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Monday October 16 2017
Cabo’s Real Estate Buyer
Author:
Juan Diaz Rivera, 2010


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The buyer’s profile has been a moving target over the past 3 years. To understand today’s mindset, which is to some extent reactionary, we have to look at the actions that caused it and for this we have to look back a little. Bear with me.

Through 2006/2007 access to capital in the US at record low interest rates created large amounts of disposable income which increased discretionary spending. In the resort real estate world this initially created an acceleration of consumer’s plans for second, third and fourth homes which in a different capital market would have otherwise been delayed to a different time in the individual’s life plan.

Sellers accommodated buyers initially by raising prices which prompted more sellers to get into the market and more transactions took place. As the capital providers, the banks, realized the demand for their cash they securitized the mortgages or lines of credit and competed with each other to create even more liquidity which lowered the cost of capital still more, made it more available and fueled more investment. You get the picture. As this cycle built on itself the buyers’ initial profile changed from a happy Baby Boomer able to buy his dream home a decade earlier than planned to an investor driven by the returns that the sellers market described above created.

The Buyer that advanced his vacation plans in Cabo who bought in the early part of the boom was, generally speaking, a 50-65 year old couple with children in the late teens or in college, generally owners of their own business with travel habits that proved out an affinity for Mexico. Generally speaking they were from diverse cities in California, Texas, Arizona, Nevada and select cities in the East like Atlanta, New York, Minniapolis, and other centers of wealth. This buyer’s mindset was realizing plans they thought intangible for many years into the future and in this it was experiential, driven by self realization goals that were founded by economic requirements like potential future returns and such but not central to them.

As the market heated up the buyer became younger, less experienced and entirely driven by the potential returns their vacation property promised. Location, resilience to price erosion, design/usability, and many other traits necessary to hedge against recessionary pressure were less formally scrutinized. This new buyers mindset was more about the short or midterm flip than enjoying the property as these buyers work pace and family life still were not conducive to potential consistent personal use.

Suffice to say the pace of the market could not be sustained, the current market crunch hit in late 2007 but did not really begin affecting Cabo until early –mid 2008 given that it did not manifest itself in foreclosures, as it did in the US, but rather in a lack of sales pace in the 2008 and 2009.

Today, the buyer’s profile is very similar to what it was in 2006/07 in terms of demographics except generally speaking today’s buyer is more liquid: less dependent on debt. Psychologically today’s buyer is shell-shocked form the recent market uncertainty and, although still ‘affluent’ by most definitions they have to get used to a re-leveling of their net worth which equates to being about half as wealthy as they were before. They are bombarded with negative news in the US and distracted with opportunistic investments in their own home market.

As a result most of Cabo’s potential buyers again looking for the self realization goal of personal enjoyment but are tremendously caution when assessing the economics of the opportunity. From what we can see given our group’s extensive exposure to buyers in the Baja market, I would say that buyers will be very sensitive to potential price growth, carrying cost such as HOA dues, very averse to risk of construction, highly receptive to prudent forms of home ownership such as Fractional Ownership and hunting for bargains. Although these economic elements need to be present (location, price, reselability, amenities, low carrying costs) buyers are looking to make an investment in an asset their families can gather around. Specifically buyers now feel that although they are worth less than they were a couple of years ago, they are still wealthy and that life is too short to put off an investment their family can grow with.

 

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