11 September 2008 261 views No Comment

During the first week of June, 2008, in the quaint Oaxaca suburb of Loma Linda, there were 12 new homes under construction and four building lots for sale … all within about six blocks. Colonia Loma Linda is one of the booming residential neighborhoods in the city of Oaxaca.

One of the strongest markets in Mexico

It was recently reported that Oaxaca has one of the five strongest markets in the country for real estate sales and investment. Initially this might seem surprising, and in fact nonsensical given the bad hit the city took in the latter half of 2006 as a consequence of the civil unrest, and its effect on the economy of the region … Oaxaca relies entirely upon tourism for its existence. It’s been suggested that misleading media reporting of two years ago has resulted in a resolve on the part of both government and residents of the city to bounce back, better than before.

The fact that residential real estate values for prime land continue to rise at the rate of approximately 20% per year suggests that something positive is afoot in the region, at least in the eyes of investors and would-be residents and business operators.

Oaxaca real estate agent Fernando Lizardi can’t comprehend the phenomenal growth. During a recent interview at a local lunchtime haunt he confessed: “I can’t figure it out, but Oaxacan landowners seem to know what they’re doing. Somehow their land gets sold and houses get built. And if a piece of land or a home doesn’t get sold after a while, what does the owner do? He raises the asking price, something unheard of in the US.”

Prospects for future growth

Certainly the opening of the toll-road from Mexico City to Oaxaca in 1995 has had a gradual impact on land values, with more visitors to the state capital than previously. Some believe the trend will not only continue, but that we may witness exponential growth, with a new highway currently under construction which will dramatically reduce travel time from Pacific beach resorts such as Huatulco and Puerto Escondido, to Oaxaca. More sun and sand vacationers will be heading to the city to spend their tourist dollars on the region’s diversity of crafts, renowned cuisine, accommodations, and tours taking them to Zapotec ruins, town marketplaces, Dominican churches and more. It appears that merchants in other parts of the country are anticipating the influx, buying up land with a view to embarking upon or expanding travel industry related operations.

Homebuilder Joaquín Solís Altamirano is similarly surprised at the strength of prices in the residential real estate sector around the city. Solís, with an M.A. in civil engineering from London School of Economics, is a partner in a full-service design/build company known as URBIC. He works closely with architects, lawyers and notaries, and different branches of government. He’s been building homes in Oaxaca since 1992, and before then in Mexico City.

Solís is building a new home for a European couple in the centro histórico (downtown), not an easy task by anyone’s estimation. From Lizardi’s perspective, there’s no shortage of American and Canadian clients, his niche market, for downtown sales and development. It’s what they’re looking for that’s the problem: “Most want to buy in the centro histórico, where there’s very little available,” Lizardi laments. “And when something does come up for sale, it’s a property that just doesn’t cut it with the tastes and lifestyles of ex-patriots. In the past, Oaxacans tended to build homes with several small rooms, low ceilings, and little concern for aesthetics which would pique the interests of non-Mexicans. Accordingly, major renovations are now invariably required.”

Dealing with government regulation

According to Solís, acquiring construction permits in this part of the city can be a lengthy and frustrating process, for a couple of reasons. He explains: “Firstly, while there is only one application to be submitted, it must be approved by both federal and local governments. Secondly, although a regulation stating that you must respect the city’s colonial architecture might seem straightforward enough, the problem is with its application. Details are not always spelled out, and can be open to interpretation. The authorities, if they’re so inclined, can even pass judgment on your choice of colors … for the interior of your home. Simply put, the rules are poor.”

Solís believes that as long as you appreciate colonial styling, and are prepared to be flexible and make relatively modest changes to your plans, in the end you’ll be fine. He does find it curious that in old-world cities such as Paris, post-modern construction, at the vanguard, is permitted, but not in downtown Oaxaca. He concludes, however, that as confusing as the regulations are, and despite their inconsistent interpretation and application, in the end Oaxaca’s centro histórico will maintain its colonial charm, and continue to be a draw for tourists and ex-patriots alike.

The suburbs

In the suburbs and nearby villages, by contrast, it’s a different story in terms of availability of properties and building restrictions. There are several contemporary homes for sale, as well as serviced lots on the market from anywhere between 500 and 3000 pesos a square meter, depending on, of course, location. A survey of new home sale prices in Loma Linda confirms that prices are in the range of 2 – 2.5 million pesos. According to Solís, construction costs approximate 3,500 – 5,500 pesos per square meter, depending on quality of finishes. The attraction of many ex-pats to domestically produced materials such as talavera tiles, clay and adobe bricks, and locally-mined cantera stone, tends to keep total price in the lower range of the scale.

“It’s not surprising about Loma Linda,” Lizardi notes. “It’s only a 10 – 15 minute drive from downtown, public transit is virtually at your doorstep, most lots are now serviced and on paved roads, and ownership is private.”

Private ownership versus communal ownership

Any notary public worth his weight in tortillas will tell you that private ownership is the preferable way to go, all other things being equal, as opposed to buying ejidal or communally owned land. But some foreign buyers have either an unwavering confidence in the future of privatization, a belief that nothing untoward will happen to their holdings or their ability to build, rent and/or develop if not held privately, or a preference for buying larger tracts of land as economically priced as possible and then dealing with issues as they might arise. “It’s just a matter of your comfort level when your home or investment is in a country you’re not 100% familiar with, and how you view peace of mind,” Lizardi surmises.

Apart from Loma Linda, other hot residential areas around Oaxaca, especially for acquiring land and building, are Guadalupe Victoria, San Andrés Huayapan and San Felipe del Agua. There has been a recent influx of ex-pats into the latter two neighborhoods.

Solís is also building a home in San Andrés Huayapan, for an American, on communally owned land. “With relatively low land costs, improved and faster access to the city over the past several years, and an open, tranquil, clean-air environment, many continue to choose this village,” he continues. “However, it can be a much more laborious and precarious process dealing with communal authorities in Huayapan, than in downtown Oaxaca, or in suburbs where land is held privately and restrictions are pretty well non-existent. You have to remember that in Huayapan, and even in parts of upscale San Felipe del Agua where land prices are extremely high, you’re effectively dealing with village elders with a great deal of control, and agrarian land holding systems which in some cases pre-date The Revolution. I always give my clients a step-by-step guide to buying land in Oaxaca which is not privately held. As long as each step is followed, and that’s the land ownership the client wants, he’ll be fine.” He concludes, almost jokingly: “And remember, if you buy communal land, your home is effectively protected from creditors.”

Most of us who have bought, sold, built or otherwise transacted real estate in the Western World, are accustomed to predictability. We have expectations which are rarely not met. At least in the case of Canada and the US, we’ve been exposed to only two land holding systems, registry and land titles, each of which is very clearly regulated. Their difference is more a matter of how the attorney’s administrative tasks proceed. As purchasers and builders we’re usually oblivious to such distinctions, because we generally don’t need to know. If only it were so easy in southern Mexico.

In Oaxaca, for those with laidback personalities, communal ownership might be the way it go, especially if your interest is more in the nature of buy and hold, and pure investment. Downtown properties, with their unique set of hurdles, are similarly attractive to the speculator who might be personally divorced from the process, not seeking a home in which to live, or to would-be residents who approach their choice of neighborhood with open eyes. As a prospective downtown resident, patience is the operative word. For the rest of us who are contemplating buying and building in Oaxaca, seeking a relatively stress-free existence, acquiring privately owned land within 15 or 20 minutes from downtown would appear to be the best choice.

Regardless of which option you choose, as long as you make an informed decision, and only sign that purchase agreement after you’ve learned what you could be in for, you can’t go far wrong. With the Oaxaca real estate market continuing to grow at least at its present pace, you’ll have a good, sound investment. More importantly, you’ll be able to sit back after all is said and done, in a home you could only have dreamed of owning north of the border.

Alvin Starkman received his Masters in Social Anthropology in 1978. After teaching for a few years he attended Osgoode Hall Law School, thereafter embarking upon a successful career as a litigator until 2004. Alvin, a good-standing member of the Law Society of Upper Canada, now resides with his wife Arlene in Oaxaca, Mexico, where he writes, leads small group tours to the villages, markets, ruins and other sights, is a consultant to documentary film companies, and operates Casa Machaya Oaxaca Bed & Breakfast (http://www.oaxacadream.com), providing the comfort and service of lodging in a Oaxaca hotel, with the personal touch of a small country inn.