Residential Tourism in Mexico

In the last three years condominiums have surpassed hotels as the No. 1 investment in Mexico's residential tourism industry.

In 2006, more than 2,000 condominiums were built as opposed to 700 hotels of which 180 were considered as high-level development projects according to the Tourism Secretariat or Sectur.

"Today, the condominium market in Mexico has become the hottest thing in terms of investment," says Carlos Rosso, director of the property firm The Related Group. "Our company has pumped over a billion dollars in three different locations in Mexico with a large amount being funneled into condominium projects; the demand is overwhelming."

The spike in the residential tourism market is largely attributed to baby boomers in the United States who are on the cusp of retirement and are eyeing Mexico as a place to see out their twilight years. Plus, the recent upsurge in Mexico's economy has seen affluent Mexicans buying up second holiday homes at an accelerated rate while the government's deregulation of the mortgage market with easy to secure loans for home buyers all goes a long way to explaining the massive surge in the industry.

The last hotel that was built in Acapulco, Mexico's oldest and most famous holiday resort, was nine years ago. Compare that to the 20 condominium projects currently under construction there and you get an idea of how the market is flourishing.

"Acapulco is the best example in showing the discongruity between the hotel and condominium industries. More and more people are shunning hotels to either rent or buy apartments and beach condos," explains Seyed Rezvani who is director of Mundo Imperial, a mortgage investment firm.

And it's not just Acapulco where the condominium market is booming. Coastal resorts such as Puerto Vallarta, Huatulco, Cancun, Puerto Penasco and Los Cabos are all seeing the same effect.

"Developers have realized the huge potential in condominiums. They know that they can recoup their investment quickly because more and more white collar workers are buying their second homes at holiday resorts," says Covadonga Gomez who heads Acapulco's Association of Touristic Hotels and Businesses.

According to Francisco Medina, CEO of NH Hotels, it takes up to 20 years to recover an investment on a hotel. The average for condominiums is around the 12-year mark. He added that in terms of market appreciation condominiums are in a much better position than hotels.

"Acapulco is a complicated example. The super rich tourists don't go there any more while development in the area is solely concentrated in the Diamond Zone. This has exclusively become filled with luxury condominium projects. Mazatlan seems to be in a similar situation. However, Rosarito is maintaining a 50-50 balance between hotels and condos," said Medina.

Alejandro Watson, who is director of marketing for the Intercontinental Hotels Group, blames a saturated market for the decline in the number of new hotels in Mexico. He says that both the condominium and hotel industries are waging a turf war in the same states: Distrito Federal, Baja California Sur, Jalisco and Quintana Roo.

"The industry has changed dramatically in the last few years. Gone are the days of developers constructing 500-bed hotels. The new millenium tourist covets his privacy a lot more. Now you're seeing a rise in boutique hotels that may have 50 rooms at most or luxury condos that provide hotel room service but also give the holiday-maker a lot more privacy with direct access to the beach. The idea is that once you arrive at your condo there's no need to venture anywhere else."