The Trump Effect
Ian Gengos, of Engel and Völkers Snell Real Estate is a Luxury Mexico Real Estate Advisor, and has lived in Los Cabos full-time for 14 years. We've been having an interesting conversation regarding real estate trends in Cabo San Lucas. Here we dive deeper on a topic that Ian has referred to as the Trump Effect.
Jen: Let's assume that I'm somebody that's considering buying Mexico real estate, namely in Cabo San Lucas. Now that there's a new president in office, who's a pretty controversial one at that, let's talk about what effect is his presidency having right now in the Cabo/Mexico real estate market?
Ian: It's interesting. One of the most common questions I get when is 'what's going on in the Mexico real estate market?' My initial response if we don't have time to get into it, is that things are going great, and it's true. We've actually seen even more of a sales increase than we anticipated. There was some uncertainty over the course of November and into the new year on what the US foreign fiscal policy was going to be, moving forward. I think regardless of what side of the political spectrum you're on, most people will agree that the bark was a lot bigger than the bite, at least in the first 100 days. Statistically speaking, things are looking pretty good with Mexico real estate and improving daily.
Digging into things a little more, there are many factors at play. Second to China, Mexico represents the largest trading partner the US has. A lot of the rhetoric during the campaign, and even into the new cycle, is just that. If you can look past the rhetoric and look at the facts and things like the percentage of produce that Mexico exports to the US as its second largest trading partner. Or look at the substantial Mexican labor force that is currently in the US; it just doesn't stand to reason that some of the campaign promises, and some of that rhetoric, can ever take effect.
The fact is that many of the things that were supposed to have happened have not happened. Ford and Carrier, for instance, did not close their Mexico plants. In actuality, they expanded production. Yes, they did build factories in the US, but those were for smaller, less expensive parts. The actual vacancy rate for industrial space along the Mexican side of the border is only 5% and shrinking.
Mass deportations, should they occur, would mean that Mexico receives skilled, re-trained workers into an expanding market. You want to re-negotiate NAFTA, or impose tariffs on Mexican produce and Canadian lumber; great! Mexico will export to China, Brazil, Argentina and Canada and buy Canadian softwood for all the high end resorts and residences building in Cabo and Punta Mita.
The reality of the situation is that love it or hate it, we have a four year window of lower taxes and increased spending confidence. Whether it's a corporation looking to set up shop along the border for Mexico real estate while the opportunity still exists, investors looking at international growth markets, or families who just want a good deal on that dream home in the sun; the timing is amazing.
Jen: You don't think that him coming into office has been a deterrent for buyers or sellers?
Ian: I think it's given people pause for thought, but again when you look past the politics towards the facts, look at where people are spending their money, it's been a good thing. When you can't get consensus in your own party, let alone the opposition party, then people that are informed and interested in safeguarding their family's wealth, and protecting their family's well-being, will look past all the smoke and mirrors and realize that the more outlandish the claims, the better it is for Mexico.
Jen: That's interesting. Initially, I was nervous at the talk of a wall. I don't know if it will ever come to fruition or not, but my biggest concern as a business owner is that if that wall gets constructed, that it will deter tourists from coming down here. Do you see any negative connotations? Let's say it happens; the wall gets built. What do you see happening?
Ian: This one's my favorite! I see more people flying than driving; planes fly over walls! Realistically speaking, and again I'm not political, I would anticipate it would be worse for the US than it would be for Mexico. Number one, who's going to build it? Skilled laborers have been deported to Cabo and Punta Mita and are busy building the Four Seasons, Ritz Carlton, Auberge, Montage, Marriotts, Starwoods, and so on. They're certainly not going to pay for it either. And a tariff on the 75% of the US produce that comes from Mexico? US consumers won't like the Big Mac going up 30%.
I don't think tourism will slow down at all, and that's a good indicator of the housing market in a resort destination. North American tourism in Cabo is up about 10% and new terminals are being built at the airport to increase capacity. Data on tourist traffic and hotel occupancy is promising over time as well. Numbers of visitors have grown 4-5% per year over the last 10, and hotel occupancies have remained consistent around 80%. More people are coming, more resorts are being built and more people are looking for their piece of real estate. More amenities and world-class events in new tourist zones means more people looking to buy real estate in those areas.
What IS interesting is the Mexican tourist dollar and where it's being spent. This year Semana Santa; the biggest holiday season for this Catholic country; saw more Mexican tourist money bypass the US and spend in Canada, South America, and other parts of Mexico.
Call it the Trump effect. Call it evolution. I think things are trending nicely in Mexico's favor.
Jen: For a US family who are looking to move abroad, it seems like Europe's current civil unrest means it may not be the best option. A move to purchasing Mexico real estate is the path of least resistance for Americans and Canadians looking for a lifestyle change.
Ian: Look, with the exception of war zones and areas of extreme suffering, I think we've seen all sorts of terrible events globally over the last number of years. Media can put all kinds of spin on it and people are influenced by what they perceive the facts to be. I don't think the obscuring of those facts and truths is unique to the current US political landscape. Some people are fearful of the world outside their own borders and spend all their discretionary income at home. Governments love that. Some people have a different outlook and seek to find their own truths. Either way, I look at Mexico not as the 'path of least resistance', I look at it as a road to great opportunity.