Los Cabos Is Governed by Lifestyle, Not Interest Rates: A Conversation With Raul Lopez
Changes in interest rates for primary homes are affecting the U.S. and Canada markets. Nevertheless, prospective buyers in Los Cabos are driven by the area’s unique lifestyle. They are looking for either a secondary vacation home or an investment property. The covid pandemic has resulted in a permanent shift to remote work. This has increased even more the appeal of Los Cabos, where the weather is warm, the sun shines 350 days a year, and there is easy access from many major American and Canadian cities. While the long and short term vacationing population worldwide is growing, the supply for properties in prime beach destinations like Los Cabos is not keeping up with the demand. Whether you are looking to move to Los Cabos or in the market for a vacation rental property for investment, the longer you wait the more you will pay. Los Cabos Sotheby’s International Realty real estate professional Raul Lopez explains how our market is mainly moved by permanent lifestyle changes impacting supply and demand, rather than by interest rates. Keep reading to get the expert perspective!
Villa Cielito del Mar is the epitome of the Los Cabos lifestyle. Available for vacation rental with Pisces Luxury Collection.
Q: Due to covid, many buyers have downsized in their home markets and are looking to buy in second-home markets like Los Cabos. Often, they remain here for longer periods than before, and areas that used to be secondary markets are now, in practice, primary home markets. Do you think this is the case in Los Cabos?
A: The pandemic forced people to work from home and the office became derooted from physical locations. It became a virtual place, and a lot of people wanted to move out of places like Chicago, Colorado, New York, or even California, where it's cold in the wintertime. Those are natural markets for us in Los Cabos. Then, as covid started to subside, many workers stayed remote. These potential buyers have often chosen to enter long-term rental arrangements in Los Cabos. Once they've done that and seen the region’s beauty, they decide to relocate and buy a primary home, or maybe purchase a secondary home that they can use also to vacation part-time and to rent out the rest of the time, through property managers like Pisces Luxury Collection. Given the expansion of possibilities to work remotely since the pandemic, Los Cabos, with its great weather and fantastic lifestyle, is a great market for the U.S., Canada, Mexico, and other countries.
Q: Do you see this shift happening among your clients – that is, are they staying in Los Cabos for longer periods of time than before, and if so, do they eventually buy property here?
A: Definitely. I come from the timeshare industry, where I worked for 42 years. Many of my clients have become my friends, and they often ask me, “Raul, I really like Cabo after coming here for the last six or seven years, and I want to buy a home.” My advice for them at that point is, first of all, it's very different coming here for a two-week vacation than coming here for six months out of the year. So, I suggest they rent a place for the long-term first, and if they really like Los Cabos, then go ahead and purchase a property. My experience is that 95 percent of them, after being here a few months, decide to go ahead and look for a property to purchase. Vacationing in Los Cabos and having a long-term experience here is a natural way for people to get the feel of the place and then go ahead and purchase a property.
Casa Chileno (center forefront) is a serene four-bedroom residence situated in the heart of San Jose del Cabo, ideal for those seeking easy access to restaurants, hospitals, and a golf course. Sold in August, 2022.
Q: The increase of people who stay in Los Cabos for longer periods of time has resulted in services here getting better, from hospitals and roads to Internet connection. Things that make it more inviting for people to settle down here. What is your take on the state of community services in Los Cabos?
A: I have been in Los Cabos for 32 years and seen the area grow and develop. Los Cabos grows at the rate of 18 percent a year. That's faster than any other city in Mexico. The influx of people coming to Cabo to live on a permanent basis is increasing. Many of them are foreigners from the U.S. and Canada, some from Europe, some from inland Mexico. These newcomers are used to having top-rate services, and Los Cabos has invested in them as a strategy for success. Restaurants, hospitals, schools, roads, digital infrastructure. All of this has greatly improved during the last few years.
Q: These changes resulting in secondary markets becoming more primary-like have pushed real estate prices up in Los Cabos. What is your outlook on real estate prices in Los Cabos since the pandemic and looking into the future?
A: Since the pandemic prices soared. Everything was being sold at list or over-list. Bidding wars, depending on the property, also occurred. Will that hectic pace slow down? Property prices will not go down significantly. But the influence of buyers will subside a bit. At this point, let me categorize in two parts: the high-end luxury market and the middle income buyers. Luxury buyers have the money, don’t really care about interest rates, and usually pay cash. Now, the person in the middle income bracket that is looking for a second property and maybe has to borrow money in the U.S. to do it, or maybe is paying a mortgage in the U.S. – that person is going to think about it twice. So, the mid-range market below US$1M may slow down a bit. The high-end luxury market will not slow down.
The truth is that Los Cabos is not governed by interest rates. This is a lifestyle market. People who buy in here buy for the lifestyle. And how do you put a price on lifestyle? It's very difficult. It all depends on what you want and what you like. What luxuries are you used to? Are you used to having a yacht outside your house in the marina? Are you used to living with a full staff of chefs, housekeepers, and butlers? We have homes in our inventory for US$8M on the beach. Whoever buys that home is not concerned about what the interest rates are in the U.S. That person is going to come down here and pay cash.
Casa Sofia is located in the tranquil and private development of Cresta del Mar, a short drive away from downtown Cabo San Lucas and close to supermarkets and other convenient stores.
Q: Focusing on middle income prospective buyers, what would you advise them to do with regard to buying a property in Los Cabos, given that the Fed will likely keep pushing interest rates upwards?
A: Some of my clients in that income bracket are saying “Well, the interest rates are higher, and prices will probably go down.” Some of them say, “I'm going to wait for another year and see if the market goes down.” My answer to them is, again, “The market in Los Cabos is governed by lifestyle. The longer you wait, the more it's going to cost you, because the lifestyle here is becoming more and more desirable everyday.” Investing now is the smartest way to go. It is a matter of supply and demand, really. Demand for real estate in this very coveted region will remain high. So high, that supply will not keep pace. Thus, prices will keep climbing in the long term, even if there are temporary blips. Here’s something that I often recommend to prospective buyers. If you are thinking about buying a condo in Los Cabos now, it would be a good idea to look at projects in pre-construction. Condos that are already built are scarce, but there are quite a few opportunities in pre-construction that are worth looking at and that can be a sound investment, given an outlook of price growth.
Q: Going back to the economy topic, some analysts say that financial authorities started raising interest rates too late and that inflation is going to be hard to control. We are probably going to have to learn to live with high inflation for some time. Owning real estate has always been a good hedge against inflation. What do you think about that with respect to Los Cabos?
A: It is true that real estate is a safe investment. Everything has its cycles. Things go up and then come down. That is true of real estate, too, but history shows that this is an asset class that continually grows in value. Even though it suffers lows, when the peak comes in, it surpasses the previous high peak. The general trend is upwards. As you said, if inflation is set to continue, then buying assets, hard assets like real estate, is a way of keeping your money safe. True, it’s not liquid money. It’s not like the stock market or cryptocurrency. But it is safe, and if, for example, you're thinking of passing down wealth to your children, real estate is always good. If you enjoy the lifestyle here in Los Cabos and are going to be spending a lot of time here, then buying property is a sound financial move. It is much better than buying a timeshare, for example. You can have a couple weeks a year down here, or a month or two a year, rent it out the rest of the time, let that pay for the property, and amass wealth that you can then leave to the kids, who will have something of value that they can probably sell at a good profit sometime in the future. I am definitely bullish on the real estate market in Los Cabos.
Raul Lopez is a real estate professional at Los Cabos Sotheby’s International Realty. He has made Mexico his home for the last 41 years, of which 32 have been spent in Los Cabos. Raul has held top level executive positions as V.P of Sales, Marketing, and Customer Service in high-end developments. He is an avid golfer and amateur musician. Contact Raul today for more information about buying or selling a property in Los Cabos today.
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