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The Mexican Economy of Loreto and La Paz in Baja California Sur, Mexico
House on Loreto's MaleconThe Loreto Economy and the La Paz Economy
10 Years of Stability. In the past, the Loreto economy and the La Paz economy have vacillated between boom and bust depending on the American economy, specifically the California economy. That connection between the Loreto and La Paz Baja economy and California’s economy only slightly exists today for several reasons. One of the reasons Loreto and La Paz are doing so well and will not be affected by the down turn in the United States economy is because Mexican consumer credit is just starting to be extended to Baja residents for both consumer goods and real estate. This has sustained pent up consumer demand beyond the usual cash basis buying of the past. Big difference and big impact. Due to NAFTA and the related trade agreements with the USA and Canada and other countries, Mexico's economy, its GDP, and exports have steadily grown since 1994. This consistant influx of wealth and record breaking stability of the Mexican peso and controlled modest inflation has had its positive and visible affect all over the Baja economy, particularly in the coastal beach towns of the Baja. The added bonus of recent government investment in infrastructure of certain chosen beach resort towns ($200,000,000 in Loreto alone) has improved the Baja economy by leaps and bounds.
The Loreto economy is sufficient for improving the quality of life for the locals (population approx. 14,000). They are no longer plagued with an unstable currency and runaway inflation of the past. It's a new dawn in the Baja. The economy for living in La Paz (population approx. 200,000) is also very good. In fact, La Paz has the highest income per capita in all of Mexico, including Mexico City. No one is starving in Loreto and I haven’t ever seen any vagrants or homeless there. The life style in Loreto and La Paz is live and let live. Getting ahead financially is not emphasized in the Loreto culture. Getting by is. However, I will say it seems as though people in La Paz are a little more ambitious and enterprising than in Loreto. People just seem to be quite satisfied with simply being in Loreto and getting by. The merchants, on the other hand, are a little more motivated, but not that much more. While the culture is quite a bit more "lay back" than the American culture, the people are enjoying a better standard of living in the last five years. You see alot more new cars and big trucks on the road and everyone has a cell phone, more thatn ever before. Most of the locals are using computers and internet extensively. The younger crowd is into health, fitness, and sports. Loreto is close to full employment. These are big changes that have come about in just the last five years alone.
Fishing Economy. Loreto's economy is connected to the sport fishing industry. And, so far as anyone knows, the fish continue to bite in spite of the US economic woes. Fishing in Mexico is till a good deal. Also, real estate has been and is currently booming as foreign interests have recently discovered the cheap pristine coastal land and are building and selling at prices that are 1/4th the cost of coastal properties in the USA. The Mexican peso has been stable for over 10 years. The Mexican agency, Fonatur, was created to facilitate safe foreign investment in Mexican's formerly "prohibited" land in all of the Baja.
Mexico's Economy and Economic Growth.
The Mexican Economy. Nafta in 1994 created mutually beneficial trade agreements with the USA and many other countries. Since then, Mexico's trade with the United States and Canada has tripled. Mexico has inceased its exports of Mexican manufactured goods and oil. The national per capita income is 1/4th of the USA rate, which, historically speaking, is nothing short of fantastic. The Mexican GDP (Gross Domestic Production) for 2007 was 3.3% and is expected to be 2.8% for 2008. Not bad. its As more Europeans and Canadians are coming to Loreto and La Paz than ever before, their influx of tourist and investment dollars have reduced the effect that California’s economy once had on the Baja. That’s a good thing for the economy and for living in Loreto and La Paz, especially since the US economy and the US dollar have both taken a dive. Also, the European and Canadian currencies have gained value against the US dollar, which means that they have more purchasing power in Loreto. Inflation has not been a problem in Mexico since the dollar has been so stable. Heck, for the first time ever, the Mexican peso has gained in value against the US dollar! Fancy that.
Inflation is not a problem in the Baja. The inflation rate which was historically a "runaway inflation rate" has completely stabilized and has been between 2% to 4% for the past 10 years. The peso is the most stable currency of all the Latin American countries in the world and is the most traded Latin American currency due to the strength of the Mexican peso. Mexico has a surplus of oil that it exports to the USA and other countries. The Mexican economy is stronger and more stable than ever as it experiences a consistant positive foreign trade balance. 80% of its exports go to the US and to Canada. In fact, the richest man in the world is not Bill Gates, but is Carlos Slim Helu from Mexico.
Real Estate Appreciation
As the economy in Loreto and the rest of the Baja flourishes, the real estate appreciation is alive and well. Usually, as US real estate values appreciated from 1999 to 2007,Loreto and La Paz's real estate appreciation followed in step within about a one-year lag (i.e., 2000 to 2008). The difference, this time, is that newly awakened European and Canadian tourism and home buying in the Baja are sustaining the real estate price levels in the Baja. Other factors sustaining Mexican property values that didn’t exist before now are the demographics of the large retiring baby boomers from the United States who are only now looking to Mexico for prime beach front property at bargain prices. By this time, however, the beachfront property prices are very high in the Baja, prohibitively high to “normal people” looking for a vacation or retirement home. Don’t get me wrong, there are plenty of well to do people from the US and from Europe and Canada that are more than willing to pay $50 US per sq. ft. for beachfront land and up to $300 per sq. ft. for construction. Just not me, and not my clients.
The real values are not on the beach, but are in the unlisted properties within the 1/2-mile to 2-mile distance from the beach. This is where Baja-Lots can save its clients hundreds of thousands of dollars and reduce overall living costs.
House across from Lot-8Keep in mind that US prices are relative. As I mentioned before, inflation is not a problem in the Baja these days. Real estate appreciation does exist, and now is a great time to get a low costing home and a great, great value for your US dollar. Listed Loreto and La Paz beach city homes and condos are at the price level of normal inland prices for the same home in, say, inner city Orange County or Los Angeles. For example, a normal run of the mill 1,200 sq. ft. condo in Anaheim with no amenities would go for about $300,000 to $350,000. That is about what you would expect to pay in Loreto for the same condo. But, in Loreto you would be very near the beach. On the other hand, beachfront property in Orange County is 500% to 700% higher than beachfront property in Loreto. The point is that the normal home price in southern California is about $450,000. Most people have that with a mortgage. A family in this situation can’t afford a second home in the Baja for $300,000 to $350,000 plus $300 per month association fee for life. In Mexico, you pay 100% cash for a home, no mortgage. Yes, there are mortgages available for the Baja, but at this time, very few people use a mortgage because it takes a large down payment, and a 1% to2% higher interest rate than offered in the US, and since the prices for small cacation homes are affordable, most Americans and Canadians simply pay cash. However, more and more mortages will be used to buy Mexican real estate property as the word of mortgage availability and the Mexican real estate industry gets more experience using mortgages. Living can be very affordable in Baja because of the low utility, property tax, and original cost of having a home on its own lot in the Baja. Condos are comparatively expensive and you are stuck for life with a monthly association fee of $200 to $400 US. TOP
Could you, would you pay $130,000 for a 2-bedroom, 900 sq. ft. Loreto or La Paz house on its own lot about 8 minutes from the beach? The property tax for this is about $60 per year. Gas, electricity and water altogether are about $40 per month (if you are there all month). Could a family afford that for a vacation home? How about for a retirement home? How about for an investment given that the property will appreciate at a pretty good clip after the purchase?