Baja condo projects mired in economic quicksand; 'it's not a pretty picture,' says prominent developer.

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The residential real estate market in Baja California, Mexico is mirroring the slowdown in both units sold and lower median prices in Southern California. The surge of construction along the coast during the housing-market high a few years ago has also burst south of the border.

It is estimated that the nearly 100 or so residential developments under construction in the coastal region from Playa de Tijuana to Ensenada has dwindled to no more than 30 active projects.

Gabriel Robles, president of the Baja Developers Association, said that with rising gas prices, the mortgage lending crisis and upcoming presidential election, homebuyers are holding their money tight.

"When the U.S. sneezes, Mexico catches double pneumonia," said Robles.

Major developments have scaled back, he said. Some developers have just slowed construction schedules, while others have returned pre-sale deposits and called it quits.

Developers of El Milagro, a 500-unit project in Rosarito, stopped construction and have returned deposits to buyers.

"Prices are either being lowered or projects are stopping," said Robles. "It's not a pretty picture."

Robles, also principal of San Diego-based Baja Resort Advisors LLC, said buyers at one of its own Baja developments were given deposit credit at another condo project when it decided not to continue development.

Baja Resort Advisor's project, The Falls at Puerto Nuevo, was to be a 92-unit luxury condo on the coast. Units were to range in size from 950 to 2,700 square feet in one, two or three bedroom options.

Credit Option

Buyers of The Falls now have credit at La Elegancia, a 19-floor, 107-unit condominium project in Rosarito by Mexican developer GJL.

"Another phenomenon is some folks that bought (in Mexico) are walking away from their deposit rather than paying the balance due," said Robles.

James Gerber, director of the Center for Latin American Studies at San Diego State University, agreed that the slowdown in San Diego has curbed new development in the Tijuana to Ensenada corridor. Gerber, a professor of economics, said the slowing in Mexico is nothing like the slowing north of the border.

"The further south you go the less strongly the effects are felt or the longer the effects take to reach there," said Gerber. "I really don't know which it is and I am waiting to see."

Will Bautista, the president of Association of Professional Realtors of Rosarito, a member of the state board of real estate professionals in Mexico, said the coastal residential real estate market from Tijuana through Ensenada is mirroring the Southern California market. Bautista said sales have slowed and median prices have dropped.

"The market in Rosarito is very, very slow," said Bautista. "We are predicting a slowdown for the rest of year. As long as California is not healthy, it will not be healthy here."

Bautista estimated units pre-selling for $950,000 two years ago are now listed for $650,000 to $700,000. Units once selling for $350,000 have dropped to $250,000.

Not Closing The Deal

Even with significantly reduced prices, U.S. buyers are not closing the deal, according to Baustista. He said if anything is going to sell through year end in this coastal stretch, it will be the lower end projects priced under $250,000.

"Anything $350,000 and up is going to be difficult to sell," he said.

While sales have nearly stopped, one developer recently held a successful open house.

Paladin REDI Investors Baja LLC, a Mexican developer, took 10 condo deposits at a June 27 open house for Gardenhaus, a "green" townhouse development in Rosarito.

"The overwhelming response confirms our belief that there is still pent-up demand for innovatively designed, value-priced housing," said REDI developer Guillermo Martinez de Castro.

The Gardenhaus development along the Tijuana-Ensenada toll road features 60 three- and four-bedroom, three-bathroom units priced from $140,000 to $195,000.