As the U.S. economy slows down and a recession appears to be eminent, global markets are being affected. The signs of a downturn are already showing up in Europe, Asia and elsewhere, and it is certain that this negative trend will affect the Mexico real estate scene as well. While it is hard to predict exactly at this moment the magnitude of the tremor, it is going to be big. To compare it on Richter scale, it will be somewhere between 7 & 8 (California’s Northridge earthquake was 7.9).
Considering that 80 percent of the new developments and units in Mexico built in the last 10 years were snapped up by Americans, the fact that most Americans purchasing Mexico properties were using equity loans on their existing U.S. properties, and we know what is happening with those equity loans now in the U.S., it is safe to assume that the once hot demand for Mexican real estate will in the foreseeable future temporarily cool down. What this means is that numerous projects and developments that have just started or were just about to start in Mexico, basically relying on advance pre-construction money from potential customers and using very little of their own limited capital, will suffocate. Many of those under-financed developers will abandon the projects and go belly-up with bankruptcies to many to count. The severe consequence of this will impact numerous American and other foreign investors who will lose their investments and will turn negative towards Mexico. Even those developers with plenty of cash reserves and reserve capital on hand, will have to put their ambitions on hold. All projects will need to be halted until better times show up in the future. That’s anyone’s guess how long they will have to wait for this crisis to blow, but some experts predict 18-24 months is a realistic prognosis.
All of the above factors will affect the balance of importance between buyers and sellers, and subsequently between brokers representing each of these categories. Needless to say, there will be many more sellers, more inventory offered than buyers can absorb, thus creating an enormous importance of buyers and buyers’ brokers and agents. Agents and brokers who will be producing the buyers will be much more valued than agents who have listings and who are representing the sellers. This will ultimately lead to imbalance and non-evenly split sales commissions between the listing brokers and brokers representing the buyers. While under normal circumstances the commission was usually split 50/50 between them, buyers’ brokers will now rightfully demand more and a larger share of the commission pie. It is a simple law of economics that will make it more difficult to find and produce qualified buyers than to find suitable properties.
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