Despite common perception, the housing boom continues, just not in San Diego. The booming market is Northern Baja California where homes in new developments are selling at record rates and the residential feeding frenzy is outstripping the supply of new units coming online.

More than five years in the making, this explosion of residential development has fundamentally changed the coastal areas from Ensenada to Playas de Tijuana that connect a port city with the world’s largest border metropolis. What once was a strip of barren land reminiscent of coastal California 75 years ago is rapidly turning into a premier American vacation and residential destination.

Both the northern and southern Baja markets are hot. The difference, and reason for greater interest in Northern Baja, is one of access: Americans fly to Cabo; they drive to Northern Baja. Both markets are attracting lots of potential buyers.

In today’s Northern Baja market, nearly 50 residential developments are actively selling ocean views to Americans at a fraction of what a similar property would cost in the United States. The economics are simple: a greater supply of land, lower construction costs and fewer restrictions on building. Combined, these have lowered the barriers to entry for oceanfront and near-oceanfront homes. In response, developers from both sides of the border have created a supply of about 6,000 units targeted predominantly to American buyers.

Most developments cater to Southern Californians seeking a regular weekend getaway on the beach they can call their own. The typical buyer has been priced out of a similar unit in Southern California and will drive across the border to enjoy a great view, a private beach and a different and warm culture. These projects market a host of amenities, such as pools, full-service spas, gyms and tennis courts, at a variety of prices.

Larger American development companies are taking notice and preparing to capitalize on this emerging market. They’ve run the numbers. The average condominium along the corridor sells for about $460,000 while well-situated oceanfront homes are priced at up to $1.2 million. Ignoring Southern California’s real estate slowdown, units are selling as quickly as they did at the height of the Downtown San Diego residential market. U.S. builders also are keenly aware that development costs in Mexico — from land to labor to materials — dwarf construction costs just 15 minutes north of the border.

Entry into this real estate market is not without its risks for both buyer and developer. For buyers, financing and title issues continue. However, American title insurers and financiers, hungry to benefit from the boom, have come into the market, alleviating many of these concerns. The real challenge for consumers is determining which projects are built and designed for quality. Mexico lacks the same disclosure laws consumers enjoy in the United States, requiring more thorough research during the purchase process.

For developers, the risks are greater too. Mexico is unlike the U.S. business environment with drastically different cultural and political assumptions. For example, the entitlement process can be accomplished in less than nine months for those who know the right people. Given Mexico’s concentration of wealth and power — 10 percent of the country’s population controls 42.8 percent of the nation’s wealth — business circles are much smaller. Thus, contacts are key and navigating the extensive bureaucratic system can prove to be either an insurmountable obstacle or a simple paperwork process.

Adjusting to these differences has proven difficult for many American developers. The proper response is to partner with a qualified Mexican development company. But finding the right partner can prove challenging if one has few or no contacts south of the border.

From the market side, many buyers are purchasing units with accumulated equity from a U.S. home. As the American residential market slows, demand in Northern Baja may also decrease. In addition, the availability of market data in Mexico is scarce at best, so judging the condition of the market at any given time can prove challenging.

For many developers, however, the potential tremendous financial rewards justify the risk. With builders enjoying hefty profits and buyers access to oceanfront dreams, it is likely that the Baja building boom will continue well into the future.

The authors are strategic consultants, market analysts and economists from The London Group Realty Advisors Inc. who have tracked the evolution of the Baja California market on behalf of both Mexican and American investor and development clients. More information is at londongroup.com.