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Differences in New Development Projects in Mexico  

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Puerto Vallarta Condo
Credit: Harriet Murray

There are differences in new development projects in Mexico compared with the United States. Today, I would like to explain how it is done in Mexico.

Money

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 condo construction are bought for cash from the buyers and the developer builds 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 have the experience and financial strength of the developer builder. This leaves the buyer the responsibility to conduct due diligence on his/her own.

Project

The project will have to 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. Or the developer will appeal to the municipality for a permit to be bigger or taller if the site does not take the views of persons just above the project.

Legal

In the State of Jalisco, the condo regime that establishes the legal entity is done after construction is completed and when 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 and world economics can affect the demand for the development.

Monetary differences in the Mexican pesos versus the U.S. dollar or Canadian dollar historically have given the developer many pesos to pay for construction, and to be a cushion against cost overruns.

Foreclosure

If there is no loan on the property and the project stops, there will be no foreclosure process. The project will need funds of the developer or additional funds from some source. The problem will be to finish the project and how the funds will be provided.   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.

It is interesting to note that we have current product because of Mexican developers. They have come into the market and built without needing to prove to lenders there was a market for a new real estate product. The engine driving the train the past five years has been the successful sale of over 900 new condos in a popular part of town.

The current developers (and those coming), as well as the city, are responsible to stay on top of the issues and not overbuild product or corrupt the infrastructure.

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas.  I recommend that each potential buyer or seller conduct his/her own due diligence and review.

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