BajaNomad

U.S. housing woes go south -- to Baja

Tommy A - 9-8-2007 at 08:31 AM

By Marla Dickerson, Los Angeles Times Staff Writer
September 8, 2007


PLAYAS DE ROSARITO, MEXICO -- -- The ripples of the U.S. real estate boom began washing up on the shores of this beach town a few years ago. Californians, feeling flush from the steep run-up in housing values stateside, pulled equity from their primary homes and snapped up vacation properties in northern Baja California as if they were buying $10 lobster dinners.

Ground zero was this mid-sized community about 20 miles south of Tijuana, where developers sold hundreds of condominiums on spec. Most jacked up their prices as their projects filled, fueling a sense of urgency among U.S. buyers to get in while the getting was good.

"We nearly had . . . fistfights" over choice units, said Michael Coskey, sales director of the Residences at Playa Blanca, a 274-unit development under construction north of Rosarito in which the average condo is priced at $500,000. "We were all appealing to people's greed."

Greed has turned to regret for some investors who now can't sell their Mexican properties.

Upward of 40% of the condos in some northern Baja projects were purchased by flippers who intended to resell them even before construction was finished. Their aim was to pocket a fast profit in an area where prices had been appreciating 20% to 30% annually in recent years.

But with contagion from the U.S. sub-prime mortgage debacle now spooking many would-be purchasers and credit drying up, the Baja real estate market is flagging. Speculators are starting to sweat.

Californian Chris Romero's biggest worry two years ago was missing out on the action. He had his eye on a $200,000, two-bedroom condo in a project called La Jolla Real in Rosarito. But by the time the then-Diamond Bar resident was ready to commit, the developer had raised the pre- construction price to $250,000.

Instead of folding, Romero doubled down, handing over a $120,000 down payment to lock up two units -- one for $238,000, the other for $270,000 -- before prices increased again. The retiree and his wife reckoned they'd sell the cheaper one just prior to closing and use the profit to help finance the other.

"The market was booming," said Romero, 60.

No more. With the development nearing completion, he's finding buyers scarce and competition fierce. Rosarito is littered with so-called "resale" units whose owners are looking to unload them. Romero is offering a $5,000 bonus to anyone who can bring him a buyer. His $290,000 asking price is "negotiable." And he's willing to provide financing.

More inventory is on the way. About 7,000 condominiums are in the pipeline from Tijuana to Ensenada, with another 5,600 in the planning stages, according to the Assn. of Resort Developers of Baja California. The average price is about $300,000, but some luxury units run into the millions.

Developers say that's still a bargain compared with oceanfront property in the U.S. Still, some say prices here soared more quickly than was rational in an area known for budget motels and cut-rate seafood.

"Everybody was going for the $500,000 condo, the Bellagio," developer Ramon Toledo Arnaiz said. "The fuel was from speculators."

Flippers who can't find buyers will have to come up with the cash to honor their contracts, or secure Mexican mortgage financing at rates as high as 12%.

Those that can't close the deals risk forfeiting their down payment, often 30% of the purchase price.

"The ones who bought multiple units are going to be in real deep doo-doo," said real estate agent Roberta Giesea, owner of Baja4U Properties. "The market has slowed way down."

Speculators are likewise smarting in Puerto Peņasco, also known as Rocky Point, a beach resort in Sonora state 60 miles south of the Arizona border on the Gulf of California.

Spurred on by soaring real estate prices at home, Arizonans snatched up Puerto Peņasco condos at "crazy" prices that topped $1 million for some penthouses, said Dee Brooks, owner of Twin Dolphins Real Estate in Rocky Point.

She said many flippers had not been able to sell their units. Meanwhile the rental market is so saturated that most can't cover their costs by leasing their properties.

With the Arizona market now cooling, some investors don't have enough equity remaining in their U.S. homes to close on their Mexican condos, nor can they get financing in a tightening credit market.

Brooks said she had dozens of listings from "desperate" sellers, some of who may have to walk away from their properties if they can't find buyers to bail them out.

She figures prices on some units will have to fall at least 25% for her to move them. Owners are in denial.

"They call me up crying, but what can I do?" Brooks said. "I can't perform a miracle. The market is slow. I'm not going to be able to get them the money they want."

It's not just buyers who got caught up in the frenzy. Some northern Baja developers paid top dollar for oceanfront lots where they built luxury homes with million-dollar-plus price tags. Some of those houses are now languishing unsold, said real estate agent Kerry Kay Sims, president of Baja Relocation.

"The real estate market in California was so strong and so crazy that it was like they were stoned on it," Sims said. "The thinking was that somebody will pay no matter how high the price is. . . . Conditions have changed."

You wouldn't know it from motoring along the coastal toll-road than connects Tijuana with Rosarito.

Billboards in English beckon prospective home buyers to purchase a slice of the good life. Flags flutter in the sand at oceanfront real estate sales offices. Clanking cranes and roaring earthmovers are busy clearing new building sites.

One of the most closely watched projects is the Trump Ocean Resort Baja north of Rosarito. The Trump Organization, headed by flamboyant deal maker Donald Trump, is a partner in the development, which will include more than 500 luxury condominiums, upscale restaurants and a spa.

Builders recently broke ground on the resort's first tower, whose condo prices range from $279,000 to $3 million -- or more than $500 a square foot on average. That's about double the going rate around Rosarito.

Yet nearly 80% of the tower's 230 units have been sold, project spokesman Brendan Mann said.

Pre-sales are slower in the second tower, with only about 80 of an estimated 200 units sold. Still, Mann said a June sales event yielded $45 million in contracts in just five hours.

Market turbulence represents opportunity, according to Mann, who says investors know that Trump has a proven track record and the deep pockets to ride it out.

Concern is rising among some Baja real estate veterans that some undercapitalized projects might fold -- taking purchasers' deposit money with them and scaring off future investors.

Independent agent Brian Flock said several condo developments were behind schedule, owners at others were having trouble getting their titles and buyers in some developments were being hit with unexpected charges.

"It's just obvious that some [developers] are desperate for cash," Flock said. "My biggest concern is that the unsound developments will damage the whole market."

After four futile months of marketing her condo, Judy Dinnel just wants out. She and her husband planned to flip a two-bedroom unit in a project called Riviera de Rosarito that they bought last year during pre- construction for $330,000.

At their $369,000 asking price, the Avila Beach, Calif., couple would barely break even, after paying commissions plus a $10,000 bonus they're offering agents to move the unit.

It won't be easy. More than 40% of the project's condos are back on the market, according to the listings on the development's website.

To protect their $100,000 down payment, the Dinnels are considering taking an 11% loan from the developer until they can find a buyer. Those payments would run $3,300 a month -- more than double the monthly payment on their California residence.

"We will be strapped," said Dinnel, 51. "We'll have to cut back on everything. . . . I'm losing sleep."

marla.dickerson@latimes.com

SDRonni - 9-8-2007 at 09:09 AM

Now THIS is really SCARY!!!! I'm so thankful we didn't succumb to the salesman's holding out the carrot of "Buy several units! Then yours will be paid for by the time construction is complete!" And I'm so thankful we didn't believe him when he said, "Just think, you can rent it out and it will pay for itself!" HA!!! We just purchased one unit, just for ourselves to share with friends and family. Now my biggest fear is whether the developer has sufficient funds to complete the project with sales slowing. He currently has two large projects in North and South Rosarito, which are both running behind schedule. We're just keeping our fingers crossed and saying our prayers. Between this and the banditos, we're seriously wondering if we've made a mistake........heck, we're just two retired people hoping to enjoy those margaritas on the balcony watching the sunsets!

Good News

MrBillM - 9-8-2007 at 09:25 AM

This is the news most of us have been hoping to see.

The rampant construction and escalation of property values in Baja were a threat to established residents who simply want to stay where they are.

No one should feel any sympathy for the speculators. They are justly paying for their greed.

Minnow - 9-8-2007 at 09:26 AM

We have a saying here in Vegas, never gamble more than you can afford to lose. Buying property on spec is a gamble, throw in the Mexican factor and craps might seem a better option.

I think you will be OK Ronnie. Don't worry about being behind schedule, it is Mexico after all. I've driven the Ensenada/TJ corridor hundreds of times at all hours of day and night. Not to brag, but in a Mercedes, and never had a problem. Never even stopped by a cop.

Funny how the people mentioned in the article are still trying to get all their money back, plus cover commissions and incentives. Not going to happen this year. Prices on spec homes are down 30%. They should look on the bright side. If they walk away from their deposit it won't affect their credit in the US. Millions of speculators on this side of the border wish that was the case for them.

Minnow - 9-8-2007 at 09:29 AM

Quote:
Originally posted by MrBillM.

The rampant construction and escalation of property values in Baja were a threat to established residents who simply want to stay where they are.


Excellent point Bill. I saw something a while back where property taxes in that area when up 300%.

What are the chances of the Mexican Government passing something like a Prop 13. For the elderly who can't afford to pay them.:lol::lol:

BajaBruno - 9-8-2007 at 10:16 AM

Like Tulip Mania, all speculative bubbles must eventually burst, and financial ruin will result for many.

http://en.wikipedia.org/wiki/Tulip_mania

oldhippie - 9-8-2007 at 10:26 AM

The place is overbuilt, that's for sure. It's been obvious for a couple of years. For those who are thinking of buying, buy a house in an area where upper middle class Mexicans families live. That way if you sell you have both American and Mexican buyers.

You'll also get more for your money.

[Edited on 9-8-2007 by oldhippie]

oldhippie - 9-8-2007 at 10:35 AM

How long are the average real estate cycles in the states? 5 years?

Minnow - 9-8-2007 at 11:00 AM

There are many sub cycles within the housing market. A run up like we saw the last few years happens maybe once every twenty to thirty years. Don't worry people, when they shoot up they float down. Things will eventually balance out. The really smart people saw all this coming and are now getting ready to pounce on some great deals.

Bajaboy - 9-8-2007 at 11:20 AM

We discussed this a few years ago...it was only a matter of time...and next is the tourism dollars as people here have less money to travel....

Zac

JZ - 9-8-2007 at 11:43 AM

No one in their right mind would buy in Rosarito. The area is terrible and prices quoted are ridulous.

In San Carlos, Sonora 3 years ago you could have built a custom 3,000+ sq ft water front house with 4 br, 5 bath on a 10,000 sq lot for under $500K. I'm talking 100% custom and directly on the water.

Today you can still buy a 3br 2,400 sq foot condo or ocean view casa with a 2,000 terrance for under $500K. High end stuff.

Plus the coast line views are spectular and the water is nearly 90 degrees in the summer time and there isn't a ripple on the water a lot of the time. Yeah, you can actually swim in the water, imagine that!




[Edited on 9-8-2007 by JZ]

elgatoloco - 9-8-2007 at 12:09 PM

Part of what those of us who frequent the area between TJ & Ensenada are dreading is all the half built, unfinished developmets that will sit derelict maring the view from the 'scenic road' until who knows when. How long did the original Calafia tower sit before it was finished?
At the same time there is NO way the local water supply is sufficient to handle the amount of planned development. We have a 300 liter pila and are considering adding a second so we can wash the dishes when we go down for the weekend as that is when water is not available.

oldhippie - 9-8-2007 at 12:12 PM

The proximity to San Diego is a big plus for the Rosarito area. Lots of people, especially Mexican-Americans and mixed families, have family/friends/business on both sides of the border. I live on the beach in TJ and made it to Wal-Mart in Chula Vista this morning in 30 minutes, did 2 other necessary US stops, and was back home in 2 hours. I even obeyed the speed limit!!

And I really enjoy it when friends from San Diego visit for a few hours.

It's overbuilt now so good deals are to be had, probably for a few years. But it is oceanfront property, which is very desireable to many. There aren't too many people, except perhaps flippers with bad timing, that have lost out buying oceanfront property, anywhere.

Swimming in 90 degree water? Who wants to sweat while they're swimming?

Different strokes for different folks.

[Edited on 9-8-2007 by oldhippie]

DENNIS - 9-8-2007 at 12:15 PM

Quote:
Originally posted by elgatoloco
How long did the original Calafia tower sit before it was finished?

I thought the original tower was condemed long ago for it's leaning profile. How many years has it been sitting vacant? This can't be urban folklore. The building was stillborn.

Mateo

Baja Bernie - 9-8-2007 at 12:16 PM

High rise condos are the 'arches' of old...and I do believe you are right on....Far too many folks took seconds on the state homes to get in at the end of the market in Baja.....

Which place goes first?

Hey! At least we could see through the arches.

woody with a view - 9-8-2007 at 12:33 PM

"More inventory is on the way. About 7,000 condominiums are in the pipeline from Tijuana to Ensenada, with another 5,600 in the planning stages, according to the Assn. of Resort Developers of Baja California. The average price is about $300,000, but some luxury units run into the millions."

why is this statement funny? it is too bad they will take 15 years to sell what's in the pipeline, tho.....

elgatoloco - 9-8-2007 at 12:36 PM

Dennis For years one of the stories was that the elevator shaft was crooked and they could not install one. Then they were title issues, then..........a few years back 4-5-6 they finished it up and folks started moving in. Some GREAT deals here. http://www.calafiacondos.com/

Bernie

It has been interesting watching the transformation. I do prefer the arches of old. As long as they are not MiccyD's :D

JZ - 9-8-2007 at 12:44 PM

Oldhippie, you can talk until you are blue in the face. I've seen the area and it is crap


elgatoloco - 9-8-2007 at 12:54 PM

JZ

How's the surf over there? :biggrin:

Variety is the speice of life! It's all good. :cool:

JZ - 9-8-2007 at 01:08 PM

Well, this week it was muy beuno!



elgatoloco - 9-8-2007 at 01:10 PM

COWABUNGA! :lol:

woody with a view - 9-8-2007 at 01:23 PM

oh, the mysto spots..............:light:

edit: foto

[Edited on 9-8-2007 by woody in ob]

surf_web.jpg - 22kB

DENNIS - 9-8-2007 at 01:26 PM

Man.....That looks like steep-beach Balboa shore break. If you can deal with that in a fun way, you can deal with anything.

Hook - 9-9-2007 at 01:48 PM

Quote:
Originally posted by grover
Best laugh about the bust: "conservative" commentators urging a government bailout...

<priceless>

Who knew there was such compassion?


Not to mention the conservative president.

Then, there's the Dems who are willing to back ANY faction for their votes...........yup, they want a bailout for the speculators, too.

And the lesson learned? Why, speculate all you want. Extend yourself all you want and the government will bail you out.

Let 'em twist in the wind..........

CaboRon - 9-9-2007 at 04:51 PM

Quote:
Originally posted by MrBillM
This is the news most of us have been hoping to see.

The rampant construction and escalation of property values in Baja were a threat to established residents who simply want to stay where they are.

No one should feel any sympathy for the speculators. They are justly paying for their greed.


Speculators have ruined the housing market in southern california and it looks like the same thing is happening in baja.

They are getting what their greedy hearts desire.

I sincerely hope the market continues its adjustment.

Maybe regular wage earners will have a chance at the dream of homeownership again.

CaboRon

CaboRon - 9-9-2007 at 04:55 PM

Quote:
Originally posted by JZ
No one in their right mind would buy in Rosarito. The area is terrible and prices quoted are ridulous.

In San Carlos, Sonora 3 years ago you could have built a custom 3,000+ sq ft water front house with 4 br, 5 bath on a 10,000 sq lot for under $500K. I'm talking 100% custom and directly on the water.

Today you can still buy a 3br 2,400 sq foot condo or ocean view casa with a 2,000 terrance for under $500K. High end stuff.

Plus the coast line views are spectular and the water is nearly 90 degrees in the summer time and there isn't a ripple on the water a lot of the time. Yeah, you can actually swim in the water, imagine t

[Edited on 9-8-2007 by JZ]


JZ.

PLEASE rezize your photos....they are streaching the dialogue off my screen.
Thanks

CaboRon - 9-9-2007 at 04:58 PM

Quote:
Originally posted by DENNIS
Quote:
Originally posted by elgatoloco
How long did the original Calafia tower sit before it was finished?

I thought the original tower was condemed long ago for it's leaning profile. How many years has it been sitting vacant? This can't be urban folklore. The building was stillborn.


Oh yes,, i remember, the leaning toweer of Calafia :lol:

DENNIS - 9-9-2007 at 05:00 PM

Quote:
Originally posted by CaboRon


Maybe regular wage earners will have a chance at the dream of homeownership again.

CaboRon

HAHAHAHAHEEHAHEHAHAHEHAAHEHEHAHEHAAHEEHAJEJAJEJEJE..gasp..HAHAHAHEEHEEHA
What the F is a regular wage earner in an economy with government sanctioned wage busters like our friends from the south?

oldhippie - 9-9-2007 at 07:43 PM

"government sanctioned wage busters like our friends from the south"

Guatemala??? There is a lot of bad guate there. :tumble:

Bajabus - 9-9-2007 at 07:49 PM

I'm just real glad we bought our 10,000 square meters on the ocean back in 95. There have been a few times we were tempted to sell but rational minds convinced me otherwise and I am sure glad we still have it.

No need to sell and I hope it makes for a fun place for my new son to someday learn how to surf when he grows older.

Elias Calles is even getting electricity now. I would never have believed it but apparently the poles are going up. I fear for the change that will bring to our little community.

I remember when we were the second gringos to actually buy down there and you could see for miles up and down the coast with not a single other house within eyesight. I loved it. still do but now our humble rustic beach casita is being surrounded by million dollar houses.

We still have the high ground though and enough buffer to wander out and pee in the open without my neighbor looking down at me.

lots of fond memories from living there full time for about 7 years.

oldhippie - 9-9-2007 at 08:12 PM

EJ Elias Calles is a nice place, good for you! I remember one night in the late 90s I drank waaaay too much tequila with a blond guy that lived there. He actually had a teepee on his property in addition to the palm log supported palapa roof house.

Real estate stall spreading to Mexico

BajaNews - 9-16-2007 at 12:11 PM

http://www.sltrib.com/ci_6905089

By Marla Dickerson

PLAYAS DE ROSARITO, Mexico - The ripples of the U.S. real estate boom began washing up on the shores of this beach town a few years ago. Californians and others from the West, feeling flush from the steep run-up in housing values stateside, pulled equity from their primary homes and snatched up vacation properties in northern Baja California as if they were buying $10 lobster dinners.

Ground zero was this midsized community about 20 miles south of Tijuana, where developers sold hundreds of condominiums on spec. Most jacked up their prices as their projects filled, fueling a sense of urgency among U.S. buyers to get in while the getting was good.

''We nearly had fistfights'' over choice units, said Michael Coskey, sales director of the Residences at Playa Blanca, a 274-unit development under construction north of Rosarito whose average condo is priced at $500,000. ''We were all appealing to people's greed.''

Greed has turned to regret for some investors who now can't sell their Mexican properties.

Upward of 40 percent of the condos in some northern Baja projects were purchased by flippers who intended to resell them even before construction was finished. Their aim was to pocket a fast profit in an area where prices had been appreciating 20 percent to 30 percent annually in recent years.

But with contagion from the U.S. subprime mortgage debacle spooking many would-be purchasers and credit drying up, the Baja real estate market is flagging.

Speculators are starting to sweat.

Californian Chris Romero's biggest worry two years ago was missing out on the action. He had his eye on a $200,000, two-bedroom condo in a project called La Jolla Real in Rosarito.

But by the time he was ready to commit, the developer had raised the pre-construction price to $250,000.

Instead of folding, Romero doubled down, handing over a $120,000 down payment to lock up two units - one for $238,000, the other for $270,000 - before prices increased again. The retiree and his wife reckoned they would sell the less-expensive one just before closing and use those profits to help finance the other.

''The market was booming,'' said Romero, 60.

No more. He's finding buyers scarce and competition fierce. Rosarito is littered with so-called resale units whose owners are looking to unload them. Romero is offering a $5,000 bonus to anyone who can bring him a buyer.

More inventory is on the way. About 7,000 condominiums are in the pipeline from Tijuana to Ensenada, with another 5,600 in the planning stages. The average price is $300,000, but some luxury units run into the millions.

Developers say that's still a bargain, compared with oceanfront property in the U.S. Still, some people say prices here soared more quickly than was rational in an area known for budget motels and cut-rate seafood.

''The ones who bought multiple units are going to be in real deep doo-doo,'' said real estate agent Roberta Giesea, owner of Baja4U Properties.

Speculators likewise are smarting in Puerto Penasco, also known as Rocky Point, a beach resort in Sonora state 60 miles south of the Arizona border on the Sea of Cortez.

Egged on by soaring real estate prices at home, Arizonans and others snatched up Puerto Penasco condos at prices that topped $1 million for some penthouses, according to Dee Brooks, owner of Twin Dolphins Real Estate in Rocky Point.

She said many flippers haven't been able to sell their units. The rental market is so saturated that most can't cover their costs by leasing their properties.

It's not just buyers who got caught up in the frenzy. Some northern Baja developers paid top dollar for oceanfront lots where they built luxury homes with million-dollar-plus prices. Some of those houses are languishing unsold, according to real estate agent Kerry Kay Sims, president of Baja Relocation.

''The real estate market in California was so strong and so crazy that it was like they were stoned on it,'' Sims said. ''The thinking was that somebody will pay no matter how high the price is. . . . Conditions have changed.''

You wouldn't know it from motoring along the coastal toll-road that connects Tijuana with Rosarito.

Billboards in English beckon prospective home buyers to purchase a slice of the good life. Flags flutter in the sand at oceanfront real estate sales offices. Roaring earth-movers are busy clearing building sites.

One of the most closely watched projects is the Trump Ocean Resort Baja north of Rosarito. The Trump Organization, headed by Donald Trump, is a partner in the development, which will include 500 luxury condominiums, upscale restaurants and a spa.

Builders recently broke ground on the resort's first tower, whose condo prices range from $279,000 to $3 million - or more than $500 a square foot on average. That's about double the going rate around Rosarito.

Yet, nearly 80 percent of the tower's 230 units have been sold. Pre-sales are slower in the second tower, with only about 80 of an estimated 200 units sold. Still, a June sales event yielded $45 million in contracts in just five hours.

Market turbulence represents opportunity, according to project spokesman Brendan Mann, who said investors know that Trump has a proven track record and the deep pockets to ride it out.

CaboRon - 9-16-2007 at 01:31 PM

I hope the '"Flippers" choke on their greed.:lol::lol::lol::lol:

CaboRon

Gadget - 9-16-2007 at 06:55 PM

Another Cabo, won't be able to get on the beach anywhere. I've surfed this area for 30 years and it's all but gone. My brother and I had a place at Baja Malibu through the 80s but got rid of it because the water pollution was getting so bad. The sellers will be in "deep doo doo" is not just a concept. Where will all the sewage generated by all these units go? There aren't any treatment plants in the works that I'm aware of. Their 1/2 million dollar condos will be overlooking a sesspool!!! Enjoy

rogerj1 - 9-16-2007 at 10:16 PM

I've been looking for a story like this for awhile. Perhaps it's wishful thinking on my part, as I haven't bought anything yet, but I'd been thinking this was a possibility. So, the riskier the real estate (Mexico is riskier than US property), the greater the drop. The greater the inventory(Northern Baja, Cabo, PV), the greater the drop. The farther away from town centers and existing development, the greater the drop. The big question is, how far down and how long? The thinking on the vacation home market is that the swelling size of the baby boomers retiring will drive the second home market for many years to come. I don't plan on becoming too complacent.
BTW, how anyone could ever consider buying property in Rocky Point is beyond my comprehension.

[Edited on 9-17-2007 by rogerj1]

TMW - 9-17-2007 at 07:24 AM

[how anyone could ever consider buying property in Rocky Point is beyond my comprehension.]

Why do you say that?

rogerj1 - 9-18-2007 at 12:04 AM

I think Rocky Point is butt ugly. There's a huge tidal exchange, no character in the village, the developments sit in the middle of nowhere.

SDRonni - 9-18-2007 at 09:00 AM

Any Nomads out there who've purchased at Las Olas Mar Y Sol?

Las Olas Mar y Sol

TBcountry - 9-19-2007 at 10:19 AM

My wife and I also bought at Mar y Sol SDRonni. things a little slow it seems but at least progress is being made. Also bought at Grand with a friend and we are supposed to get that unit by end of year. We will see.

Tom

Been browsing this forum since we bought back in Jan 06 but have never posted before so I guess I'm a newbie

SDRonni - 9-19-2007 at 10:49 AM

TB Country--Tom--please check your U2U....

Thanks!