Buying That Dream Home -- In Mexico

Buyers see property in Mexico as both an attractive investment and a great asset, given that they view Mexico as a relatively safe and stable nation, says Gleeson. "Property values have been going up steadily every year for the past five years. Values do not climb at the pace they do in the U.S., but they also do not skyrocket to overvalued levels leading to a bubble," he adds. "The pace of Mexico real estate appreciation is healthy in most areas."

Americans are attracted to newly redeveloped areas along the Baja California peninsula, such as Ensenada, La Paz, Loreto Bay and Bahia de los Angeles. But they also continue to purchase residences in traditional locations such as San Miguel Allende and Lake Chapala (near the City of Guadalajara, and Cuernavaca near Mexico City), says Jorge A. Vargas, a University of San Diego law professor who is an expert on Mexican real-estate law.

CB Richard Ellis(CBG Quote), a global real estate services company, ranked Puerto Vallarta, Cancun, Ensenada-Rosarito, Acapulco, Puerto Peñasco, Los Cabos, and Mazatlan as the most popular residential sales locations. The company's study calculated that 70% of the first-time buyers are foreigners, principally Canadian and U.S. citizens. The rest are Mexican citizens.

"Many Americans are rushing to invest in coastal areas, especially in Baja California," says Vargas, who penned a paper this year called "Acquisition of Real Estate in Mexico by U.S. Citizens and American Companies."

But there are drawbacks. Vargas adds that sellers aren't fully disclosing to American buyers potential environmental and structural issues, such as the limited water supply along the Baja California peninsula or the lack of proper sewage systems, which can lead to illegal discharges of sewage in areas where the developments are located.

"Most of these brand new real estate coastal developments are starting to have serious defects," he says. "The peninsula has very limited and few underground aquifers. If these developments continue at a very high pace, it is likely that the aquifers will be exhausted sooner than later, thus creating very serious problems for their occupants. Maybe in 50 years or less the peninsula will exhaust all of the limited water deposits and this may become an international problem for Mexico."

Some wary buyers have also been querying real estate agents more about how the dollar losing value against the peso might affect home appreciation values. But at least on that score, even though the peso has been increasing in value relative to the dollar, the change might not be impeding the market very much. "Sellers set their prices by the dollar," says Couture, "and there is little correlation to how the peso is doing."