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Americans Stake Claims in a Baja Land Rush
The New York Times | October 26, 2003 | TIM WEINER,

"For Sale" signs are sprouting all over the 800-mile-long peninsula, offering thousands of
beachfront properties. Americans are snapping them up. They have already created communities
where the dollar is the local currency, English the main language and Americans the new
immigrants transforming an old culture.

"Everything's for sale, every lot you can imagine," said Alfonso Gavito, director of a cultural
institute in La Paz, the capital of Baja California Sur, a state with 400,000 citizens and some of the
last undeveloped beaches in North America. "It's like 20 years of changes have happened in three

This new land rush, involving billions of dollars, tens of thousands of Americans, and hundreds of
miles of coastline, is gaining speed despite the fact that Mexico's Constitution bars foreigners
from directly owning land by the sea.

Mexico's government wants foreign capital as much as Americans want a house on the beach -
maybe more. So it worked around the Constitution. In 1997, it changed the law to allow foreign
ownership through locally administered land trusts. A Mexican bank acts as trustee, the foreigner
its beneficiary.

It took about four years before that new system worked smoothly. But now, most often, it does.
One result has been a boom in migration, speculation and permanent vacation. "It's human greed -
it's human nature," said David Halliburton, who owns a hotel outside Cabo San Lucas, on Baja's
southern tip, where uncontrolled growth already strains the social fabric. "The amount of money
coming in here through overzealous developers and buyers is staggering."

Baja is closer by land and air to the United States than it is to the rest of Mexico; state officials
recorded more than 30 million trips by Americans who spent well over $1 billion last year. They say
they have no idea how many Americans are living in Baja today, because a certain number are
illegal immigrants who never register their presence. Anecdotal and statistical evidence suggests
that the number is more than 100,000, probably far more, and growing fast since the Sept. 11
attacks and the souring of the economy in the United States two years ago.

Loreto Morquez labored at a development in Cantamar, on the Pacific coast of Baja. The
development is so new that it does not have finished houses yet.

"Since 2001, we have seen a boom in real estate sales, and the full-time population of Americans is
growing rapidly," said Tony Colleraine, an American in San Felipe, about 160 miles southeast of
San Diego. He said about one-quarter of the town's roughly 30,000 residents were Americans,
many of whom want to "get away from the regulations and rhetoric, and get out of the bull's-eye" in
the United States.

In Rosarito, an hour's drive south of the United States border, about one-quarter of the 55,000
residents are Americans.
"An increasing number of Americans are moving here to escape their
government's policies and the costs of living," said Herb Kinsey, a Rosarito resident with roots in
the United States, Canada and Germany. "They find a higher standard of living and a greater
degree of freedom."

At least 600,000 Americans - again, an acknowledged undercount based on government records -
are permanent residents of Mexico. That is by far the largest number of United States citizens
living in any foreign country.

Americans living throughout Baja say their new neighbors include professionals in their 30's and
40's putting down roots, not just retirees in recreational vehicles. In Rosarito, the new home
buyers include lawyers and members of the military who commute across the border to San Diego,
where housing costs are about five times higher. A pleasant house by the Pacific in Rosarito can
cost less than $150,000; property taxes are about $75 a year.

Alfredo López worked on a condominium last week at a development on Mexico's Baja Peninsula.
Slowly but surely, the peninsula is becoming an American colony.

The Americans living in Rosarito set up a municipal office in April. Two members are Ed Jones, an
entertainer, and Rita Gullicson, a teacher. Americans "want to claim Baja as part of the United
States, and they always have," Ms. Gullicson said. Mr. Jones finished her thought, saying, "And
now they are doing it with money."

Baja's future, Mexican officials say, lies in American land investment. The government strongly
promotes foreign direct investment, which is the only reliable source of economic growth in

Here in the empty streets of Nopaló, the future is coming on fast. A totally American town is about
to be built.

The site of a failed government-backed tourist development, Nopaló, which means "place of
vipers," lies just outside the town of Loreto, founded in 1697, population 11,000. American and
Canadian developers plan to build 5,000 new homes for 12,000 fellow citizens.

Their master plan depicts a particularly affluent suburb, with houses selling for up to $2 million
each. The developers plan to break ground in January. They envision a $2 billion investment over
15 years.

"People will come by the hundreds of thousands" to Baja, said one of the developers, David
Butterfield. "Mexico gives you an opportunity to build something you cannot build in the U.S. or
Canada today. You cannot build great things in America today. Regulations and litigation prevent

There are limits to change in Baja, too. They are set by nature. It rains five inches a year or less in
many parts of the peninsula. A barrel of water here is effectively worth more than a barrel of oil,
and it takes many millions of gallons to sustain a golf course, much less a suburb.

There is no drinking water in Loreto - it is piped in from 16 miles away - and no place for thousands
of construction and service workers to live. Many Mexicans wonder if the new community will truly
be the "sustainable development" its backers promise. "I'm not sure there's anyplace in the
modern world that's sustainable," Mr. Butterfield said. "I hope we're going to create one."

Homero Davis, Loreto's mayor, supports the project, somewhat warily. "The quality of life is a moral
issue here," he said. "The culture is at stake. We don't want to be like Cabo San Lucas," where
hotels and condominiums have swamped what was once a little village.

But that scale of development is precisely what Fonatur, the federal agency that promotes tourism
in Mexico, has in mind for Loreto and the rest of Baja.

Fonatur, which conceived and built mega-resorts like Cancún, envisions marinas for American
yachts, four-star hotels and fancy golf courses ringing the peninsula in a plan called the Escalera
Náutica, or Nautical Ladder, which involves $210 million in public money and hopes for $1.7 billion
in investment from developers.

"The whole premise of the Escalera Náutica is to create a land rush, and I'm not sure that's good
for anybody," said Tim Means, who has lived in La Paz for 35 years and runs a respected
ecotourism outfit called Baja Expeditions.

Baja was isolated from the outside world until the government paved a road through the peninsula
in the 1970's and 80's. The road connected Baja more closely to the United States than to the
Mexican mainland. That connection is deepening as more and more Americans move here. So is a
sense of remoteness, of difference, from the rest of Mexico.

"People on the mainland don't know we exist," said Doris Johnson, the daughter of a Mexican
mother and an American father, who runs a hotel in Mulegé. "They ask, `Do they speak Spanish in
Baja? Do you need a passport to go there?' "

Ms. Johnson wonders what will become of Baja as it becomes more and more of an American
place. "We have our own culture here," she said. "But we don't have much influence over what's
changing our culture."
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Mexican Housing Markets Boom, Leads Latin America Despite Crisis in United States
AP:  Sunday January 20,
By Theresa Bradley, Associated Press Writers

MEXICO CITY (AP) -- In her bustling corner real estate brokerage, Ana Laura Pulido is doing her
best business in years, enjoying a sort of Mexican immunity from the U.S. housing crash.
"It's a time of hope," said Pulido, who has sold hundreds of homes to middle-income families
since 1992. "The buyer today is more aware. People buy with more ease. They can plan long-term."

Long thrashed by swings in the U.S. economy, Mexico now boasts a thriving housing sector
whose record growth leads Latin America -- a sign of increased economic stability and an outlet
for investors looking to escape the U.S. downturn.

Giants including the California Public Employees Retirement System, the largest U.S. public
pension fund, are already bankrolling projects in Mexico, where they see "more bang for the
buck," said Clark McKinley, spokesman for CalPERS, which has invested more than $300 million in
Mexican real estate funds.

The trend could even slow emigration from Mexico, by generating millions in jobs and personal
savings as a fresh supply of loans gives many their first chance to own a house.

President Felipe Calderon has set a national goal of a million new mortgages a year by 2010. On
Monday, he unveils a set of measures to ensure growth continues, with plans to boost Mexico's
small resale market and combat the urban sprawl that has begun to carpet valleys with hundreds
of thousands of matchbox rowhomes.

Behind the boom are six years of economic growth and stability, and a national shortage of 6
million dwellings. While interest rates are falling, just 6 percent of Mexico's 25.7 million homes
are financed with mortgages -- compared to about 67 percent in the U.S. Most Mexicans inherit
their homes, buy them with cash, or build them by hand.

That pent-up demand in a nation of 108 million means lenders can be choosy, enforcing strict
standards that held delinquency rates below 4 percent in third quarter-2007, compared to 5.6
percent in the U.S.

"Mexico is in the early stages of expansion," said Juan P. De Mollein, managing director for Latin
American structured finance at Standard & Poor's. "There are still plenty of points for evolution
because there's still plenty of demand."

In the U.S., lenders looking to expand their portfolios granted risky mortgages to borrowers with
weak credit, but in Mexico, that "subprime" category doesn't exist, because lenders don't need it
to grow. Also, few Mexicans flip homes or refinance mortgages, keeping the market stable.

"Mexico doesn't have a credit issue. We can still choose our borrowers because demand is so
great," said Mark Zaltzman, chief financial officer at Su Casita, one of Mexico's largest mortgage

A recession north of the border could choke U.S. investment in Mexico, curbing job creation,
discouraging new homebuyers and stalling housing growth.

But that won't likely lead to mass layoffs and defaults, said Rafael Amiel, managing director for
Latin America at the financial consultancy Global Insight. Mexico simply has too much room for
growth, and expanding local markets have insulated it somewhat from U.S. downturns.

Housing demand could swell more as migrants are pushed home by the souring U.S. economy
and crackdown on illegal immigration -- generating four new jobs for every home raised, said
Carlos Gutierrez, Mexico's housing policy director.

All this represents a major change from 1994, when Mexico devalued the peso, sending inflation
and interest rates soaring, forcing homeowners into default and pushing banks to the brink of
collapse. Credit was so tight that most Mexicans paid cash upfront or constructed their own
homes, often adding one room at a time.

Since then, Mexico has seen a housing recovery built on a mix of government initiatives, private
investment and a winning gamble by a new group of entrepreneurs who took a local approach to
mortgage lending, using knowledge of family and neighborhood connections to make sure loans
got paid.

Rather than build public housing, the government restructured mortgage-lending laws, setting
stricter credit guidelines, standardizing appraisals and urging lenders to raise cash on financial
markets. It also overhauled Infonavit, a public agency that grants more than half Mexico's
mortgages, funded by a 5 percent payroll tax. Some 20,000 jobs were outsourced as the agency
more than doubled new loans to 458,700 in 2007, director Victor Borras said.

When commercial banks ran for the border, a new kind of lender stepped in, known as "sofoles"
for the Spanish acronym of "limited financial association."

Taking advantage of Mexico's tight family ties and government credits, these nonbank mortgage
lenders set up neighborhood offices, required relatives to co-sign loans and collected late
payments door-to-door, proving profits could be made.

Banks have since returned, and blossoming competition drove average 15-year mortgage rates
to 12.5 percent in November -- a deal in Mexico, where rates topped 65 percent in 1995.
Construction is booming too, as just 30 percent of new homes were self-built by their owners last
year, down from 50 percent in 2004, Gutierrez said.

While big banks target higher-income borrowers, sofoles are now pioneering mortgages for
street vendors and taxi drivers, who work in the huge informal economy without documented
salaries or credit histories. Sofoles study spending habits to establish their income, offering trial
payment periods to prove borrowers can afford payments on entry-level homes that range from
$17,000 to $37,000.

Another huge potential market is the estimated 11 million Mexicans in the U.S., who can now buy
"cross-border" mortgages to pay off homes in Mexico, giving them more control over the
earnings they send relatives and cutting the time they need to work in the U.S. to build a future
back home.

Even as home lending soars, overall debt remains low, making a Mexican credit bubble unlikely.
Major mortgage insurers, including U.S.-based AIG United Guaranty and Genworth Financial, now
back Mexican loans, slashing risk and making it easier for lenders to bundle and sell debt to
investors as mortgage-backed securities -- raising capital to grant yet more loans.

Nearly $5.8 billion of these securities have been sold since 2003, offering investors an
alternative to tumbling U.S. markets and giving Mexico's nascent pension funds, which have
relied on lower-yielding government bonds, a place to store assets long-term.

Mexico's housing sector is still full of risks, including land ownership disputes, infrastructure
delays and limited access to water. The emphasis on private building has concentrated
developments in wealthier states, while masses of poorer people still live on dirt floors.

Even so, millions of first-time homebuyers now have an asset to leave their children, or to use as
collateral to finance future spending, fueling growth.

"I always had in my head that the only thing you can give your kids as inheritance is an education
and a house," said Antonia Correa. The 37-year-old receptionist paid $7,200 down on a
three-bedroom stucco townhouse in a sprawling new development in Cuautitlan, outside Mexico

"You could be short on things," she said. "But a roof is the best. It's your world, your home."

Source: AP
Mexican Housing Booms Despite US Crisis
Sunday January 20, 1:39 pm ET
By Theresa Bradley, Associated Press Writers  

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