Magnetic South
By Richard • Oct 8th, 2008 • Category: Affordable Luxury
Richard F. Davis
THE REGION KNOWN AS LATIN AMERICA and the Caribbean (LAC), as defined by the World Bank, consists of 41 countries. Emerging from often troubled and dramatic historical challenges, a number of these countries have risen over the last ten years to become attractive and competitive members of a thriving global economy. In fact, recent reports by a respected investment fund adviser show that investment funds focused on the region, particularly Latin America, have outperformed all other regional funds.
One of LAC’s greatest assets is the bountiful real estate that is available for destination resort or retirement development. In many of the countries, particularly those closest to the United States with established air transport corridors, tourism has become one of the most dominant industries. This factor, combined with trends in U.S. tourism and resort investment, has made the region a magnet for new real estate activity.
location, location, location
The September 11, 2001, attacks on the United States led to important changes in Americans’ travel habits and boosted the value of resort and retirement development in the LAC region. As outbound U.S. travel gradually recovered, it became clear that U.S. vacationers preferred to stay closer to home. Trips became shorter, more frequent, and focused on destinations within driving distance or limited to a relatively short, nonstop flight. Furthermore, a broad range of U.S. travelers developed a preference for resort locations offering many leisure experience~ within a secure community environment. Because these vacationers were spending less on travel and returning more often to resorts closer to the United States, they were willing to invest in those communities. Noting this trend, a number of LAC countries took aggressive steps-such as streamlining the establishment of business and investments and providing for sophisticated financial markets, state-of-the-art technologies, investment incentives, and property rights protection-to transform themselves into U.S. traveler- and investor-friendly destinations.
Those that succeeded, most notably Panama, Costa Rica, and the Dominican Republic, have joined Mexico as the “hot spots” of the current era. Because of their size, the amount of available land, their proximity to the United States, and their well-served air col1idors from many U.S. locations, these four LAC countries have the most potential in the region for growth in resort and retirement development.
Mexico continues to be the premier destination for U.S. investors looking for resort and retirement real estate in the region, largely due to its proximity to the United States, whose citizens constitute the largest tourist market in the world. Mexico has done an impressive job of reforming its legal, business, and tax systems to modernize and compete effectively with resort, tourism, and retirement destinations in the United States and throughout LAC. Today, Mexico offers world-class resort community projects with top-quality golf and other amenities expected in a high-end resort. Mayakoba in the Riviera Maya, for example, offers a collection of the world’s finest luxury resorts interconnected with lagoons, waterways, and beaches to create an environment unique by any standard; and a renowned Four Seasons Resort in Punta Mita near Puerto Vallarta on Mexico’s Pacific Coast, is sited along pristine white sand beaches and natural islands. Like most modem destination resorts in the LAC region, these projects are mixed use and include different types and styles of for-sale private residences, hotel, and retail uses, as well as amenities, within a secure, easily accessible campus.
While Mexico remains ahead of the pack with a sophisticated real estate development industry that functions much like that of the United States, Panama has advanced its development activity significantly. Established long ago as ~ major corporate and money center around the operational and trade contributions of the Panama Canal, Panama has advanced, sophisticated legal and business infrastructure and services and one of the best investment incentive packages in the region.
Costa Rica, known for its environmental protection laws and “green” sensitivity, also offers an ease of legal compliance and operations, a strong banking sector, and state-of-the-art real estate and technology services.
The Dominican Republic, the youngest of the group with respect to large-scale real estate development, has become one of the most aggressive in seeking and, promoting foreign investment in resort and retirement real estate. Major destination areas with mixed-use projects-almost all of which are oceanfront properties-in Puerto Plata, Punta Cana, and outward from Santo Domingo, as well as an almost completely dollarized economy and significant U.S. influence have fueled tremendous growth in this country.
Real Estate Products
The LAC region in general, and these four countries in particular, cater to the luxury real estate sector and mass tourism. The largest demand for real estate investment within these countries is in the luxury sector, fueled by wealthy baby boomers who can buy into the new, secure, mixed-use destination resorts being developed throughout the region and can travel back and forth multiple times per year. Mass tourism is focused more on tourist hotels and transient businesses without many of the services provided in the larger, more prevalent mixed-use resorts. Panama and Mexico are also attracting a significant amount of retirement development.
In addition to Mexico’s Mayakoba
and Punta Mita, the Trump Ocean Club in Panama City is a fine example of a luxury sector project. Located on the Punta Pacifica Peninsula, it features a high-end hotel, condominium residences, pools, spa, beach and yacht club, pier, restaurants, and a casino, all within a 68-story, architecturally unique building. The new Santa Fe project, outside of Panama City, is an almost l,000-acre (2,833-ha), master-planned community in a more traditional low-rise style with a variety of residential products, hotels, private clubs, spas, golf courses, equestrian facilities, retail activity, and its own medical center. The developer of the project is Latin Ventures, a joint venture between a U.S. developer and a Panamanian family.
Located in Costa Rica’s Guanacaste Province on a slender Pacific isthmus fringed by gold-sand beaches, the luxury Four Seasons Resort at the Peninsula Papagayo includes 165 rooms and suites in a natural environment, swimming pools, a spa, a signature golf course, and for-sale real estate. In 2009, a Mandarin Oriental hotel will also open in Guanacaste Province. This 130-room beach resort will serve as the cornerstone of a gated residential development called Rancho
Manzanillo with a signature championship golf course, a gigantic spa, multilevel outdoor swimming pools, and what is advertised as “the best part of all,” treehouse
suites nestled high in the canopy of guanacaste trees.
The Dominican Republic’s Cap Cana is one of the most exciting new major destination resorts in the region. Situated on more than five miles (eight km) of coastline on Juanillo Beach-one of the country’s most scenic beaches-Cap Cana will feature multiple luxury hotels as part of a master plan that includes the largest inland, megayacht marina in the Caribbean; three championship golf courses; beach, yacht, golf, and country clubs; restaurants; a spa; tennis courts; pools; deep-sea fishing; a casino; and more. Within Cap Cana will be the no-room Ritz Carlton Resort located on Juanillo Beach with its own enormous spa, a private beach club, five restaurants and lounges, and 194 privately owned, beachfront residences. All of this is scheduled to open in 2010.
These and other similar projects will include luxury private residence clubs (a form of fractional common-interest ownership in condominiums and villas organized and regulated as timeshare plans) and other forms of timeshare fractional ownership such as vacation clubs, nontimeshare
, nonproprietary destination clubs, and the newest product-a nontimeshare destination club. The last is organized as a club corporation owned by its members; the corporation owns all of its real estate and offers the same nontimeshare
access to a variety of resort accommodations as traditional destination resorts do. Such forms of common ownership provide more flexibility in scheduling use, and easier legal compliance with more formal rules in non-U.S.jurisdictions.
Luma, in Nuevo Vallarta, Mexico, is a combination luxury resort and retirement community for active adults 50 years old and over. Developed by Front Porch, a leading developer of retirement communities in the United States, in partnership with Grupo Krone
, a Mexican-based housing and land development company, Luma is said to be the first American-developed, full-ownership, active adult, beachfront community in Mexico. Comprising seven towers built to maximize ocean and mountain views and surrounded by lush gardens, with an on-site restaurant, a bar, and social gathering spots distinctly designed for an active retirement community, Luma has plans to combine the best of a resort lifestyle with amenities and facilities aimed at older Americans. Given the demographic density of wealthy baby boomers and “shadow boomers” entering retirement over the next few years, luxury retirement resorts may be the “next big thing.”
The Condemned dvd
Projects similar to Luma are in planning stages throughout the LAC region and are expected to proliferate, particularly in Mexico, Panama, Costa Rica, and the Dominican Republic. Panama has offered affordable, service-free condominiums for retirement housing for years, while emerging both in Mexico and Panama are middle-level retirement projects located in campus environments and close to major urban centers that provide health care and other services to retirees.
Luma (left) in Nuevo Vallarta, Mexico, is a combination luxury resort and retirement community for active adults 50 years old
and over. Its spacious condominiums will feature 11- to 13-foothigh <3- to 4-m) ceilings, glass walls, and terraces with sweeping ocean and mountain views (below).
Legal and Business Issues
The five most important areas of real estate investment and development to know about in the region are: ownership structure, titles, taxation, marketing regulations, and sales and closing procedures. The legal system for the four hot spot countries discussed is based on the civil law system. Developed from legislation and codes, rather than from cases and precedent as in the United States, the legal system requires more formality in documentation and general legal procedures.
> Ownership Structure. Many foreign countries restrict or regulate landownership by noncitizens or companies owned by noncitizens. Although some of the most popular countries have such restrictions, they provide a number of legal methods that permit foreigners to receive and hold the full benefits and burdens of real estate ownership.
It is common practice to structure ownership to comply with restrictions on foreign ownership and investment, isolate the risks of ownership, and simplify tax reporting through a local entity, such as a corporation or the local counterpart of a limited liability company.
> Title. The title system in the four countries is operated exclusively by state and local government and requires the registration of title to all real estate at property registries. This system can be more efficient than the method used in the United States to record and track title to land. Conveyance deeds and documents must contain very detailed legal descriptions and, for property tax purposes, must often be accompanied by cadastra (maps/land surveys). These features make due diligence investigation of title quite efficient compared with other systems.
State governments also appoint well-established, highly regarded lawyers as notarios or notaries. They manage the property registries and are responsible for reviewing and confirming compliance with laws governing the transfer of real estate before a conveyancing document is presented to a public registry
may select a notary from the jurisdiction in which the property is located. In recent years, U.S.-based title companies have proliferated in the LAC market, offering a variety of title insurance products in a similar form to those offered in the United States.
> Taxation. There are additional taxes in the LAC region that differ from those in the United States. All the taxes and tax equivalent charges involved in real estate transactions in the region can be planned for and managed through legal structures and negotiations to reach a cost that is roughly equivalent to that of doing business in the United States. However, a detailed analysis of those tax systems is beyond the scope of this article. Early tax
planning, before making final decisions on legal structure and ownership, nevertheless, is critical for success.
> Marketing Regulation. Most of the LAC countries in high demand have laws governing the marketing of real estate developments and for-sale property such as planned communities, condominiums, and fractional or timeshare interests. An important step in the planning process is to look at the country’s laws and comply with them before launching any real estate sales there.
The United States has very complex, strict laws regulating real estate sales to U.S. residents-laws that may apply to offers or sales of non-U.S. property wherever they are made. Careful attention should be given to compliance with or exemption from U.S. laws regulating real estate sales and licensing before soliciting potential U.S. real estate buyers in the United States or abroad.
> Sales and Closing Procedures. The procedure for completing the purchase and
sale of real property or “deeded” interests is strongly traditional and technical in LAC countries. Generally, escrows are not used; rather, the buyer pays the full price under the terms of a purchase contract before receiving the instrument of conveyance. Absent a method of simultaneous closing, such as the escrow used in the United States, it is customary for all parties to the transaction to appear at the notario’s offices to execute all documents necessary to convey title, and provide all funds to cover the purchase price, as well as funds for fees and registration, to the notario. Escrow use is growing slowly in the LAC region, and escrows can be arranged in the United States, if the parties agree.
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