Coming to America: Hector Bustamante is marketing Baja real estate to an eager U.S. market.

Baja California’s housing is pointing at American baby boomers and homeowners with a little equity to invest. The enticements include a good return on investment, reasonable cost of living and affordable health care. But the real courtship is in the location.

“It’s basically the same area except with a line down the middle,” says real estate attorney Pepe Larroque, principal partner of the Tijuana office of Baker & McKenzie, referring to where Southern California ends and Baja California starts. “If you look on a satellite map, you can’t even tell where the line is. So it’s part of the same community.”

Mexico’s housing market has grown over the past five years and though most experts tie the two regions together, Baja is expected to stay hot, despite a cooldown in California.

“It is going to have an effect on the area,” says Larroque, who specializes in real estate and infrastructure and is active in professional communities on both sides of the border. “But the market is going to continue because there is a significant number of people who are going to retire in the next 20 years and living on retirement in California isn’t always possible.”

Hector Bustamante, chief executive of the Bustamante Group, a real estate and marketing firm, estimates that half of his company’s sales are to the California market. Bustamante Group doesn’t broker sales, but rather works in partnership with developers to create the right brand for the right market. He and his father, Luis, started the firm 13 years ago, but only in the last three years have begun to focus on marketing to American buyers. They have good reason: Americans make up to 80 percent of the sales along the Baja coast.

Bustamante’s company estimates $4 billion in projects are being built within this year and the next. The demand for residential properties in Baja California has skyrocketed over the past three years. In 2003, there were 300 new units for sale in communities along the coast of Baja. That number has jumped to nearly 17,000 units, with the average sales price ranging from $129,000 to $500,000, depending on the project and location.

Even with the huge leap in business, Bustamante foresees a softening in the market if California home prices continue to decline, as fewer homeowners will have the equity to purchase a second home. He also expects a change in the makeup of buyers, with the focus shifting away from short-term investors to those looking to live the Baja experience.

“There will still be a lot of sales,” Bustamante says, “but only for the ones who are doing things right. We have to make sure our projects have very good branding, that we do very good quality in construction and that we do very good marketing. Most of all, customer service and financing will have to be very well thought of to be successful.”

One of the most significant effects on the Baja real estate market — residential or commercial — has been the availability of title insurance. While title insurance is pretty much a standard part of any real estate transaction in the U.S., it was absent from most dealings south of the border until recently.

Stewart Title Insurance, which has been in operation for 113 years in the United States, started its Mexico division a little over a decade ago. In 2005, Stewart Title insured more than $1.2 billion in Mexican properties (about 20 percent of which was in the housing sector) and that number is expected to continue to increase. In addition to its underwriting headquarters, the company now operates six offices throughout Mexico, and expects to expand its operations next year.

Baja property owners can secure their investments by visiting Oscar Lara in Stewart Title Insurance’s Tijuana office.

A title search by an attorney or a certification of a notario publico (notary public) doesn’t come with the same guarantee as the services offered by a title company. “At the end of the day we’re issuing a policy that secures your investment 100 percent,” says Oscar Lara, who works out of Stewart’s Tijuana office and oversees much of the company’s operations throughout northwest Mexico.

The insurance is easing Americans’ fears of purchasing property in Mexico, giving them something familiar in an unfamiliar country. Stewart Title also recently introduced escrow services as another safety net for buyers, an alternative to giving deposits directly to the developer.

“Before the money goes to the developer, you have a commitment from Stewart Title that the property is insurable,” says Lara. After all, real estate, he says, is the biggest investment for most people and they want that investment to be safe.

As with San Diego, the scope of development in Baja California will be tied back to the environment. Malissa McKeith, national chair of the Real Estate Practice Group at Lewis Brisbois Bisgaard & Smith, says that everything will be limited by how much water is available on the coast.
“One of the concerns that I have right now is that a lot of growth is happening rapidly because there is quick money to be made and that tends to overtax the available resources of local municipalities,” says McKeith, who works out of the firm’s Los Angeles office.

The first developer may make a windfall, but over the long term healthy growth can only be possible if a plan is in place from the start. Otherwise, McKeith warns, growth is limited by the fact that there’s no more capacity for water or sewage.

Lewis Brisbois specializes in infrastructure finance and planning for water delivery, sewage and overall planning. Its goal is to help cities expanding through large developments to do so in a way that is sustainable. The issue has become a passion for McKeith, who personally works with state and local entities to show them what has worked — and what hasn’t worked — in the United States. in hopes of influencing the decisions Mexico’s leaders make regarding future growth.