23 September 2008 394 views 3 Comments

“The Mexican economy is strong and can withstand the effects of the crisis affecting the financial sector in the United States,” said Augustin Carstens, Secretary of Hacienda (Mexican Secretariat of Finance and Public Credit), in a statement made to local press September 15 when asked about the effects of the government bailout of Lehman Brothers. He added, “We are fine…and Mexico has a strong economy.”

The effects of the U.S. crisis were felt immediately, however in the Mexican stock market, the Bolsa, which fell that day by 3.79% fueled by the U.S. drop. The Bolsa was closed for the Mexican Independence holiday September 16, and Wednesday’s Mexican Index showed a further contraction of 4.72%. The real estate markets in Mexico, while not found in the dire straits experienced in the U.S. today, have shown significant losses in Mexico for months now, and the repercussions are being felt in major resort locations around the country.

These effects have been reported in areas like Los Cabos, Puerto Peñasco, and the Yucatan Peninsula, areas where American and Canadians make up significant portions of resort area property purchases. Comments from real estate firms from different areas of Mexico (who commented off the record) mention sales drops anywhere from 12-60% in vacation property purchases. For now it seems the days of selling properties to foreigners walking in to real estate offices with suitcases full of cash may become the stuff of real estate folklore. Today, a growing amount of real property sales to foreigners in resort areas is being financed by Mexican and international lending institutions.

Much of these resort areas are now banking on visitors from alternative markets to lighten the sting. One encouraging indicator in the increase in tourism to Mexico from countries other  than the U.S. and Canada. According to a study commissioned by the Bank of Mexico in the first quarter of 2008, the European and Latin American tourism markets continue to grow at impressive rates over the previous year. Brazil sent 81% more visitors to Mexico over 2007, with increases by 64% from Venezuela and Colombia, 33% from Argentina, just over 10% more from France and the U.K., and 13% more from Germany.

The stability of these increases will depend on the relative economic stability of these countries and their purchasing power in Mexico in 2008 and future years. If these alternative markets continue to grow at these or similar rates, we should see a short-term shift in marketing plans from realtors to address these markets. The hiring of foreign nationals to sell and promote these products would be one indicator of Mexico’s intentions.

Author´s Note: On September 17, while addressing the Chamber of Deputies in the Mexican Congress, Carstens partially revised his previous statement, commenting that now there can be “no doubt that the extraordinary phenomenon we are observing (US financial woes) will condition the behavior of our economy and public finances.”