Puerto Vallarta Condos For Sale Buying Pre-Construction. Thinking of buying a pre-construction condo in Puerto Vallarta or Riviera Nayarit? As Mexico real estate is largely a cash market, here’s what you should know about the financing of new condo development projects in Mexico as compared to the US and Canada.
USA and Canada: Mortgage Characteristics
A developer borrows money based on conditions of the lender. Feasibility or viability of the project is based on data: sales prices, sizes, number of bedrooms, features. Lenders can also require other data such as absorptions of similar properties, what amount of inventory is for sale. Will the project come on stream at the time it can be sold and absorbed? Will the projections of sales pay for the mortgage and interest? Will there be profit for the seller after he pays all costs?
The permits and requirements will determine within a range what can be built and if it matches the project goals of the developer and his team.
The foundation, construction, finish-out and use of the land will be under the approval and jurisdiction of health, safety, lender underwriting, as well as construction requirements and in some cases many other state and federal laws. For example, making properties handicapped accessible may be required.
The plan “as approved” and “as defined legally” will create a binding and legal entity. This entity cannot be changed easily and must be in compliance with city codes or face the risk of being shut down.
SUCCESS OR FAILURE OF PROJECT
The project will also be affected by forces out of its control. This includes natural disasters, monetary problems of the country where it is being built, financial stability of the buyers’ income, as well as the financial and security climate of the area and the reputation of the country.
Is a process to take over a project which is in trouble and to finish it if needed (from insurance pay-out and more financing). The Canadian and USA business system for foreclosure involves many private and public entities who together work to finish the project and determine a course of action to sell the property, with low interest mortgages if necessary, in order to take the property “off the books”.
The lender and the government have the ability to hold inventory off the market and release properties for sale over a period of time, so not as to flood the market and forced prices lower. This gradual release brings some stability to the market.
Mexico: Cash and Mortgage Market
Recent sources of money in this market have included private investment funds and bank loans for a percentage of new projects. At this moment, the majority of new construction of condos are bought for cash (from the buyers) and the developer is building with these funds. If there is no lender involved, there will be fewer professionals who have used due diligence to determine the viability of the project and the experience as well as financial strength of the developer builder. This leaves the buyer the responsibility to conduct due diligence on his own. A good agent and attorney as your team, is highly recommended.
The project will be permitted by the city or municipality. Developers may request deviation from building requirements, if there are other examples of what they want to do in that neighborhood. The developer may appeal to the municipality for a permit to be bigger or taller if the site even if If affects the views of persons above the project.
In Jalisco, the condo regime which establishes the legal entity, is done after construction is completed and an occupancy permit is granted. In Nayarit, the condo regime or legal entity has to be established in order to obtain the building permit.
SUCCESS OR FAILURE OF PROJECT
The project will also be affected by forces out of its control. It will be affected by the ability and decision of the developer to provide funds sufficient to finish the project for the buyers, who have become investors. Natural disasters, security, world economics can affect the demand for the development. During this Pandemic, developers have for the most part continued or have start new projects. Caution is advised.
Vet the builder and the real estate agent you choose. The listing office or agent represents the seller, and in this case, you should have a buyer agent, if you establish that they have the experience to know how to protect your interests. And your local bilingual attorney here, should be able to evaluate the developer’s purchase contract, and make sure you have rights stated in the developer contract.
Differences in the Mexican pesos versus the US dollar or Canadian dollar historically have given the developer many pesos to pay for construction (and to have a cushion against cost overruns or delays).
Currently, in order to offer more people the chance to buy, prices may be in pesos, typically at a fixed rate designed to give the buyer a discount, And there is another incentive for the buyer to cash foreign currency and have a surplus of pesos to help pay for closing costs. Some developers are offering 20-21-22 pesos to the USD. If the exchange rate gives you 23-24 pesos, you have a surplus to use for buyer closing costs. Or resales of homes or condos may be fixed in pesos.
FORECLOSURE FROM STOPPING THE PROJECT
If there is no loan on the property, there will be no foreclosure. The project will need funds of the developer or additional funds from some source in order to be completed. This will be the problem. If a project is shut down by authorities for irregularities, it may be delayed or never finished. There is no precedent for the city or state to become involved in the condition of an unfinished property, even if it is unsafe or deteriorating. This will be a case of lawyers and working to represent their clients. If you have paid directly to the developer, and he will not return your money, does your contract give you recourse?
It is interesting to note that we have current products because of Mexican developers. They have come into the market and built without using the American and Canadian process to establish there is a need for new product. This may also be the case, if no third-party lender is involved.
If you are considering buying pre-construction in this market, the builder should have been approved for promotion on FBS FLEX and he should have an offer contract following these statutes for your protection, and more if you can negotiate them.
Chapter VIII – OF OPERATIONS WITH REAL ESTATE
ARTICLE 73. – Acts related to real estate will only be subject to this law, when the providers are fractionators, builders, developers and other people involved in the advice and sale to the public of dwellings destined to house habitation or when they grant to the consumer the right to use real estate through the timeshare system, in the terms of the articles 64 and 65 of this law.
Contracts related to the activities referred to in the preceding paragraph, must be registered before the Office of the Attorney General.
ARTICLE 73 BIS. – In the case of acts related to properties referred to in the article above, the provider must make available to the consumer at least the following:
- In case of pre-sale, the supplier must display the complete construction executive project, as well as the respective model and, where appropriate, the property shows;
- The documents that prove ownership of the property. Likewise, you must report on the existence of liens that affect the property of the same, which should be canceled at the time of signing the corresponding deed;
- The personality of the seller and the authorization of the supplier to promote the sale;
- Information on the conditions under which the payment of contributions and services is found public;
- In the case of new or pre-sale real estate, authorizations, licenses or permits issued by the corresponding authorities for the construction, relative to the specifications techniques, safety, land use, the class of materials used in construction; services basic that it has, as well as all those that it must have in accordance with the applicable legislation. In the case of used properties that do not have such documentation, you must expressly indicate in the contract the lack of these.
- The structural, architectural and facilities plans or, failing that, an opinion of the structural conditions of the property. In your case, expressly indicate the reasons why it does not have them as well as the term in which it will have said documentation;
- Information on the characteristics of the property, such as the extent of the land, built surface, type of structure, facilities, finishes, accessories, place or places of parking, common use areas with other properties, undivided percentage where appropriate, services available and general physical condition of the property;
- Information on the benefits that the provider additionally offers in case of finalize the operation, such as special finishes, curtains, tiles and integral kitchen, among others;
- The payment options that the consumer can choose, specifying the total amount to pay in each of the options;
- In the case of credit operations, the indication of the type of credit in question, as well as a projection of the amount to be paid that includes, where appropriate, the interest rate to be used, commissions and charges. In the case of the variable rate, the reference interest rate must be specified and the formula for calculating said rate.
If this is the case, the mechanisms for the modification or renegotiation of the payment options, the conditions under which it would be carried out and the economic implications, both for the supplier as for the consumer;
- The conditions under which the deed process will be carried out, as well as the expenditures other than the sale price to be made by the consumer, such as expenses for deed, taxes, appraisal, administration, credit opening and research expenses. Of being the case, the costs for the accessories or complements;
- The conditions under which the consumer can cancel the operation, and
- The consumer must be informed about the existence and constitution of a mortgage guarantee, fiduciary or of any other type, as well as it’s instrumentation.
ARTICLE 73 TER. – The contract that is intended to be registered in the terms of the second paragraph of Article 73, must meet at least the following requirements:
- Place and date of conclusion of the contract;
- Be written in the Spanish language, notwithstanding that they may also be expressed in another In case of differences in the text or wording, it will be stated in the language Spanish;
- Name, denomination or company name, domicile and federal register of taxpayers of the supplier, in accordance with the legal regulations on the matter;
- Name, address and, if applicable, federal consumer taxpayer registry;
- Specify the amounts of money in national currency, notwithstanding that they may be also expressed in foreign currency; in the event that the parties do not agree on a type of changed.
Author and article courtesy of Harriet Murray, Founder of Cochran Realty in 1997. Born in Louisiana, Harriet Murray had an early love of art and studied art education in college. Upon graduation, she went on to become an art teacher in New Orleans public schools. She later moved to TX and taught art there; as well as science, speech arts, and other subjects like most young teachers do. She is the current President of the Puerto Vallarta chapter of AMPI (after serving as Vice President under different Presidents for 15 years); and is AMPI certified in both the US and Canada, as well as a member of the NAR. She is a proud Certified International Property (CIP) specialist – an achievement only attainable after intense training in real estate in markets all over the world. This article is based upon legal opinions, current practices, reporting from FBS MLS of AMPI members, and personal real estate experience in Puerto Vallarta since 1997. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review. Contact Harriet at email: email@example.com.