejido president for rallying the troops.  Also, you will be expected to pay “fees” to the lawyers from Reforma Agraria who can expedite the sales process.  Often the process can be accomplished in months, but sometimes it can take several years.

For experience and expertise in buying ejido land you can contact us for a no cost initial consultation and review of the property being offered.

Marketing Ensenada

Every week our office receives two or three phone calls from U.S. investors looking for Baja real estate opportunities that are on the upside of the value curve.  The press is full of reports that Western United States property values have reached their peak.  The following is my advice to these folks:

ROSARITO – Property appreciation is still holding strong but not doubling every year as it has in the past three to four years.   “Price doubling” escalation has been driven by condo speculators who buy multiple units before construction has even begun.  They have been successfully betting that values will double or triple at construction completion.

Many retirees have been priced out of the Rosarito market. And realtors are concerned that the 2,700 new condos, coming on line this fall, could saturate Rosarito’s real estate inventory.  Also, baby Boomers have become somewhat disenchanted with the drug trafficker spill over from Tijuana: three policemen were found decapitated recently in the trunk of a car in Rosarito. In addition, the “wild party” scene has motivated many buyers to travel further South to Ensenada, a more family oriented community.

SAN FELIPE – You better buy today because prices are escalating on a monthly basis.  I purchased a desert lot, with a mile away ocean view, in April of this year.  By May, comparable lots were double what I paid.  I assisted a client in buying a beach front lot six years ago for $50,000.00; a neighboring lot is now selling for $500,000.00.  A tenfold increase in value and almost all the increased appreciation occurred in the last three years.

ENSENADA – The largest county, measured in square miles, in the world.  Ensenada’s Northern border is just below Rosarito and continues 400 miles southerly until the state line with Baja Sur at Ojos Negros.   Ensenada is 120 miles wide, from the Pacific to just below San Felipe on the Sea of Cortez.  Ensenada includes: San Felipe’s Southern beaches, San Quintin, El Rosario, Valle de Guadalupe (wine country) Gonzaga Bay, Bahia de Los Angeles and dozens of smaller desert communities.

Its size, differing: climates, topography, flora and fauna, presents multiple and distinct real estate markets.  The Southern beaches from San Felipe to Puertecitos are mostly within the County of Ensenada and the anticipated growth/appreciation favors this zone.  On the Pacific side, I like Bajamar with its world class ocean side golf course (Pebble Beach 50 years ago) and reasonably priced homes in a beautifully planned subdivision.

You can still buy a golf course home with an ocean view in the four hundred thousand ranges.  Bajamar also has a new developer with deep enough pockets to buy the media promotion necessary to unveil this well kept Baja real estate secret. I expect values to appreciate measurably by year end.  Below Bajamar are developments like Ventana al Mar, Saldamando and Sal Si Puedes.  Presales are pricey but when you see the location, views and the planned infrastructure you can bet the upside should be substantial

Ensenada Downtown

Downtown Ensenada is experiencing a face lift and master planning done by U.S. planners who know their stuff.  You can expect to see completed in the next five years: three new major highways relieving the traffic snarled transpeninsular highway, a continuation of the boardwalk from downtown – ten miles to the South, and ending at what is now the airport.  The airport will be moved to Ojos Negros and the existing airport and military base, a half mile square, bordering on beautiful, presently military only, beaches will be turned into a park, complete with zoo and aquarium.  The beaches, beginning just south of downtown, are planned for high rise condominiums ala Miami Beach.

Smart investors are already driving price increases in Ensenada’s beautiful wine country.  The upscale equestrian and wine making model of Napa Sonoma is being duplicated here in Guadalupe Valley.  Upscale horse and wine Bed and Breakfast like El Adobe and Las Brisas del Valle ore luring other interested hotel operators.  Hugo De Acosta, as chief winemaker for Bodegas Santo Tomas, took their wines to international prominence in tasting competition around the world.  Hugo has started a wine making school in the valley that is attracting aficionados from throughout Europe and the Americas.

The culinary school started by Guadalupe wine maker L.A. Cetto is a nod to Sonoma’s Sebastiani who enhanced his wine making image by forming an outstanding school for the culinary arts.  The importance of the food and wine industry to Baja California has motivated the State University to begin a college degree program in the food and or wine industry beginning next year in the Guadalupe Valley.

Investors predict Ensenada will experience a Rosarito-San Felipe type boom in five years.  A lot of excitement is expected to be generated by the legalizing of lands that were taken in the Punta Banda fiasco. The city is preparing the paperwork necessary to enforce the will of the court in providing legal lots that were developed without the necessary permits.  Serious buyers are vying for the 300 room Hotel and tennis resort that was abandoned in the year 2000.

It is no longer a question of should I buy something in Baja as an investment.  The question is, how fast can you move before prices double and triple in the next couple of years.  That is the upside potential of Baja that you will not see in the next few years in the Western United States.

Just remember, title anomalies are common in Baja, so title insurance is a must.

Notarios are keepers of the public record in México, an exalted legal mandate not to be confused with U.S. notaries whose powers are very limited.  Notarios are attorneys who give up private practice to oversee and approve, for entry into the public record, the following: articles of incorporation, publicly recorded contracts, wills, powers of attorney, transfer of real property title and depositions.  In addition they act as official witnesses “dar fe” (provide faith) to any and all legal transactions or official meetings affecting investment, property ownership or possession.

The requirements to become a Notario are stiff:  Three years of litigation experience, three years of working for another Notario and satisfactory completion of a written exam.  Having political clout is another important criterion for selection.  The number of “Notarias”, the term for the office, is determined by municipal census figures.  Ensenada, for example, with a population of approximately ½ million people has 5 Notarios, while Tijuana with a million eight hundred inhabitants has 15 Notarios.

The amount of work for Notarios in Baja California seems to always exceed the number of licensed to complete said workload.  As a result Notarios are practically guaranteed a millionaire income. By law, they can charge one percent of the value for each transaction.  In the case of real estate title transfer, if you sell a lot to somebody for $10,000.00 the Notario will charge in excess of $100 (1%) for his service-typically three to five hundred dollars.  In comparison, if he oversees the transfer of a one million dollar property, he will charge $10,000.00 (1%).  Yet the amount of work and time required to record the title transfer is the same for the 10k property as it is for the one costing a million.

I call the Notario license – A LICENSE TO STEAL.  As you can imagine it is a coveted right.  But after 23 years of dealing with notarios in more than 15 of Mexico’s 38 states, I find a great deal of difference from one notario to another with respect to legal protocols.  Some are very conservative in interpreting what can and cannot be done in completing a transaction and others are extremely liberal.  Depending on the client’s specific needs we can determine which Notario is best to satisfy same.

Notario mistakes or legal interpretations can cost you money

TAXES ON TRANSFER OF PROPERTY TITLE (closing costs in Mexico)- If a property is held by the seller for more than two years and the property is the seller’s primary residence, he or she should pay 5% of the sales price.  If the property is raw land, held for less than two years or not the primary residence of the seller, the sale is taxed at 29% of capital gain.

This can make a huge difference in the tax bite suffered.  Especially for  properties sold in Rosarito, San Felipe or Puerto Peñasco, where property values have been doubling every year for the past 3-4 years.  Most notarios are conservatively charging foreigners the 29% whether they meet the criteria for a 5% tax or not.  They argue that by their very nature, as foreigners, they are not permanent residents of Mexico-blatantly pigeon holing folks to avoid any possible consequences for not taxing at the highest rate.  There are a minority of notarios who argue that if a foreigner has a primary residence in Mexico, with an fm3 immigration permit and has light and water bills in their name, then they should be taxed at the much lower 5%.  In these situations we select the liberal notario to do the transaction-saving our clients tens or even hundreds of thousands of dollars.

FEDERAL ZONE CONCESSIONS - The federal maritime zone is 20 meters from mean high tide and cannot be developed without special concessions. The concession is an important asset protector when buying beach property.  In this past year (2005), multiple cases of foreigners, who paid handsomely for their dream home on the beach, were “robbed” of that dream.  A commercial interest, took advantage of the foreigner not having the beach concession and now they are staring at the back of a condominum instead of their beloved sunsets.

The liberal notario will often allow a sale to be consummated without protecting the buyer’s right to a federal zone concession. In the past, the majority of notarios did not regard the federal zone concession as an asset.  It is not a legal obligation to obtain the concession.  Federal zone taxes are charged properties adjacent to the federal zone, at the same rate, whether they have the concession or not.  So, when representing buyers of beach properties, we select a conservative Notario who respects the value of a federal concession and the legal implications if it is not secured.

“BUYING” EJIDO LAND – Ejidos are farming cooperatives – a legacy of Mexico’s Revolution and socialist political roots. Soldiers who fought in the revolution were given farmland to use cooperatively.  They could live, work and donate the land to their heirs in perpetuity but could not sell these lands.  Changes in agrarian and foreign investment laws have allowed ejidatarios (ejido members) to sell these lands to foreigners.  However, only after a formal and sometimes lengthy, multiple stages, when process is completed can the transfer of title be consummated.

Liberal Notarios frequently allow a foreigner, or even Mexican national buyer, to pay the seller his asking price before the title transfer process is completed.  The liberal Notario will do this via promise of sale contracts or secession of rights agreements.  Bad idea, you need the cooperation of the seller and his family before you can be given the right to secure title. The purchase must be presented at formal meetings of the ejido and subject to a majority vote.  If the seller has been paid in full, his primary motivation for moving the title transfer process along has evaporated.  And what if something happens to him? And all too frequently these folks will sell the same property to a second buyer because the transfer of title is not official.  The liberal Notario has now put your entire investment at risk.

Notarios in Baja generally have more work than they can handle.  Long waits in their offices are the rule rather than the exception.  As a result, the amount of paperwork detail is enormous and errors are frequent: misspelled names, not providing proper translation for foreign buyers or overlooking the lack of proper immigration documentation for foreigners to legally validate a completed transaction.  In one case, my client signed the title transfer documents, placing her purchase into a bank trust that erroneously listed a person unknown to my client as a beneficiary. It took us five years, two court proceedings and $10,000 in legal fees to unscramble the mess.

Mexican law requires a married couple to declare whether their assets are separate or held communally. If they declare communal ownership, both are required to sign for the sale of their property.  A Notario in Ensenada allowed the husband to sell multiple properties without his wife’s signature.  The husband is now deceased and his widow could get a court order canceling those contracts of sale.

The moral of this story is having good counsel when transacting business at the Notario’s office.  The Notario probably won’t have the time to give your matter all the attention it deserves.

by Jose Perez – June 2006

Baja Realtors are bullish in Baja as we enter the summer buying season. This spring the Rosarito market was a little softer than last year. However, the last week of May is starting to bring more prospective home, raw land and condo investors. I say investors because many buyers are just that: buying multiple properties for speculation. Especially pre-sale condominiums that have doubled or tripled in value before construction is completed.

baja mexico

In San Felipe there was no spring nor even winter slow down-that market is simply hot, hot, and hot! The amount of U.S. realtors in town now appears to outnumber retirees. That obviously is not the case; it just looks that way to me because I like to drink and so do most realtors and developers.

Al’s Back Alley Bar and the Beachcomber are the favorite realty watering holes. On any given night the buzz at these haunts is all about real estate, real estate and more real estate. I can only handle so much of realtor talk. It reminds me of when I was a long distance runner and all my friends could only talk training and injuries hours on end – borriing!

What I have observed is that the Realtors and Developers in San Felipe are friendlier, more kickback and less “cutthroat” than the folks in Rosarito. Rosarito seems to stimulate disaccord and bad mouthing of one another. Perhaps it is Rosarito’s proximity to the border (a half hour) that provides easy access of overly ambitious U.S. realtors.

Ensenada realtors don’t have much to be cut throat about because there still is not a significant market for foreign buyers in Ensenada. There is buyer interest but not enough inventory, especially condo developments. Ensenada has been slow in developing gated communities and condo inventory for the foreign buyer.

The real buzz in Ensenada real estate is about the wine country. Just 20 minutes northeast of downtown is the Valle de Guadalupe – Napa Sonoma 50 years ago. The area is home to world class winemakers who are winning gold medals for their efforts in competition with U.S. and European vintners. The area attracts winemakers from all over the world who want to exploit the ideal climate, soil conditions, water and –most of all – the reasonably low land prices.

An acre of wine grapes in Napa-Sonoma is over a million per. In the Valle de Guadalupe $80,000.00 per acre. If you can find acreage with mature vines already planted, you’re in luck. Most planted acreage has been bought by L.A. Cetto, Domecq, Monte Xanic and a hand full of others. Most investors are buying raw land priced from twenty five to eighty five thousand dollars. They are considering the 5 to 7 year maturation period for cultivating decent wine producing vines.

ensenada wine country

The annual wine festival which starts earlier and ends later every year – now June through September, brings tens of thousands of tourists to enjoy dance, music, good food and great wines every weekend. In addition, the unobstructed starlight and the valley’s warm summer nights captivate more wine lovers into living here.

Thanks to Stewart and First American, title insurance is becoming more of a standard among developers where once it was the exception. Fidelity Title can also serve Mexico but have all but disappeared in terms of promoting their product.

The risk to investors who secure title insurance is no longer one of title disputes. The study process, title companies require, practically eliminates the loss of property because of errors or omissions in title transfer. If title is subject to indemnification, U.S. courts enforce same; since it is a U.S. company serving an American citizen or other foreigners.

If you consider only properties that are title insurable you have eliminated a major threat to your investment but another risk exists for folks who buy homes or condos unfinished. The risk is incompletion of infrastructure and or habitat. Performance bonds in Mexico are very expensive and rarely in place.

Insist that your realtor provide due diligence on the developer’s history and that construction goals are being met in a reasonable time frame. The real estate bargains of a lifetime can be yours in Baja.

Where will billions of San Felipe real estate dollars end up?

In January of this year, the first meeting of the newly forming San Felipe Realtor’s Association took place at the San Felipe Marina and Spa. Uria Amor, AMOR REALTY, took the initiative of contacting an attorney to draft articles of association and organized the first conference. The meeting, from this reporter’s observations, seemed to be a positive experience for all in attendance. The most notable remark was made by Ms. Amor: “Looking around this room, I see gathered a group of future millionaires”.

San Felipe Dollars

As I looked around the room I saw approximately forty five white folks and five or six brown faces. This made me consider: Where will all those millions go? No doubt about it, Uria Amor is right. Billions of dollars worth of real estate will be sold in San Felipe in the next two years. And realtors, especially U.S. realtors in San Felipe, will reap hundreds of millions of dollars in commissions. Will they re-invest in Mexico or will it be deposited in Palm Springs’ bank accounts? That is a question being asked more frequently among Mexican Real Estate professionals and immigration officials.

A veteran of the Cabo San Lucas realty boom and one of the few Mexican sales agents that participated in the Association meeting said to me: “It is Cabo all over again – the Americans dominate the real estate industry and few Mexicans earn lucrative real estate commission income. The immigration requirement (nine Mexicans to every one foreigner in a company) is satisfied with Mexicans filling low end paying construction, landscaping and food service jobs.”

The “numbers game” of satisfying immigration standards, works for developers who have a heavily weighted Mexican construction labor force. But what about the real estate brokers who are not developers and have minimal blue collar needs? Where are they going to find bilingual Mexican real estate professionals in Baja to satisfy immigration ratio requirements? The answer is they are not going to find trained Mexican realtors in sufficient numbers. They will be forced, at some point in time, to train Mexicans in the art of real estate sales and marketing.

The newly forming realtor association in San Felipe might consider, as a high priority, the formation of a real estate school there. By establishing a school for real estate professionals in San Felipe they will help themselves in satisfying an immigration requirement they will be faced with sooner or later. In addition, they can use the same school to educate their Anglo agents in Mexican Real Estate law – which most is sorely deficient in.

Realtors in Mexico, Anglo or Mexican are not licensed or monitored by any governmental body in Mexico. Mexican real estate law does not require full disclosure to the extent we know it in the United States, especially as it pertains to real estate sales representatives. It is pretty much – buyers beware. A safe investment is one that can satisfy U.S. title insurance, available from First American, Stewart or Fidelity Title companies.

Given the climate among the new technocrats in Baja immigration offices, I would say the days of looking the other way on work force ratios are nearly over. Enforcement of Mexican immigration laws are subject to broad interpretation by the local official (“delegado”). The spirit of Mexican immigration law goes beyond a simple ratio of nine to one. The law also states that if a Mexican can satisfy the skills required of a job, that job must be filled by a national and not a foreigner.

January 2006

Beach property titles

Watch out for realtors and attorneys who suggest you establish a Mexican corporation to hold title on your vacation/retirement home. They are giving you bad counsel and it could cost you your title down the road. Mexican foreign investment law clearly states that if it is residential property you must establish a bank trust to secure title. Unless that property is to be used as a rental. Then you must report the income, hire an accountant and be subject to a less friendly ISR, with the cozy sounding moniker-HACIENDA.

I have listed below the reasons attorneys and realtors make this foolish suggestion to buyers. It may be one or a combination of these reasons. The lawyer or realtor knowingly suggests a corporation knowing full well the client has no intention of using the corporation to run a business.

• Not all Mexican attorneys have experience in foreign investment. I was surprised, when I first began consulting with clients, how few attorneys in Ensenada or San Felipe thoroughly understood foreign investment law. I was also surprised to discover that, among young lawyers their law professors lectured to them with information based on pre 1993 foreign investment law. The laws changed drastically in 1993 and they were obviously not up to date. Realtors know even less. Typically a U.S. realtor does not speak Spanish nor is trained in Mexican Real Estate law.

• Attorneys have an ulterior motive in recommending a mexican corporation in instead of a bank trust. More hours to bill in setting up a corporation as opposed to a trust. Realtors like the corporation because it can be a faster route to receiving commissions. Also, realtors often work with attorneys who kick back fees for establishing a corporation.

• Foreigners cannot buy large parcels of land under a trust (maximum 2000sq. meters) without getting a variance from Relaciones Exteriores (Exterior Relations) which governs government trust permits. Therefore, rather than risk the sale because of red tape, the realtor recommends the easiest and quickest way to convey title and commissions.

In addition to putting your title at risk, the disadvantages of having a corporation outweigh any advantages. A corporation is expensive to maintain; requiring an accountant to report monthly and prepare year end reports that are time consuming and costly. A yearly bank trust fee is $500 and you can sleep at night without worrying about a HACIENDA audit.

In San Juanico Baja Sur, surfers know it as Scorpion Bay, a realtor and his attorney friend have set up over a dozen foreign owned Mexican corporations with no intention of doing anything but holding large residential parcels. I can’t imagine Hacienda not becoming curious about all these foreign owned corporations with no revenue streams in a fishing village of 500 people. This is going on all over Baja and I can’t believe Hacienda will allow it to continue unchecked.

The other disadvantage to a corporation is that at the time of sale you will be taxed on the capital gains received. Capital gains taxes are 35% of the profit. All property held by a corporation is subject to this tax. If you hold the property in trust for more than two years and can demonstrate it was a primary domicile in Mexico (fm-3 immigration permit plus light, water or phone bills in your name), the tax is 5% of the sales price. You can save yourself tens of thousands of dollars, at the time of sale by holding the property in a trust.

Get a bank trust if you don’t intend to run a business in Mexico. Get counsel from an experienced consultant or attorney and by all means get title insurance.