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Inspiring philanthropy beyond borders

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

U.S. RETIREMENT IN MEXICO RESEARCH SERIES

MAY 2010

Richard Kiy and Anne McEnany

For years, U.S. & Canadian retirees have

flocked to Mexico as an alternative overseas

retirement destination that was affordable,

offered desirable weather and was close to

their communities of origin in North America.

These attributes have made Mexico the top

overseas retirement destination for older

Americans, resulting in a building boom that

reached its peak in 2005/06 and stretched

from Playas de Tijuana-Rosarito and Los

Cabos along the Baja California peninsula,

and from Puerto Peñasco, Sonora to

Mazatlán, Sinaloa. In southern Mexico, the

real estate focus has been on expanding the

Cancún corridor to the Riviera Maya.

While Mexico has become a popular

destination among U.S. retirees, growing

concerns over public safety in Mexico

coupled with the credit crisis that was

precipitated by the recent global economic

recession and the collapse of the U.S. real

estate market has resulted in several Mexican

real estate development projects going

bankrupt or simply being unable to proceed.

The collapse of high-profile, coastal

development projects in Mexico, such as

Trump Baja Ocean Resort and the Villages at

Loreto Bay has re-affirmed the perception

among some would-be retirees and second

homebuyers that Mexico is a risky place to

either invest in real estate or to retire.

In an effort to better assess the current

landscape of U.S. retiree-focused home

buying in Mexico, the International

Community Foundation undertook a

historical review of real estate investment by

U.S. retirees in Mexico and examined

perceptions among U.S. retirees now residing

in Mexican coastal communities. Research

presented in this report is based on the

Foundation's recent survey of over 840 U.S.

retirees in Mexican coastal communities from

July to November 2009, five additional focus

groups, and individual interviews.

The survey provides insights covering a wide

range of real estate and housing specific

topics from the decision to retire abroad,

Executive Summary

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

coastal lifestyle preferences, home purchase

considerations, type of living

accommodations, ownership status, property

tax issues, and issues related to

infrastructure, safety and health care.

Among the findings is that Mexico remains a

viable retirement option for Americans aged

50 years and over, offering a reduced cost of

living, lower health care expenses, and

proximity to friends and family in the United

States. In addition, over half of survey

respondents observed that their motivation

to purchase a home in Mexico was based on

their desire to have a home on or near the

coast that would otherwise be unattainable

in the United States. Among survey

respondents, 77.2% owned their home in

Mexico and only 16.4% were renters.

In spite of the fact that there are well-

documented cases of Americans that have

experienced title disputes and fraud, nearly

68.5% of retirees surveyed observed that

such issues can be avoided if one

understands the risks of buying a home in a

foreign country. 33% of respondents stressed

the importance of hiring a good lawyer.

According to one survey focus group

participant most real property-related errors

could be avoided so long as would be

American home buyers “do not leave their

brain at the border.”

As American baby-boomers consider

relocating to Mexico for retirement, the

global economic recession has hit newly-

retired Americans the hardest, especially

those now over-leveraged with second homes

or time shares in Mexico that they may not

be able to sell at their original purchase

price. Other unresolved issues are evident

across most Mexican coastal communities

(e.g: eroding infrastructure, litter problems,

growing street crime), which if left

unattended, could result in a missed

opportunity for Mexico to capitalize on

American retirees’ interest in retiring

overseas.

This report also provides recommendations

to real estate developers and federal, local

and state policy makers in Mexico and the

United States that could, if adopted, help

better meet the longer-term needs of aging

American baby-boomers who are considering

Mexico as a retirement destination (see

Appendix A). The report also includes tips

and practical advice for would-be retirees

considering a real estate purchase in Mexico

(see Appendix B).

Background

Since the early 1960s, Mexico's coastal

communities have been marketed as

desirable retirement alternatives for

American retirees seeking beach access and

oceanfront views at prices that were more

affordable than comparable beachfront

communities in California or Florida.

Across the Republic of Mexico, there are

many communities that have proven popular

for U.S. retirees. Among the most mature are

two non-coastal communities: San Miguel de

Allende, Guanajuato and Ajijic/Lake Chapala

near Guadalajara, Jalisco. Lately, American

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

retirees have increasingly been drawn to

coastal r

egions including the Playas de

Rosarito-Ensenada Corridor, Puerto Peñasco,

La Paz, Loreto, Los Cabos and Todo Santos

on the Baja California peninsula, as well as

Puerto Vallarta, Riviera Nayarit, Mazatlán,

Cancún and the Riviera Maya, including Playa

de Carmen. According to Mexico's tourism

ministry, the most popular destinations

among American homebuyers are Los Cabos

and Puerto Peñasco.

The Mexican market research firm, SOFTEC,

reported that during the last quarter of 2009,

there were 957 new vacation and retirement-

focused development projects across Mexico

with the majority being located in coastal

areas. Of these projects, there was a total

inventory of 49,983 new homes on the

market. The firm expects sales of less than

7,000 new vacation homes in Mexican coastal

communities during 2010.

SOFTEC also

reported that sales of beachfront property

had dropped by over 20% during the last

quarter of 2009 (when compared to 2008) and

a recovery was not expected for another 4-5

years.

The Early Years & Initial Property Disputes

Among the first real estate projects

specifically targeted to Americans was San

Antonio Shor

es, known today as San Antonio

del Mar, located immediately across the San

Diego-Tijuana border near Playas de Tijuana.

San Antonio Shores was advertised as “a new

American colony on the Pacific Ocean just

south of the border.”

In a 1968 promotional

letter to potential U.S. homebuyers, the

property’s developer, Manuel Corzo,

advertised: “a complete two bedroom home

on your own lot can be yours on terms for less

than $7,500.00. A fully improved home site

including water, electricity, private sewer

system and black topped contour road can be

yours for as little as $3,450.00.”

What Mr. Corzo’s letter did not clarify,

however, was that ownership of coastal

property was illegal for foreigners at that

time.

In the case of San Antonio Shores, U.S.

investors were offered leases of up to 99

years with the right to pass property rights

on to heirs automatically.

Unfortunately,

these leases, on land owned by Mr. Corzo,

were signed in direct violation of the Mexican

constitution. Yet, the Mexican government

contributed to the problem “due to ‘benign

neglect’ overlooking the constitutional

violations.”

As a result, countless American

investors left themselves open to fraud and

other abuses.

In the early 1970s, the San

Antonio del Mar development declared

bankruptcy, which was quickly followed by

angry investors picketing the Mexican

Consulate in San Diego. In response to the

political pressure, the Mexican government

took over the ownership and management of

the San Antonio del Mar development and in

1975 the government came up with a political

solution to appease irate American investors

by providing 30-year trust agreements to the

450 original American “tenants.”

With the enactment of an April 30, 1971

Presidential decree followed by the 1973

Foreign Investment Law

, foreign nationals

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

have been provided with the legal means to

eate a Fideicomiso as a way to “own” land

in Mexico. Although often confused with a

“trust” under U.S. laws, a Fideicomiso is not a

separate legal entity similar to a corporation

or trust. Rather, the Fideicomiso is a contract

that allows a Mexican bank to own land,

acting as fiduciary, for the exclusive benefit

of a non-Mexican person. This legislation

allows foreigners to acquire Mexican

property within the “restricted zone” ---

defined as within 100 kilometers (60 miles) of

the U.S. border or 50 kilometers (30 miles) of

the Mexican coastline provided that a

qualified Mexican financial institution owns

title to the land with the foreigners,

themselves, as the legal beneficiary. Under

this legal structure, the financial institution

owns the land or real property and the

foreigners have all rights of possession and

improvement bequeathed to their heirs, and

to mortgage and sell the property.

The creation of the Fideicomiso provided the

legal basis for the San Antonio del Mar case

to be eventually settled in late 1975 by the

State of Baja California in an effort to restore

the confidence of American investors in

Mexican real estate.

Under current Mexican

law, the Fideicomiso is only required for

residential property located in the “r

estricted

zone”. Non-Mexican persons can freely own

residential and other property in the interior

of the country and non-residential property

can be owned by a Mexican corporation, the

sole shareholders of which are non-Mexican

persons.

According to the Mexican Secretariat of

Foreign Relations, nearly 37,000 properties

were purchased by foreigners in the

restricted zone under a Fideicomiso between

2000 and 2008.

An estimated 5,200

properties were purchased in 2009,

accounting for over 42,000 properties sold to

foreigners in the restricted zone in the past

ten years. While such statistics are one

measure of the level of U.S. real estate

activity in Mexico, these numbers do not tell

the whole story. The exact number of real

estate purchases by Americans is much

harder to track as since 1994 there is no

limitation on Mexican corporations, even

those wholly controlled by U.S. citizens,

owning non-residential real estate in the

“restricted zone” or even residential real

estate in the interior of the country.

Title Disputes and Title Insurance

The history of real estate investment in

Mexico’s coastal region is filled with

numerous cases just like San Antonio del Mar.

But, beyond outright deception, there are

also cases of American retirees acquiring

property without properly checking the

validity of title. Among the most high profile

cases is that of Punta Banda, a beautiful

coastal community just south of Ensenada,

where 200 mostly American owners faced a

mass eviction due to questions about the

original title of the acquired land obtained

through sub-leases.

The properties sub-

leased by a Mexican developer to the

Americans in Punta Banda were on land

leased from an Ejido (a Mexican agrarian

cooperative communally owned and

operated by its inhabitants) and not through

a Fideicomiso process. Only later did the

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

Americans learn that the Ejido itself had been

involved in litigation with the original owners

since 1973 who ar

gued in Mexican courts that

their land had been effectively “taken.” In

1995, the Mexican courts ruled that the

foreigners’ case was invalid and that the

original Ejido could retain their title and evict

the foreigners, setting in motion the eviction

notices of countless American retirees who,

in many cases, had invested their life savings

into coastal homes south of the border.

15 16

There were several lessons from the Punta

Banda evictions for Americans preparing to

acquire real property in Mexico. Among the

most important was a failure by these U.S.

retirees and second home buyers to discover

pending title issues prior to investing. In a

Fideicomiso, a complete chain of title check is

completed prior to the final transaction,

which would have hopefully uncovered the

title dispute in this case, assuming the

historical records were accurate and intact.

According to Marianne Eddy-Sorman, a real

estate broker with McMillan Realty in La

Jolla, “The lesson (on the Punta Banda

evictions) is that when you go to a foreign

country, you have to realize you’re a

foreigner, and you have to protect yourself.”

As Ms. Eddy-Sorman observed, “They were

foolish…they built some absolutely gorgeous

houses on the land, thinking the Mexican

government was going to ignore it and the

ejido people were going to let them continue

to lease it.”

Since 1997, well-known U.S. title insurance

companies, such as Chicago Title, First

American Title and Stewart Title Latin

America, have offered title insurance services

in Mexico.

First American Title offers

escrow account services in Mexico.

“Project Risk”-- Looking Beyond the Brand

Beyond questions related to title, there is the

issue of “project risk”, and the possibility

that even a seemingly well thought thr

ough

real estate project in Mexico by a recognized

U.S. or Canadian development company

might, in the end, prove to be a questionable

investment. Over the past decade, a growing

number of U.S. retirees have been drawn to

particular real estate projects throughout

coastal communities in Mexico due to the

reputation or brand of the real estate

development firm backing the project.

However, as some retirees have learned, a

developer’s past track record is no guarantee

of future success. Such is the case with two

highly touted projects-the Villages at Loreto

Bay and Trump Ocean Resort Baja that have

both experienced economic difficulty in

recent years.

In the case of the Villages at Loreto Bay,

located in the sleepy, seaside resort town of

Loreto, Baja California Sur, Canadian

developer David Butterfield sought to build

an 8,000 acre residential community with

6,000 homes at a cost of over US$3 billion.

With this ambitious plan, the Loreto Bay

Company secured one of the largest

individual projects that the Mexican

government’s tourist development agency,

FONATUR, had ever approved. Loreto Bay

was also marketed as a sustainable

development, possibly Mexico’s first truly

environmentally-sound real estate

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

development project.

In spite of the Lor

eto Bay’s many positive

attributes, poor due diligence by the builder

regarding construction costs was aggravated

by the slump in the U.S. real estate market

and resulted in its takeover by its principal

creditor, Citicorp Property Investors.

Sales

continue at Loreto Bay today under its new

ownership, albeit at a slower pace than

during the project’s promotional heyday of

2005-2006 when its original developers had

sold over $100 million in homes during the

first 17 months.

Those retirees and second

home buyers who invested in Loreto Bay

early in the process have been left with

construction loans, unfinished homes and

demands for completing basic infrastructure

(sidewalks, lighting, streets, etc.).

Similarly, Trump’s Ocean Resort Baja, which

was to be built on coastal property just south

of Playas de Tijuana in the State of Baja

California, derived much of its initial success

based on the confidence derived from the

Trump name. In fact, many U.S. retirees and

second home buyers invested in the Trump

project primarily due to Donald Trump’s

direct involvement and endorsement. In late

2006, investors rushed to make deposits on

luxury condominiums in three high-rise

towers on the Pacific coast. After $32.3

million in deposits was collected, the project

lost its financing and Trump’s licensee,

Irongate Capital Partners LLC, informed

buyers in 2009 that not only was the project

no longer going forward, but that their

deposits had all been spent and there would

be no way they could recove their money.

In 2007, Ivanka Trump, speaking on her

father’s behalf, noted that Donald Trump was

“involved in every capacity of the

development.”

One of the property

brochures even stated, “Mr. Trump is

personally involved in everything his name

represents.” Ms. Trump went on to declare,

“In characteristic Trump fashion, Trump Ocean

Resor

t Baja will be the best of the best, and

consequently always in demand.”

Ironically,

when the project began to experience

economic difficulty, the Trump Organization

quickly sought to distance themselves from

the project, noting that “we are not the

developer of Trump Baja - we are the

brand…we never took on the obligations of the

developer and we were not responsible for the

financing.”

As a result of the project’s failure and

resulting losses by would be investors, in

2008 a class action suit was filed in Los

Angeles Superior Court against the Trump

Organization, representing 69 buyers that

had purchased or made deposits on 71 units

in the Trump Baja development, with

deposits totaling $18-20 million.

The lawsuit

requested unspecified damages and alleged

fraud, negligence and breach of fiduciary

duty, claiming Trump led buyers to believe

that he had an active role and stake in the

development.

It is worth noting that the problems

experienced by those investing in Trump

Baja Ocean Resort were not unique to

Mexico. In fact, the Trump organization and

its Baja partner, Irongate, are now subject to

another law suit in the state of Hawaii due to

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

alleged mis-representations made to would

be homebuyers and investors in Honolulu.

Though the pending case against the Trump

Organization in Hawaii highlights that

acquiring real estate can be risky anywhere

in the world if one does not do proper due

diligence, the fact remains that throughout

Mexico there have been numerous failed or

stalled residential projects in which U.S.

retirees have been harmed financially. In

some cases, investors had put up sizable

down payments long before their homes

were to be completed without having their

money held in an escrow account or

without demanding a performance bond.

In the case of the Playa Norte project in

Puerto Peñasco, which failed in 2007 after

swallowing over $100 million in monies

invested by U.S. residents, mostly from

Arizona, U.S. Senators John McCain and Jon

Kyl were forced to intervene, sending a

formal complaint letter to then-Mexican

Ambassador Antonio O. Garza Jr.

In an

effort to protect U.S. investors from future

debacles such as Playa Norte, the State of

Arizona now requires that developers

marketing Mexican projects in that state

have full project disclosures on file through

the Arizona Department of Real Estate.

fact, Arizona’s Department of Real Estate

now has a special section on its web page

on purchasing real estate in Mexico. This is

a policy that other U.S. States should follow,

particularly California.

The Calvo Clause: Limits to Legal Recourse

Investors of Trump Baja Ocean Resort have

had some initial success with their U.S.

class action suit due to a partial out-of-court

settlement, but this had more to do with

pressure applied in the United States

against the Trump Organization than

anything else. Such out-of-court settlements

are more the exception than the rule due to

a provision in international law adopted in

Mexico called the Calvo Clause, which

strictly limits the legal recourse that

foreigners have in filing claims on real

estate disputes in Mexico.

Under the current law, foreigners should

consider themselves as equivalent to

Mexican nationals regarding the rights and

obligations they acquire in Mexico and

therefore, will not be eligible to request that

their own government intervene on their

behalf in legal disputes arising from

property owned in Mexico. While there

have been attempts to eliminate the Calvo

clause, this legal restriction has been

strictly enforced by Mexico.

What is the Calvo Clause?

The Calvo Clause is a legal doctrine that

attaches the following five key provisions to

an international investment agreement: 1.)

submission to local legal jurisdiction; 2.)

application of local law; 3.) assimilation of

foreigners to local contracting

arrangements; 4.) waiver of diplomatic

protection in a foreigner’s home state; and

5.) surrender of rights under international

law exclusion.

Mexico is not the only

country that applies the Calvo Clause in

transactions involving foreigners. In fact,

the Calvo Clause is universally applied

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

across Latin America, and in Mexico, only

NAFT

A-related disputes are exempt.

34 35

In Mexico, the Calvo Clause is typically

found in contracts of real property sold to

U.S. and other foreign investors. Under

Article 27 of the Mexican Constitution, only

Mexicans by birth, nationalization or

Mexican companies have the right to

acquire property in Mexico.

Under this

same Article, foreigners may acquire

property, but only if they agree before

Mexico’s Secretariat of Foreign Relations to

consider themselves as nationals with

respect to the property that they purchase

and bind themselves to “not provoke the

protection of their government in matters

related to contract non-compliance or

property forfeiture.” With regard to Mexican

coastal properties, the Calvo Clause is

typically found in the Fideicomiso document,

not in the purchase contract.

However, in one purchase contract provided

to the authors by a U.S. citizen with real

property holdings in La Paz, Baja California

Sur, the specific language of the contact

reads as follows:

“Governing Law and Severability: This

agreement is governed by, and will be

construed in accordance with the laws of

the State of Baja Califor

nia Sur, Mexico.

The parties hereby waive any right they

may have under any applicable law to a

trial by jury with respect to any suit or

legal action which may be commenced by

or against the other concerning the

interpretation, construction, validity,

enforcement, or performance of this

Agreement or any other agreement or

instrument executed in connection with

this Agreement. If any such suit or legal

action is commenced by either party, the

other party hereby agrees, consents, and

submits to the personal jurisdiction of the

State of Baja California Sur, Mexico with

respect to such suit or legal action….Each

of the parties hereby acknowledges and

agrees that the State of Baja California

Sur, Mexico has the most significant

relationship to any claims arising of this

Agreement, within the meaning of the

United States Restatement (Second) of

Conflicts Law….”

To date, Mexico has staunchly enforced the

provisions of the Calvo Clause under the

guise of protecting national sovereignty even

though the North American Free Trade

Agreement’s (NAFTA) investment chapter

was to have presumably provided remedies

for resolving investment disputes between

parties of the United States, Canada and

Mexico. Furthermore, Article 27 of the

Mexican Constitution continues to reinforce

the provisions of the Calvo Clause.

In direct contradiction to the language

embedded in real estate contracts that

stipulates that foreign buyers will be treated

as Mexican nationals, the presence of U.S.

title insurance companies and U.S.

developers and brokers gives many would-

be U.S. retirees the false impression that

there will be U.S. legal remedies if issues

arise with their planned Mexican real estate

purchases. Because U.S. buyers put more

trust in transnational agencies,

they may

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

not be as meticulous in their research,

thinking that they ar

e somehow protected by

these agencies.

As a case in point, there are at least 70 active

real estate brokerage firms with U.S.

nationals acting as individual brokers (out of

a total of 100) in the Los Cabos area, some of

which have offices in the U.S., Canada, and

Mexico.

In addition, buyers from the U.S.

are targeted by many major Mexican real

estate projects with sales flyers and websites

in English, sales meetings in the U.S.,

telephone solicitations for visits, and even

U.S. sales offices. It is understandable that

U.S. buyers might believe that they were

operating under a U.S. legal framework.

Luckily, across the United States, most states

(including Arizona, California, New York)

have protections in place against deceptive

marketing and full disclosure requirements

for foreign (defined as out of state) real

estate sold in-state.

While this is so, in the

case of many Mexican real estate properties

sold to Americans, potential home buyers are

not provided up front with full disclosures of

their legal limitations as a foreigner in

Mexico, nor are the documents provided to

them in English, their primary language. In

fact, when homebuyers sign on the dotted

line, they are put at a distinct disadvantage

with provisions, such as this one, that states,

“the buyer represents that s/he either received

infor

mation about the project while the buyer

was in Mexican territory or independently

solicited the developer while s/he was in the

developer’s office in Mexico.”

Developers

deliberately include such language because it

demonstrates that the marketing activity

took place out of the United States and is

exempt from U.S. Federal and State laws

related to disclosure and registration.

Consumer Protection for Americans in Mexico

As noted above, the vast majority of real

estate pur

chases in Mexico by Americans are

subject to the Calvo Clause whereby buyers

waive all legal rights to have disputes

adjudicated by courts outside of the Mexican

jurisdiction where property is purchased.

Given the travel, cost, and language

constraints of pursuing a case in this manner,

such legal claims by Americans are rare.

In 1976, the Government of

Mexico established a new federal

consumer protection agency, Procuraduria

Federal del Consumidor (PROFECO) and its

protections extend to not just Mexican

nationals but foreigners as well. While this is

so, with the exception of time share

properties, real property disputes are outside

of the agency’s jurisdiction. According to

PROFECO, 90% of all cases brought forward

by American and Canadian consumers are

related to disputes involving time share

purchases with each case taking between six

months to a year to resolve.

Real estate

complaints have also been filed, but these

have been referred to corresponding state

governmental authorities where the claim

was brought.

Returning to the case of Puerto Peñasco,

negotiations between the State of Arizona,

the Mexican State of Sonora, and disgruntled

homebuyers in 2007-2008 have failed to

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

produce any results. At least six civil actions

have been filed in Mexican cour

ts for breach

of contract or fraud. But, this obscures an

important codicil, which is that the

developers were involved in legal battles long

before U.S. buyers signed purchase contracts

for Playa Norte. These were not disclosed to

buyers, but they did have a negative effect on

the development - the partners sued each

other, named the Playa Norte developments

as co-defendants, and a judge ordered all

construction, sales, and title processing to be

stopped in 2004.

Furthermore, despite interventions by the

U.S. Senators mentioned above and Arizona

officials, the situation cannot be resolved

outside of the Mexican court system as

dictated by the Calvo Clause. Although this

is outlined in the Arizona Department of Real

Estate’s consumer’s guide to purchasing real

estate in Mexico,

U.S. citizens purchasing

real estate in Mexico may not realize that

political pressure or legal actions at the U.S.

Federal or State level will make no difference

to their case. As of this writing, the Playa

Norte situation remains unresolved.

Cross-Border Mortgage Financing

The wave of U.S.-style title insurance in

Mexico has been followed by U.S.-style real

estate financing. Initially, such mortgage

financing was limited to 30-year, fixed-rate

loans that were collateralized by assets in the

United States with a minimum of 30% down

payment, but the terms and conditions of

such products has since evolved.

48 49

Today,

U.S. homebuyers in Mexico can obtain

financing collateralized on their Mexican real

property. The required down payment is

now as low as 20% with a minimum loan

amount of $100,000. Also, all types of

traditional loan terms are now available

including 3-, 5- and 7-year adjustable rate

mortgages (ARMs) as well as 10-, 15-, 20-, 25-,

and 30-year fixed rate loans.

Such financing

was until recently available by both Mexican

and U.S. financial institutions alike, including

Bancomer/Compass Bank, Scotiabank, GE

Money, and HSBC. Not all of them offer

dollar-denominated loans, but they all

require substantial disclosures on the part of

the buyer and the lender.

The special type

of Fideicomiso used by GE Money Bank

provides that the lender is the secured party

with special foreclosure rights if the owner

fails to make payments on the loan.

In 2007, less than 5% of all sales of second

and vacation homes purchased by Americans

in Mexico were obtained through mortgage

financing. Before then, the majority of

American baby boomers and retirees were

acquiring Mexican property on an “all cash”

basis, either with lump sum payments or

cash deposits and installments. However,

with the recent economic downturn many of

the common capital sources once used to

buy Mexico real estate have dried up,

including home equity lines and second

mortgages on U.S. residences as well as other

private U.S. loans. This has forced a growing

number of recent home buyers to take a

closer look at Mexico mortgage financing

programs.

As a case in point, one of

Mexico’s largest banking institutions, Grupo

Financiero BBVA Bancomer SA, has seen the

volume of its mortgage business with foreign

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

home buyers continue to grow with the bank

expected to close almost $150 million in

financing in 2009 up fr

om $100 million in 2008

and $65 million in 2007.

According to La Paz retail estate broker,

Linda Neil, “In past years when buyers had

equity in their U.S. and Canadian homes, they

simply refinanced or took an equity line of

credit and paid for the home in Mexico in

cash. Now that the equity has vanished,

some are selling their homes and moving to

Mexico, paying cash for their Mexico home,

with a reserve left over. Others retirees have

refinanced their U.S. homes and are renting

them, hopeful of an increase in value, while

the rental covers the mortgage

payment…with what savings they have, they

pay cash, or finance a portion of the

purchase.”

Infrastructure Deficiencies

When U.S. retirees seek out coastal

destinations in Mexico for the scenic views,

crashing oceans, and laid-back lifestyle, they

often assume that their adopted home will be

able to provide utilities, services, and

infrastructure as municipalities do in the

United States and Canada. While this is so,

many Mexican coastal destinations suffer

loss of services and negative impacts to

infrastructure as a result of out-of-control

growth. In some cases, the very reasons that

retirees relocated to the area are severely

compromised by poor enforcement of local

municipal regulations, as well as the desire to

increase profits in the private and public

sectors. Infrastructure in Mexico has not

caught up with the resort and retirement

community development - landfills,

wastewater treatment plants, new power

sources, and even desalination facilities are

urgently needed in many coastal tourism and

retirement destinations in Mexico. And,

when projects fail and infrastructure

commitments made by the developer are not

completed, such as with the Villages of

Loreto Bay, the homeowners are left

negotiating with the new owners and the

municipality to assign responsibility and

finish them.

Capital Gains Tax Issues in Mexico

In the past, Mexico allowed a tax exemption

of up to $500,000 on real property if an owner

could prove that they had resided on-site for

over six months (through utility or property

tax bills), in effect a “residency” exemption.

This did not apply for those using the

property for investment or vacation purposes

only.

In 2010, the Mexican government revised the

Impuesto Sobre La Renta (or a tax on profit,

more commonly known in the U.S. as a

capital gains tax) to impose a five-year

requirement for the exemption, including a

review of immigration status by a notario

público, who has typically enjoyed

tremendous flexibility in how those

requirements were applied.

The notario

público is also responsible for verifying with

Hacienda that the seller has not asked for the

exemption in the past five years. The stakes

are high. If the tax is applied, it can be up to

30% of the profit on the sale.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

Key Findings

In order to better understand some of the key

trends and drivers for U.S. retirees in

Mexico’s coastal areas, the International

Community Foundation conducted an online

survey between June-November 2009,

resulting in over 1,000 total responses. The

Foundation targeted U.S. retirees over 50

years of age that are residing part-time or

full-time in Mexican coastal communities.

These communities included Puerto Vallarta,

the Riviera Maya, Cabo San Lucas, Rosarito,

La Paz, Loreto, Puerto Peñasco, and many

smaller villages along Mexico's extensive

coastline. After filtering out non-target

respondents, the Foundation had over 840

survey participants, resulting in a high

degree of confidence that results correctly

reflect this targeted group (please see

methodology section below). The following

were key real estate-related market

preference and perceptions observed:

Decision to Locate Abroad

In selecting Mexico, the following were the

key factors identified by U.S. retir

ees as

influencing their decision to retire south of

the border:

• #1: Lifestyle: . . . . . . . . . . . . . . . . . . . .78.5%

• #2: Economics/Cost of Living: . . . . . 74.9%

• #3: Weather: . . . . . . . . . . . . . . . . . . . . 69.1%

• #4: Proximity to the United States: 63.4%

While Mexico was ultimately where those

survey respondents ended up retiring, it was

not the only locale that U.S. retirees

If you were to purchase a home in Mexico, what key

considerations do you consider important?

Very Somewhat

Important Important TOTAL

Availability of water and other basic utilities 68.2% 15.3% 83.5%

Legal including clarity of title 74.9% 7.4% 82.3%

Price 58.3% 19.5% 77.6%

Safety 56.1% 22.3% 78.4%

Ease of day to day living 47.1% 30.5% 77.6%

Environmental considerations 28.3% 37.9% 66.2%

Proximity to local Mexican community 25.4% 36.1% 61.5%

Proximity to natural habitats 23.5% 31.8% 55.3%

Proximity to cultural amenities 15.4% 33.6% 49.0%

Proximity to other US/Canadian expatriates 15.2% 33.3% 48.5%

Source: International Community Foundation, 2009.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

considered. Of those surveyed, 40.6%

consider

ed another U.S. domestic location

while 17.1% considered Costa Rica. 7.7%

considered Panama, and another 9.3%

considered Belize as possible retirement

destinations options.

Somewhat surprisingly, only a relatively low

percentage of respondents (37.4%) felt that

locating in a planned unit development was

either “very important” or “somewhat

important.” A majority of respondents

(62.6%), however, were either neutral on the

subject or did not consider it to be an

important factor of consideration.

Ownership status

Among U.S. retiree survey respondents, the

vast majority (77.2%) owned their home.

Only 16.4% were renters. Though survey

respondents were not specifically asked if

their home was purchased 100% in cash or

was financed, many focus group participants

confirmed that they had purchased their

retirement homes with cash.

Type of Living Accommodations

Most respondents live in a detached home

(49.5%) or an attached home (13%), rather

than a condo unit (20.1%). This is consistent

with preferences mentioned by focus group

participants, who sought out Mexican-style

colonial architecture and the “village”

concept as opposed to high-rise urban living.

Survey respondents also showed a

preference for connecting with the local

community, instead of separating in a gated

community. This is reflected in survey

responses about public safety, which were

reported in the Foundation's previous

publication, “U.S. Retirement Trends in

Mexican Coastal Communities: Lifestyle

Priorities and Demographics,”

(http://www.icfdn.org/publications/retireeresearch).

Although public safety was a consideration

High-rise Condo/Apartment 4%

Mid-rise Condo/Apartment 19.7%

Single-story home (attached) 5%

Single-story home (detached) 27.1%

Two-story home (attached) 8%

Two-story home (detached) 22.4%

Other (boat) 6.5%

Did not Respond to Question 7.3%

Source: International Community Foundation, 2009.

How would you describe your

current living unit?

Don't Know/

Yes No No Response

Does your community have a

Homeowners’Association? 45% 39.7% 15.3%

Do you live in a gated community? 38.5% 54% 7.5%

Source: International Community Foundation, 2009.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

for many buyers when selecting their

operty, recent press about the H1N1 flu

virus, narco-violence, and security issues

have not reduced the frequency or duration

of our respondents' trips to Mexico (see

public safety section below). In focus

groups, respondents reiterated that they felt

safer in Mexico than they did in the U.S.

Regarding the trend toward organization of

homeowners' associations, this has been a

strategy for U.S. homeowners to present

formal petitions to municipal and state

governments for additional infrastructure

(roads, sewer, lights, etc.) and services

(beach patrols, police, trash collection, etc.).

In more mature retirement communities such

as Mazatlán, these organizations also act as a

community voice in government forums.

Survey respondents sought out

environmentally-friendly options for their

homes and lifestyles:

• 63.4% of respondents said that

issues of environmental

sustainability were “somewhat

important” or “very important” to

them when they selected and

purchased their home. Only 7%

said that these issues were “not

important.”

• Yet, in searching for a home in

Mexico, 56.4% of respondents

indicated that they did not feel that

they had any “green” or

environmentally friendly options.

• 19.4% of respondents didn't know if

the property was marketed as

“green” or environmentally

sustainable.

• 31% of respondents recycle already

and 46.0% of respondents would

recycle if they could, as no

recycling programs are available in

their communities.

In fact, more evidence points to second home

buyers and retirees seeking outdoor

opportunities in their “adopted”

communities, such as jogging trails and

nature paths, as well as organized

environmental activities, like guided nature

walks, fly-fishing, plant identification, and

birding. Sea kayaking, hiking and a master

naturalist program are also popular options

with second-home buyers.

Among survey respondents, some practical

advice given to would-be U.S. retirees

considering a move to Mexico included:

• 68.5% of survey respondents

mentioned the need to understand

the risks of buying a home in a

foreign country.

• 33% indicated that it was important

to hire a good lawyer.

• 15.2% of respondents advised would

be retirees to “take the leap of faith”

and that everything will work out

okay.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

Property Taxes

61% of U.S. retirees surveyed indicated that

they would be willing to pay higher pr

operty

taxes if they could be guaranteed better

municipal services (including zoning

enforcement, water, police, fire).

Coastal Lifestyle

• 51.7% desired to a have a home on

or near the coast that would

otherwise be unattainable in the

United States.

•

81.1% identified ocean views as #1

aspect of coastal life they found

most attractive followed by 55.9%

highlighting the water-related

leisure activities that were possible

in Mexico (including fishing,

boating, swimming, surfing, or

diving).

• Only 16.9% of respondents owned a

boat, with less than 2% living aboard

the boat that they own.

• The preferred leisure activity among

American retirees living in coastal

communities of Mexico was walking

on the beach with 70.1% of

respondents indicating that this was

their favorite pastime, followed by

general relaxation, 65.2%.

• More U.S. retirees in Mexican coastal

communities enjoyed bird watching -

15.1% - than played golf-14.1%.

• The #1 aspect of coastal life in Mexico

that was found most unattractive was

the litter on the streets and beach,

with 55.1% of American respondents

highlighting this as a key concern;

followed by 48.1% identifying sewage

runoff to the beaches and/or

ocean/sea as a key issue of concern.

Public Safety Issues

• Growing narco-violence on the U.S.-

Mexico border has not deterred U.S.

retirees from going to Mexico. An

overwhelming 82% of U.S. retiree

respondents indicated that such

concerns have not deterred their

visits to Mexico.

• In fact, 59.9% indicated that their

perception of the security issues in

Mexico have not changed in any way.

• When asked if growing U.S. concerns

over the narco-violence and security

concerns in Mexico has led to a

noticeable reduction family and

friends visiting, 42.4% indicated

affirmatively with an additional 13.7%

that were not sure.

• When asked what key factors would

lead U.S. retirees to leave Mexico, the

#1 reason noted by 57.6% of

respondents would be a noticeable

increase in crime targeted towards

U.S. retirees or tourists, followed by

44.5% who identified declining

environmental quality of their adopted

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

community due to increased sewage

runof

f, litter, and water pollution).

Health Care

Although lifestyle was the biggest draw,

almost 55% of American r

etirees responded

that access to health care was the single

biggest concern when they decided to move

to Mexico. 51% ranked “health care access”

as a “very important” factor in choosing a

home in their “adopted” Mexican community.

In the recently-released “Health Care and

Americans Retiring in Mexico” report

(http://www.icfdn.org/publications/healthcare/index.php),

the Foundation outlines the opportunities for

real estate developers to develop and/or

retrofit existing complexes to accommodate

assisted living, long-term care facilities, and

health clinics to allow U.S. retirees to “age in

place” in their “adopted” communities in

Mexico. Although only 2% of respondents

are currently accessing home care or assisted

living facilities, over 25% are considering

options for long-term care now.

Discussion of Key Findings

While there has been considerable attention

to the real estate market demand among U.S.

baby boomers and retirees considering a

move to Mexico, the recent economic turmoil

coupled with growing narco-violence has

altered the dynamics of this home-buying

wave resulting in a dramatically reduced

volume of retiree and second home sales.

Another key driver in the reduction of home

sales has also been the marked decrease in

U.S. tourism volumes to Mexico.

The data represented in this report has a

survey bias towards those who have already

made a decision to purchase homes in

Mexico and is not a predictive indicator of

what U.S. baby boomers or retirees are likely

to do in the future. Nevertheless, much can

be learned from the consumer perceptions

and preferences of those U.S. baby boomers

and retirees that have already opted to retire

in Mexico.

Based on the survey data, it is clear that the

majority of those that have purchased a

home in a coastal community in Mexico have

found it to be a decision that made sound

economic sense, providing U.S. retirees with

greater economic security and expanded

lifestyle choices for coastal living.

According to survey data, 77.2% of

respondents were home owners. Only 16.4%

were renters. Among those interviewed in

focus groups, the majority of homeowners

purchased their homes with cash and owned

their properties free and clear.

Of course, a key factor here is when people

purchased their homes. The foundation’s

survey findings reveal that 83.5% of our

respondents had lived in Mexico for a

minimum of 3 years. 56% of our survey

respondents had lived in Mexico 5 years or

more. Only 16.5% had lived in Mexico less

than 3 years. Given this fact, there is an

inherent sample bias among those that

purchased homes before 2008. Accordingly,

additional research will be required to better

assess the impacts of the real estate market

among those recent home buyers in Mexican

coastal communities, particularly among

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

those that bought at the height of the

market.

While the majority of those U.S. r

etirees

surveyed were homeowners, this did not

mean in all cases that retirees did not face

financial stress or issues with their Mexican

home purchases. Those that have

purchased their homes on an all cash basis

are, of course, the most financially secure.

Some retirees that have purchased homes

with mortgage financing and/or equity drawn

from their primary residence in the United

States are, on the other hand, saddled with

“underwater mortgages” on their Mexican

home and the harsh realities of re-paying

debt on a property that might take years to

recover its original value. Similarly, others

that committed a deposit but were unable to

complete the purchase left a growing

number of Mexican real estate developers

with additional financial pressures. We also

have the case of those who committed a

down payment or deposit, but the

development was never completed, leaving

them with nothing.

Besides those Americans that are feeling

pressure to pay a mortgage that they may

not be able to afford, a growing number of

American retirees with properties in Mexico

no longer have the disposal income or the

time to enjoy their newly purchased

retirement home. Due to losses in retirement

savings, would-be retirees are working longer

hours and foregoing retirement plans

including the possibility of retiring abroad in

Mexico.

Given the changing economic climate, a

growing number of those that do decide to

move to Mexico might opt to rent instead of

buy. After all, there is currently an over-

supply of residential units in Mexico and a

growing number of those individuals that

own units have a need for rental income.

Should a U.S. owner of Mexican real estate

decide to rent their home, however, this

income must be registered with the U.S.

Internal Revenue Service. Interestingly, in

the past two years, the U.S. IRS has made an

effort to catalog all Fideicomiso contracts

and properties owned by U.S. taxpayers

abroad. This will help them track offshore

revenue from these properties should they

ever be rented.

Those would-be retirees still in a position of

purchasing a home in Mexico need to be

more mindful of whether they buy and under

what terms. Given the number of American

retirees that have lost their deposit money

because these funds were not placed in an

escrow account, there is a strong case to be

made for regulatory reforms in Mexico that

require any developer to hold earnest money

in trust until a project is completed. Such a

policy shift, which must be enacted at the

state level of government, would help instill

greater confidence among future potential

home buyers. (See Appendix A for additional

recommendations for real estate developers

and policy makers.)

Given that most home buyers traveled to

their retirement destination of choice several

times before making a decision to buy, the

current drop in tourism volumes to Mexico is

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

a troubling indicator. According to the

Mexican Migration Institute, while tourism to

Mexico has r

ecovered somewhat since the

Spring 2009 H1N1 related decline, tourist

travel is still below average. In October 2009

the volume of tourism travel to Mexico was

45% below previous volumes the previous

year.

The near- to medium-term prognosis for U.S.

real estate market demand remains uncertain,

so real estate developers and municipal and

state officials in Mexico will, in some cases,

need to re-think their prior assumptions

about the types of development projects to

construct in the future. As a case in point,

developers need to re-think the logic of

including golf courses as a standard amenity

in their development projects. As noted in

the study findings, more respondents

preferred walking on the beach or bird

watching than golf. Might this argue for

residential development projects that were

more mindful of the recreational and natural

opportunities beyond a golf course?

The feedback by existing U.S. home buyers in

Mexico was compelling regarding their desire

to improve municipal services. As noted in

the survey findings, over 61% would be

willing to pay higher property taxes if they

received improved service delivery of water,

electricity and were able to have their

community free of litter and stray dogs and

cats. Focus group participants emphasized

that property taxes should go up for

everyone, including Mexican citizens, to

increase quality of life and services for the

whole community.

Security matters. While the majority of

respondents do not perceive themselves to

be at risk and feel safe in their adopted

Mexican community, if a noticeable increase

in crime and assaults is observed targeted

towards the American or expat community, it

could lead to many U.S. retirees leaving

Mexico for good. Among those issues of

immediate concern to many focus group

participants was the noticeable increase in

government officials, particularly police,

asking for a mordida, the Mexican term for a

bribe. While such payments are not life

threatening, they reinforce a feeling of

insecurity among U.S. retirees. Accordingly, if

Mexican communities desire to foster a

climate of security among existing and would-

be expatriate retirees, there is a pressing

need to professionalize their police force.

“Infrastructure development will be the

major challenge for Mexico in order to

access the potential retirement market

of the United States.”

BBVA Bancomer,

Situación Inmobiliaria México

Septiembre 2007

Though opportunities do exist in Mexico for

future development targeted at older

Americans, there is much that Mexico needs

to do to improve its basic municipal

infrastructure. A key concern identified by

focus group participants was the frustration

over the “trip and fall” risk on sidewalks in

many Mexican coastal cities with protruding

concrete or pot holes. As trips and falls are

one of the primary causes for serious injury

among older Americans, greater attention

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

must be placed on improving the walkability

of str

eets in Mexican coastal communities if

there is a desire to have U.S. and other

expatriate retirees “age in place.”

Implications for the Future

While the current economic picture remains

murky and there are on-going perceived fears

among a growing number of Americans about

traveling or living in Mexico due to the

current media attention on the narco-related

violence, the fact remains that Mexican

coastal communities will remain an attractive

destination for U.S. retirees because of the

lifestyle options offered, affordability,

weather, and the relative proximity to the

United States.

Due to the loss of net personal wealth among

U.S. baby boomers, it is possible that more

U.S. retirees may opt to rent their retirement

homes in Mexico in the future, than in years

past when paying cash for a home was the

standard. Still, the expanding availability of

Mexican mortgage financing to foreigners will

also translate into more U.S. retirees

borrowing to purchase the retirement home

of their dreams.

Based on the current economic realities, real

estate developers will need to ask hard

questions about whether their underlying

assumptions specific to U.S. baby boomer

home buying preferences are still valid. Are

golf courses, for example, a vital necessary

for any new development project? Would a

nature trail be a better draw for a

sophisticated buyer? Would incorporating a

“healthy lifestyle” aspect to the development

add to its appeal for older U.S. retirees?

Research Methodology

The International Community Foundation's

survey included both quantitative and

qualitative methods. First, a thorough

literature review of tourism- and retiree-

related literature on Mexico was undertaken.

The research also included a thorough review

of government statistics from multiple

sources (U.S. State Department, INEGI,

Mexican Migration Institute, and OECD) to

assess the size of the population of US

citizens in the Republic of Mexico. Based on

these data sources, the Foundation estimates

that there is a permanent and floating

population of U.S. residents in Mexican

coastal communities of 200,000-300,000.

In addition, between August 1 and November

15, 2009, the International Community

Foundation carried out a survey utilizing

purposive sampling (snowball) technique to

secure participation and a representative

sampling of U.S. citizens and U.S. permanent

residents 50 years of age and older residing

in Mexico either on a full-time or part-time

basis. For the study in question, a total of

1,003 individuals elected to participate,

responding either using an online survey tool

or printed questionnaires. Survey

respondents self-identified their “adopted

communities” as Baja California, Baja

California Sur, Sonora, Nayarit, Jalisco, and

Quintana Roo (among other locations).

Once the participants were filtered to include

only the targeted profile, a total of 842

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

surveys were able to be used (76%). If it is

assumed that some degr

ee of random

participation was achieved amongst the

target group, results would reflect a

confidence level of 95% +/- 3.4%.

Concurrent with the Foundation's literature

review, survey, and subsequent analysis, five

focus groups were organized between August-

December 2009 in Rosarito, Baja California

(BC); La Paz, Baja California Sur (BCS); East

Cape, BCS; San José de Cabo, BCS; and Todos

Santos, BCS. Each focus group consisted of

10 to 15 participants all of which were self-

identified U.S. retirees living in Mexico. The

focus group sessions were 2 hours in

duration, allowing the Foundation to assess

the viewpoints of participants on a wide

range of issues impacting the U.S. retiree

community in Mexico. For their participation

in the focus groups, each participant and

their spouse were invited to a lunch hosted

by the Foundation. To avoid a possible

sample bias, spouses were asked not to

participate in the focus group sessions.

A thorough discussion of the research methodology is available at:

http://www.icfdn.org/publications/retireeresearch/?page_id=192.

References

A full reference list is available at:

http://www.icfdn.org/publications/retireeresearch/?page_id=169.

Acknowledgements

AARP and AARP Foundation

Bahia de Banderas News

Baja Pony Express

Baja Western Onion

Martha Honey, Center for Responsible

Travel (CREST)

Martin Goebel, Sustainable Northwest

Ashley Grand

Gringo Gazette-Southern Edition

Inside Mexico

Demetrios Papademetriou, Migration

Policy Institute

Kenn Morris, Crossborder Group

David Truly, Central Connecticut State

University

Mark Spalding, The Ocean Foundation

Linda Neil, the Settlement Group

Juan Zuñiga, Cross-Border Law Group

Susan Fogel, Author, Margarita Mind: How

to Avoid It

Sandra Guido, CONSELVA, A.C.

Enrique Ledesma, PROFECO

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

About the International Community Foundation

Among U.S.-based community foundations, the International Community Foundation is unique

in that unlike other community foundations that serve a defined geographic region in the

United States, the Foundation is dedicated to assisting American donors to charitably support

their communities of interest internationally. Approximately 22% of the International

Community Foundation’s donors are immigrants; close to 50% of the International Community

Foundation’s donors are retirees living abroad either full- or part-time with the majority of

these American expatriates residing in coastal communities in Northwest Mexico. For more

information regarding the International Community Foundation, visit: www.icfdn.org.

About the Retiring Responsibly in Mexico Initiative

With a growing number of Americans now retiring in Mexico, there is a need to better respond

to the needs of this fast-growing expatriate population Through its “Retiring Responsibly in

Mexico” initiative, the International Community Foundation seeks to inform, educate, and

engage would-be retirees, targeted buyers, real estate developers, nonprofit organizations and

policymakers at the local, state and federal levels of governmental in both the United States

and Mexico about issues related to environmental sustainability, financial and environmental

transparency, and responsibilities for stewardship related to coastal tourism residential

developments with an emphasis on the 50+ population from the United States seeking to

retire in Mexico. The Foundation’s “Retiring Responsibly in Mexico” Initiative has three key

objectives:

1) Undertake timely and relevant research on the demographic patterns of U.S.

retirees in Mexican coastal communities to better understand the impacts of

current north to south migration trends as they relate to emerging issues of

economic security, health care and public safety.

2) Understand the impacts of recent coastal development in Mexico fueled by the

influx of U.S. retirees, assessing the impacts on surrounding ecosystems,

documenting trends in sustainable retirement communities, and recognizing the

legal/financial risk for homebuyers.

3) Assess the level of social capital among U.S. retirees residing in Mexico with a

focus on volunteerism, charitable giving, and civic engagement in their adopted

communities.

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Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

About the Co-Authors

Richard Kiy is President & CEO of the International Community Foundation and has over 23

years of internationally focused experience in the public, private and nonprofit sectors with a

specialization in Mexico. Kiy is a graduate of Stanford University (A.B. Economics) and

Harvard University’s John F. Kennedy School of Government (Masters of Public

Administration).

Anne McEnany is Senior Advisor for Environment & Conservation for the International

Community Foundation and has over 18 years of conservation experience working in Mexico,

Central America, Caribbean, and the Andes Region. McEnany is a graduate of the University

of Virginia (B.A. in Latin American Studies) and Tulane University (Masters of Science, Applied

International Development with a concentration in environmental planning).

End Notes

_____________________________________________________________________________________

Cano, Araceli. “Mi Segundo Hogar,” CNN Expansión.com, February 27, 2007

http://www.cnnexpansion.com/expansion/mi-segundo-hogar.

Noticaribe, “No repunta venta de vivienda vacacional: SOFTEC,” March 8, 2010.

http://www.noticarible.com.mx/clasificados/guia_inmobiliaria/2010/03/no_repunta_venta_de_vivienda_v.php.

Juarez, David Aguilar, “Softec Reporta Caida en Venta de Casas de Playa,” El Universal, March 8, 2010.

http://www.eluniversal.com.mx/finanzas/77922.html.

Promotional material for San Antonio Shores, Rosarito, B.C, Mexico , August 1968.

Letter dated August 30, 1968 to Mr. Derek Kiy by Manuel Corzo, President, International Resort Property de Mexico,

owner of San Antonio Shores, Rosarito, B.C, Mexico.

“American Land Rush for Mexican Beach Property,” San Diego Union Tribune, August 1968.

Vilaplana, Victor. “The Forbidden Zones in Mexico,” California Western Law Review, Vol 10, 1973-1974, , p55.

Darling, Juanita. “Buying a Home in Mexico Can Be a Dream Come True-or a Nightmare Real estate: New rules make

it easier for foreigners to own property. But some find the cultural and legal differences hard to take,” Los Angeles Times,

October 14, 1990.

Jerry Ruhlow, “Trust Presented for Controversial Mexico Project: State Government Moves to Restore Confidence of

Americans in Baja Investment,” Los Angeles Times, November 2, 1975.

Villaplana, page 47.

Darling.

Mexican Secretariat of Foreign Relations, statistics on Fideicomisos en Zona Restringida, 2000-2008.

http://www

.sre.gob.mx/tramites/juridico/estadisticas.htm

Personal communication, Mark Spalding, President, The Ocean Foundation, Washington, D.C.

Kraul, Chris. “Americans Face Eviction From Baja Resort Homes; Mexico: 150 homeowners, many of them California

retirees, are caught up in a complex land grant dispute,” Los

Angeles

Times

, September 3, 1999.

Kraul, Chris. “Mexico Risky for U.S. ‘Landowners,’” Los Angeles Times, October 20, 2000.

Dibble, Sandra. “Punta Banda land fight waves a flag of caution,” San Diego Union, January 16, 2001.

Allen, Mike. “Lesson From Punta Banda Deal: Do the Homework,” San Diego Business Journal, November 13, 2000.

Ibid.

Weisburg, Lori. “Buying in Mexico: Title insurance can provide peace of mind for those wary of Baja California real-

estate investments,” San Diego Union Tribune, October 2, 2005.

http://legacy.signonsandiego.com/uniontrib/20051002/news_1h02title.html

Harman, Dana. “Americans Looking for the Next Boomtown,” Christian Science Monitor, November 21, 2005,

http://www.csmonitor.com/2005/1121/p01s04-woam.html?s=widep#

Buchholz, Jan. “Loreto Bay Names New Management”, Phoenix Business Journal, November 30, 2007.

“Loreto Bay Surpasses $100 Million Mark,” Phoenix Business Journal, March 14, 2005.

Associated Press. “Trump Baja venture leaves buyers high and dry: Deposits totaling $32.2 million are lost in the

collapse of the celebrity developer's hotel-condo project,”March 7, 2009.

Spagat, Elliot. “Buyers sue Trump over failed Mexico condo project,” Washington Post. Mar. 14, 2009,

Associated Press.

Dahler, Don. “Investors lose millions on Trump-backed project,” Mar. 9, 2009,

http://wcbstv.com/topstories/investors.trump.project.2.954651.html.

Ibid.

Yu, Hui-yong. “Trump sued by condo buyers over abandoned Baja luxury resort,” Bloomberg Press, Mar. 14,2009,

http://www.bloomberg.com/apps/news?pid=20601103&sid=amZyVmUO5gJU&refer=us.

Daysog, Rick. “Irongate Capital, the Developer of Trump International Hotel & Tower Waikiki Hit by Two Lawsuits by

Buyers Wanting to Get Out of their Purchases", Honolulu Advertiser McClatchy-Tribune Regional News, July 14, 2009,

http://www.hotel-online.com/News/PR2009_3rd/Jul09_TrumpW

aikiki.html.

Dibble and Weisberg.

Wagner, Denise. “Prime deal, prime debacle for Rocky Point investors: Playa Norte promised seaside dreams; U.S.

investors find nightmare,” The Arizona Republic, November 25, 2007,

http://www.azcentral.com/news/articles/1125rockypoint1125.html#.

Arizona Department of Real Estate, 2009, www.azre.gov.

Roger, Wesley. “The Procedural Malaise of Foreign Investment Disputes in Latin America: Local Tribunals to Fact

Finding,” Law & Policy International Business, Volume 7, 1975, pp 813, 818.

Shan, Wenhua. “Is Calvo Dead?” American Journal of Comparative Law, Vol. l 55, 2007, p128.

Cremades, Bernardo M. “Disputes Arising Out of Foreign Direct Investment in Latin America: A New Look at the Calvo

Doctrine and Other Jurisdictional Issues,” Dispute Resolution Journal, May-Jul 2004, p2.

Shan, p128.

Ibid, p154.

Personal communication, Susan Fogel, March 2010.

Desarrollos Punta La Paz, S de RLI. de C.V, Promise of Trust Agreement, Las Villas, paraíso del Mar, La Paz, BCS

Daly, Justin. “Has Mexico Crossed the Border on State Responsibility for Economic Injury to Aliens? : Foreign

Investment and the Calvo Clause in Mexico After the NAFTA,” St. Mary's Law Journal, Vol. 25, 1993-1994, page 1185.

Lizárraga Morales, Omar. “Immigration and Transnational Practices of U.S. Retirees in Mexico. A Case Study in

Mazatlán, Sinaloa and Cabo San Lucas, Baja California Sur,” in Migración y Desarrollo, Universidad Autónoma de

Sinaloa, 2008, p105.

Ibid, p103.

Interestingly, California excludes international projects from its definition of “foreign,” limiting it to out-of-state projects

that are marketed in state. So while a project in Hawaii would qualify as “foreign,” a project in Mexico would not.

Personal communication, Juan Zuñiga, April 2010.

Desarrollos Punta La Paz, S de RLI. de C.V.

Personal communication, Enrique Ledesma, Director, Residentes en el Extranjero, PROFECO, March 12, 2010.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

Wagner.

Arizona Department of Real Estate. Buying Real Estate in Mexico: A Consumer’s Guide, Phoenix, Arizona, 2005, p7.

Taub, Eric. “Now Easier for U.S. Residents to Buy in Mexico,” Los Angeles Times, May 17, 1998.

Tedeschi, Bob. “In Mexico, Loans without Borders,” New York Times, July 30, 2006,

http://www

.nytimes.com/2006/07/30/realestate/30mort.html?pagewanted=print.

Miller, Matthew. “Cross Border Mexican Mortgage Financing Gaining in Popularity,” March 12, 2009.

http://www.loscabosguide.com/mortgageloans/mexico_mortgage_financing.htm.

Personal communication, Susan Fogel, March 2010.

Personal communication, Juan Zuñiga, April 2010.

Ibid.

Parks, Ken. “Mexico's Top Bank Upbeat On Vacation Homes As Loans Grow,” Banderas News (originally published

through the Dow Jones Newswire), November 13, 2009 http://www.banderasnews.com/0911/re-bbva13.htm.

Linda Neil, The Settlement Company, La Paz, BCS, Mexico, March 2010.

International Property Journal. “Mexico cracking down on capital gains tax,” February, 25, 2010,

http://www.internationalpropertyjournal.com/blog/2010/02/25/112-mexico-cracking-down-on-capital-gains-tax.html

Ibid.

Rosales, Eduardo. “New Capital Gains Tax regulations in Mexico,” Baja Times, February 2010.

Personal communication, Sandra Guido, January 2010.

Kaufman, Joanne. “Vacation Homes: Seeking Birds, Not Birdies,” The New York Times, October 6, 2006.

Del Rosso, Laura. “WTTC: Long Term Outlook is strong for Mexico Tourism,” in Travel Weekly. August 12, 2009.

Under US tax law, a Fideicomiso meets the definition of a “foreign trust” which means that U.S. taxpayers are required

to file IRS Form 3520 when they initially establish a Fideicomiso and the trustee, of this foreign trust, must also file US

IRS Form 3520A for each year thereafter.

BBVA Bancomer, Situación Inmobiliaria México Septiembre 2007,

http://www.bancomer.com/salaprensa/cornu_comup_091007.html.

http://www.coastal.ca.gov/ccatc.html.

Wagner.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

1. Local municipalities and/or state officials in Mexico should seriously consider

requiring real estate developers to hold all home buyer deposits in a secure

escrow account precluding the use of such monies to be used until a

development project is completed. This will dramatically reduce the number of

unfinished real estate projects along the Mexican coastline and minimize the number of

disgruntled U.S. and Canadian real estate investors.

This option may require a change

in federal- or state-level real estate laws as the concept of escrow is not yet codified.

2. In coastal areas, view corridors and beach access matter to U.S. retirees so

Mexican local and state policymakers should take steps to protect coastal beach

access and view corridors. Using the model of the California Coastal Commission

and the California Coastal

Act would provide a good legislative beginning.

Re-

think the emphasis of real estate development projects with golf courses as a key

amenity, or at a minimum, require reclaimed water use for golf courses.

a. Golf is not the primary reason why U.S. retirees travel to Mexican coastal

communities.

b. Among residents surveyed, more U.S. retirees preferred bird watching

than playing golf.

Many Mexican coastal communities are water scarce and golf courses consume

lots of water.

3. Promote land use policies that allow retirees to “age in place.” Most Mexican

retirement communities, like others in the United States, do not have land use policies

that consider the changing lifestyle needs of aging adults. Current deficiencies include:

a. Lack of home design features that serve residents across life spans.

b. Dominance of automobiles as the primary transportation source.

Lack of community support for land use policies that encourage safe

places to walk.

i. Unsafe sidewalks increase the likelihood of trips and falls.

Recommendations for Real Estate Developers

and Federal, State & Local Policy makers

Based on the International Community Foundation's recent study of U.S. retiree preferences and

perceptions, the following are key recommendations and considerations for existing and future real

estate developments in Mexican coastal communities:

Appendix A

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

ii. Walking is neither encouraged or facilitated.

d. Rigid separation between residential, commercial and recreational

uses in a community.

e. Inadequate road design impedes mobility.

i. There is little connectivity between different modes of transportation.

4. Consider increases in local property tax to meet the growing infrastructure needs

of Mexican coastal communities. The majority of U.S. retirees were willing to pay

additional property taxes if the municipal government could guarantee basic

infrastructure, and services including consistent water delivery

, paved streets, reduction

in potholes, and elimination of litter.

5. In the spirit of NAFTA, exemptions to the Calvo Clause should be considered by

Mexican policymakers when sales of Mexican real estate were initiated in a foreign

country

, such as the United States and Canada, and when such sales involved

senior citizens and the potential for elder financial abuse.

6. With the growing number of U.S. residents now seeking mortgage financing for

Mexican real estate, there is a need to ensure that protections are in place to

require full disclosures to prospective U.S. homebuyers seeking financing for their

Mexican home purchase specific to the risks and limits to legal remedies in the

United States. Such disclosures should be required on all marketing and related

advertisements published and/or distributed in the United States as well as in any loan

documents provided to U.S. residents. With the recent passage of Senate Bill 3217 and

House Bill 4713 establishing, among other things, the Consumer Financial Protection

Agency

, it is hoped that this agency, when created, will expand its authority to regulate

mortgage financing products offered to US residents for the purchase of real estate

overseas including Mexico.

7. The Departments of Real Estate in U.S. states should consider stiffer legal and/or

financial penalties on companies that use deceptive marketing when foreign real

estate is marketed in their states that results in elder financial abuse.

8. Clean up Mexican coastal communities. Litter was seen as the most undesirable

aspects of Mexican coastal life for American retirees. Local officials and real estate

developers must make an extra ef

fort to make litter clean up and environmental

education a top priority if they wish Mexico to remain a top destination for U.S. retirees.

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

9. Environmental considerations matter. The majority of retirees surveyed did not have

the option of considering environmentally friendly designs when purchasing their

retirement home in Mexico, nor do they have the option to recycle.

10. Health care considerations must also be factored into the design of future

retirement communities targeted to U.S. and Canadian retirees with an emphasis on

providing the ability to “age in place.”

11. Codify good development practices, using published resources such as the

“Guía del Desarrollador para el Desarrollo Costero Sustentable en Baja California

Sur,” “Modelo para un T

urismo Sustentable en el Noroeste Costero de México,”

and the new zoning plan in Quintana Roo as the basis for new legislation.

At the state level, Mexican government agencies are taking the lead in legislating

better development practices.

The State government of Baja California Sur released a

development guide in 2009 that outlines best practices in coastal tourism and real

estate development; the State government of Quintana Roo is finalizing its zoning plan,

which incorporates regulations for green buildings. The nonprofit alliance, ALCOSTA,

has also published basic criteria for sustainable tourism practices. These publications

should be reviewed and incorporated into law by Mexican decision-makers in coastal

communities.

http://www.icfdn.org/publications/housing/Sherwood-Estandre-English.pdf

This document should not be reproduced or re-transmitted without prior authorization of the International Community Foundation.

Housing and Real Estate Trends among Americans

Retiring in Mexico’s Coastal Communities

Appendix B

Tips for U.S. Retirees Considering Purchasing Real Estate in Mexico

Based on direct input and feedback from U.S. retirees

that have purchased homes in Mexican coastal communities:

1. Do your homework before buying. Familiarize yourself with Mexican laws and

regulations, which are quite different than the laws of the United States.

Don’t assume that laws are uniform across Mexico as real estate conventions,

laws and costs for closing vary on a state-by-state basis, just like in the U.S.

2. Make sure that you have been provided all pertinent disclosures specific to

the property you are purchasing including non lien certificates, proof of

property tax payment, condo regime documents, legal suits or other legal

actions that might otherwise impact your property title.

3. In coastal areas, make sure that the property you are purchasing is in a

development that is in compliance with the Mexican Federal law for mangrove

protection to avoid possible legal actions.

4. Make several trips to your retirement destination of choice before making a

decision to buy.

5. Don’t try to do a deal on your own. Retain licensed Mexican and U.S. real

estate agents, attorneys, and accountants.

6. Get title insurance. Make sure the seller has clear title.

7. Require that all documents to be translated into English and read

them carefully.

8. Place deposits in a neutral, third-party escrow account.

9. If you own coastal property in Mexico through a Fideicomiso, your trust must

be reported to the U.S. Internal Revenue Service to avoid potential tax penalties.

For additional details on IRS rules and guidelines on foreign trust reporting

requirements please refer to:

http://www

.irs.gov/businesses/international/article/0,,id=185295,00.html

10. As in any country, including your own, if it is too good to be true, it probably is.