Introduction to the Luxury Housing Market in Mexico
The luxury housing segment has been one of the most stable sub-sectors in Mexico’s real estate market. However, after years of growth driven by low-interest rates and increased investor interest, the sector is now showing signs of realignment. Inventory has decreased, and high-value units face slower turnover.
Expert Insights from Gene Towle, Softec Director
Gene Towle, director of consulting firm Softec, explains that the key to this market will be more compact projects, better targeting, and more efficient processes to cater to discerning consumers.
“Between 2014 and 2018, as interest rates dropped, the volume of sales increased significantly. Many investors entered the market to buy these high-end properties. Now, those investors have left, and markets are returning to normal volumes,” Towle commented.
Defining Luxury Housing in Mexico
According to the National Housing Commission, the residential segment starts at 5.1 million pesos. However, Towle suggests that a property can be considered luxurious starting at around 100,000 USD (approximately 2 million pesos), as only 20% of Mexico’s population can afford such properties.
The primary urban centers with this type of offering are Mexico City, Cancun, Guadalajara, Monterrey, Queretaro, Merida, Puerto Vallarta, Mazatlán, Tijuana, Puebla, and Los Cabos, as per Softec’s data.
No Imminent Crisis, but Inventory and Sales Need Attention
Towle emphasizes that there’s no risk of a crisis in this residential segment. However, developers must expand their inventory to meet the existing demand for these high-end homes.
“The main risk I see today isn’t a drop in demand, but developers not replacing what’s already sold. You can’t sell what you don’t have. If inventories continue to fall, sales will inevitably drop, not due to lack of demand but lack of available product,” Towle noted.
Slower Sales in High-Value Range
Gabriela Serrano, project manager at Agwa Bosques and Up Santa Fe in Desarrolladora del Parque, explains that the segment above 5.5 million pesos hasn’t recovered its pre-pandemic sales pace due to slower unit turnover requiring different planning.
“This segment, above 5.5 million pesos, hasn’t recovered to the sales rates before the pandemic. The absorption is slower because high-value housing implies a buyer with higher income,” Serrano explained.
In response, some developers have chosen to downsize projects to maintain reasonable margins in extended sales periods.
“We know luxury housing will sell, but it will take more time. That’s why we’ve decided to develop smaller, more exclusive projects that allow us better control over sales times and project performance protection,” Serrano added.
Financing Access: A Crucial Factor
Alongside location and design, access to financing remains a key driver for moving high-end properties. Serrano estimates that about 70% of residential purchases (between 3 and 5 million pesos) are made with mortgage credit, though premium ranges require much higher income proof.
“Typically, banks lend 80% of the property’s value, but you need to prove income that triples the monthly payment. If you’re paying 20,000 pesos a month, you need to prove income of at least 60,000 pesos,” Serrano detailed.
Challenges in Expanding Luxury Housing Offerings
One major hurdle in expanding luxury housing offerings is bureaucracy, particularly in cities like Mexico City, where permit and license acquisition times have doubled in recent years.
Key Questions and Answers
- What is considered luxury housing in Mexico? According to Gene Towle, a property can be considered luxurious starting at around 100,000 USD (approximately 2 million pesos).
- Why are luxury housing sales slowing down? Gabriela Serrano explains that the slower unit turnover in high-value segments requires different planning, as buyers typically have higher income levels.
- What role does financing play in luxury housing sales? Access to financing is crucial, with around 70% of residential purchases (between 3 and 5 million pesos) made with mortgage credit. However, premium ranges require higher income proof.
- What challenges does the luxury housing market face? Bureaucracy, especially in cities like Mexico City, poses a significant challenge due to extended permit and license acquisition times.
