Well, it appears as though the effects of the mortgage crisis in the US which began in March, 2008 followed by the collapse of the stock market in October, 2008 are finally being felt in Puerto Vallarta. Thanks to the strong Canadian Dollar, tourist expenditures in Vallarta for goods and services, including retirement real estate, held up fairly well for most of 2008. However, during the September/October timeframe, the Canadian Dollar plunged by more than 20%, thus reducing the Canadian purchasing power accordingly. Consequently, both the Americans and Canadians are now hesitant to aggressively invest in anything, especially foreign retirement properties.
The airplanes and cruise boats packed with tourists continue to arrive daily in PV; however the visitors are much more thrifty and prudent with their purchases than they were a year ago. Many of the restaurateurs and shop owners are claiming that sales are down from last year by as much as 30-40%. The construction of new condominium projects has also noticeably decreased as new sales slow to a trickle.
During the past ten years, Vallarta has literally been a boom town with explosive growth and new construction everywhere. Obviously, many of the developers and entrepreneurs failed to see the oncoming global financial crisis and committed to many long term construction projects resulting in a glut of more than 7,000 new condominiums now on the market.
Finally, with the supply of goods and services, including retirement properties, currently exceeding demand, we are now witnessing a true buyer's market in Vallarta. Even though list prices for real estate have not dropped noticeably, the developers and sellers are much more apt to negotiate than they were a year ago. The same is true for store merchants and other vendors in the area.
Okay, now that we have a better understanding of how the economy in the US and Canada have affected business in Vallarta, we should have a better appreciation for the North American bargaining position in this beautiful resort destination. Therefore, let's take it a step further. With the exception of real estate, most all other goods and services in Puerto Vallarta are sold on a Peso basis and therefore we must consider the monetary exchange rate.
The Mexican Peso has held steady with the US Dollar for more than ten years, averaging about 10.5 Pesos per US Dollar. It wasn't until late 2008 / early 2009 when the Peso precipitously devalued to about 14.5 Pesos per Dollar resulting in a 35% increase in the value or purchasing power of the US Dollar relative to the Mexican Peso. (Please see GRAPH)
For those of us fortunate enough to still be holding a few US Dollars, almost all goods and services in Mexico just went on sale! For example, we recently purchased a high-end brand name washer/dryer set, normally priced at $1,300 US, for $1,015 US. Most all grocery and food products, clothing, hardware, and electronics manufactured in Mexico, gasoline, electricity, and other native commodities are also 35% less expensive to those of us holding US Dollars.
Through inflation over time, the costs of these Mexican products will eventually rise until they return to where they were only a few months ago. The one category where costs will rise much more slowly is that of labor. Almost every worker in Mexico just took a 35% reduction in wages relative to the US Dollar! That includes all maids, gardeners, restaurant and store employees, taxi drivers, doctors, architects, engineers, etc. It will probably require several years for the Mexican labor rates to be equivalent to where they were only six months ago.
One very important labor group is that of the construction workers which represents a significant portion of the total cost of retirement residences, all priced in US Dollars. Add their 35% cut in pay to the cost of Mexican concrete and other native materials which also dropped by 35% and you can imagine how that will affect the completion costs of the thousands of condos currently under construction!
Now, with the demand for goods and services reduced relative to their supply and the US Dollar being 35% stronger, you can see the benefit of shopping in Paradise at this very moment; the time for buying your retirement dream could never be better!
As Billy Mays, the famous TV pitchman would say, "But wait, there's more"! Yes, aside from the 35% savings associated with the Peso devaluation and an increase in willingness of the local vendors to negotiate lower prices (caused by the reduction in tourist consumption brought on by the uncertain US economy and the devaluation of the Canadian Dollar), effective in June, 2008, you now receive a rebate for the 15% IVA tax that you pay on many of your purchases while visiting Mexico.
The 15% IVA or Value Added Tax (VAT) is returned to foreign tourists who can prove they have spent a minimum of 1,200 Pesos (approximately $90 US Dollars) on Mexican territory and who are returning home by sea or air. Tourists now have the right to receive up to 50% of the net rebate, an amount not to exceed 10,000 Pesos (approximately $750.00 US Dollars), in the form of cash; the remaining 50% will be refunded via electronic funds transfer within a period of 40 days.
In conclusion, after being exposed to the past year of economic frustrations, you deserve to escape from the prevailing gloom and doom. If you have ever considered traveling to or retiring in Paradise, now is the time and Puerto Vallarta is the place! You will find many great values on everything this season; values that have not been seen for almost a decade and may not be available again in the near future. As Billy would say, "Why wait, pick up the phone" and call your travel agent. The weather is guaranteed to be perfect during the months of November through May, the scenery of the Pacific Ocean, the sandy white beaches, and the Sierra Madres is world class, the margaritas are ice cold, and the Mexican hospitality is second to none. So, come on down; you'll find bargains galore while enjoying the time of your life on the Mexican Riviera!
Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past twelve years. The mission of his series of 61 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico. For the full series of articles regarding travel to and retirement in Vallarta as well as pertinent Puerto Vallarta links, please visit us at PVREBA.
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