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Tommy A
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U.S. housing woes go south -- to Baja
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
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SDRonni
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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!
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MrBillM
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Good News
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.
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Minnow
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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.
Proud husband of a legal immigrant.
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Minnow
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| 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.
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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.
Proud husband of a legal immigrant.
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BajaBruno
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Like Tulip Mania, all speculative bubbles must eventually burst, and financial ruin will result for many.
http://en.wikipedia.org/wiki/Tulip_mania
Christopher Bruno, Elk Grove, CA.
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oldhippie
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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]
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oldhippie
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How long are the average real estate cycles in the states? 5 years?
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Minnow
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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.
Proud husband of a legal immigrant.
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Bajaboy
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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
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JZ
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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]
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elgatoloco
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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.
MAGA
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oldhippie
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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]
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DENNIS
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| Quote: | Originally posted by elgatoloco
How long did the original Calafia tower sit before it was finished?
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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.
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Baja Bernie
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Mateo
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.
My smidgen of a claim to fame is that I have had so many really good friends. By Bernie Swaim December 2007
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woody with a view
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"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.....
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elgatoloco
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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 
MAGA
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JZ
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Oldhippie, you can talk until you are blue in the face. I've seen the area and it is crap
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elgatoloco
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JZ
How's the surf over there? 
Variety is the speice of life! It's all good. 
MAGA
Making Attorneys Get Attorneys
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JZ
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Well, this week it was muy beuno!
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