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Luxury for less in Baja, California Mexico

By Julie Bennett

 Mexico recently dusted off its serape, cleaned up its property ownership laws, and installed highways and Internet access in hopes of luring second-home buyers back to Baja California -- the 1,000-mile-long peninsula just south of the U.S. state of California that lies between the Pacific Ocean and the Sea of Cortez. The makeover worked. U.S. developers are buying up huge tracts of land outside little fishing villages all along the peninsula and designing family-friendly planned communities with Spanish colonial flair. And U.S. and Canadian residents are buying up haciendas and villas faster than the developers can build them. Baja California's problems began several years ago, says Stephen Games, CEO of Prudential Realty California, San Diego, when a group of "unscrupulous" Mexicans and Americans teamed up to "sell" waterfront property to U.S. citizens that they didn't have proper title to in the first place. Subsequent lawsuits drew headlines and sent potential buyers away from Baja and to established mainland resort communities like Cancun and Puerto Vallarta. Since then, Mexico has put all of Baja into a restricted zone, where non-Mexicans can safely buy property through a "fideicomiso," or renewable 50-year bank trust, where a Mexican bank holds the title to the property and the foreign buyer is the trust's beneficiary, according to Tom Kelly and Mitch Creekmore, authors of "Cashing In on a Second Home in Mexico" (Crabman Publishing, 2005). In addition, the authors say, Fonatur, Mexico's National Trust for Tourism Development, has stepped up efforts to promote real-estate investment by foreigners. Although realtors in Mexico are still unlicensed, a new group, the Mexican Association of Real Estate Professionals (AMPI) is promoting higher levels of professionalism. And U.S. institutions are now selling mortgages and title insurance to U.S. citizens who buy Mexican property. The Region's Rebound Mr. Games says he's so confident about Baja California's rebound that he's purchased several properties there and even moved his wife and seven year-old daughter to Cabo San Lucas, the resort town at the peninsula's southern tip. "I believe my property is more secure in Mexico than in other parts of the world," he says. Los Angeles television producer Cater Swartzlander says Baja's attractive prices help to balance out any remaining risks. "We always dreamed of having a place close to the water, but in Southern California it costs $5 million just to look at the sand," she says. "Now we're building a hacienda in The Villages of Loreto Bay, a development that overlooks pristine waters, where our children can enjoy tide pools filled with sea creatures and watch whales and dolphins swim by." Developer Jim Grogan, CEO of the Loreto Bay Company in Scottsdale, Ariz., says he can keep home prices low because the Mexican government has already installed roads and utilities on the tract he's developing. About 20 years ago, he says, Fonatur selected five communities -- Cancun, Ixtapa, Los Cabos, Huatulco and Loreto -- to be the focus of the country's tourism industry, put in infrastructure and built airports to bring in foreign visitors. Cancun, Ixtapa and Los Cabos are now thriving tourist cities and Huatulco, on Mexico's southeast mainland, is developing as a cruise ship port and scuba diving destination. Emphasis on the Environment Loreto, a fishing village of 12,000 people just 700 miles south of the U.S. border, was the last to develop. By the early 2000s, Fonatur's focus had moved to environmental issues and Mr. Grogan's partner is the Trust for Sustainable Development in Victoria, British Columbia. "We own 8,000 acres, and we're leaving 5,000 of them for open land," Mr. Grogan says. "We'll have no high rises, no fast-food restaurants and no automobiles. We're building small-scale, walkable, romantic villages." The Villages of Loreto Bay will take 10 years to build and will eventually have a golf course, a beach club, shops and an artisans' village, all within walking and biking distances of its 6,000 single family homes and low-rise condominium units. Preconstruction prices range from $300,000 for small units to $2.5 million for custom beachfront or golf course villas. Five hundred units have already been sold, says Mr. Grogan. Preconstruction sales are also brisk at Paraiso del Mar, a 4,000-unit development near La Paz planned by John Fair, president of Fair Enterprises of Denver. Paraiso del Mar, says Mr. Fair, "will be a first-class beachfront and golf community that just happens to be affordable." Condominiums start at $225,000, while large private villas begin at $1 million. Mr. Fair says his first 390 buyers are 70% Americans, 20% Canadians and 10% Mexicans, and tend to be couples in their late 40's with one or two kids not yet in college. William Jordan, an attorney in Aspen, Colo., says he's building a four-bedroom villa on a lot on Paraiso del Mar's five miles of coastline, with a courtyard pool between his house and the beach. "We'll spend several months a year there," he says. "The islands are terrific for sea kayaking, and with the Internet, I can even do some business." Other second-home buyers prefer being closer to Cabo San Lucas, the upscale city at Baja California's tip that attracts two million visitors each year. Developer Mick Humphreys of Bend, Ore., says he has already signed up 50 buyers for the Chileno Bay Club, a 600-unit community he's about to start building on two-and-a-half miles of oceanfront halfway between Cabo San Lucas and Cabo San Jose. The Chileno Bay Club, says Mr. Humphreys, will look like a "European hill town, with cobblestone streets and gas lights." Single-family villas start at $3.5 million. The development will also include 150 fractional units (buyers own 1/8 of a unit, which they can use about six weeks each year), whose $600,000 cost includes membership in the development's golf club. Despite all the changes, U.S. citizens should be aware that buying vacation property in Mexico, even from a U.S. developer, still involves some risk and expense. Authors Mr. Kelly and Mr. Creekmore and other experts offer the following tips and cautions: Most U.S. developers building in Baja California offer 20-year financing packages, but their rates are higher than conventional mortgages. Check with U.S. banks first, to see if you can get a better deal. All home purchases in Mexico are arranged through Notario Publicos, says Mr. Creekmore, and transactions take longer than buying property in the U.S. Closing costs are 6% to 8% of the selling price and title insurance through an American company (he's affiliated with Stewart International, a title insurance firm in Houston) costs an additional 1%. Developers also charge homeowners' fees that range from $300 a month to $20,000 a year for maintenance, insurance and service charges. Check out the developer's track record before buying a preconstruction unit, to be sure he has the financial ability to complete the project as planned. Look into the developer's claim that "nonstop flights" will take you there. Air service to Baja changes frequently, and some of those "direct flights" are scheduled only two or three times a week. It is still risky to purchase single-family homes directly from their owners in Mexico, Mr. Kelly and Mr. Creekmore say. Work only with U.S. realtors who specialize in Mexico, or with members of AMPI, and use reputable third-party escrow services. Any foreign buyer who gives earnest money directly to a seller or real-estate agent must be prepared not to get it back, they warn. Buy only a vacation home you have a passion for and can afford to hold onto for a long time, warns Mr. Games. Real-estate values in Mexico are more subject to rises and falls in the U.S. economy than property within the U.S. California businessman Norman Lindauer of Dana Point, says: "If you haven't visited Baja before, be prepared for an emotional reaction. When my wife and I first went to Cabo San Lucas two years ago, we never thought we'd buy here. But once we saw all the beautiful villas, we bought fractional ownership in The Residences of Esperanza. Fortunately, it was a good decision for us and we love coming back."

Published Monday, September 8, 2008 8:45 PM by Zinnia Q.

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