It’s a question we get asked all the time: “Why is real estate priced in USD in Puerto Vallarta?”. It’s a good question and there are a couple of things to understand. First, pricing real estate in USD is a common practice not only in our Banderas Bay region, but in many other markets throughout Mexico, particularly in areas that attract foreign buyers. Yet, when you actually purchase a property in Mexico, the accepted USD price on the property will be converted to Mexican pesos during the legal closing process at the notary’s office and in your deed. So why is real estate priced this way? There are at least two answers, one simple and one a little more complex.
1) Ease of understanding the numbers. Real estate agencies know, especially in this day and age, that buyers do a lot of their own searching for properties in Mexico online. Americans obviously understand the value of $500,000 USD, Canadians, who are accustomed to doing USD conversions, are able get a ballpark number quickly in their head, and in Mexico, where the economy is closely tied to the USA, most Mexicans can easily do an approximate exchange. But if you ask an American or Canadian that doesn’t live in Mexico what $9,922,500 MXN amounts to, they likely will need to dig out a conversion app to get to the answer. (Spoiler Alert: as of the day of writing, $9,922,500 MXN converts to $500,000 USD). So pricing in USD makes it easier for foreign clients of all nationalities to understand property values easily.
This makes sense, ease of communication to a larger audience of buyers, because a commonly understood expression of monetary value in North America is the US dollar. Which may sound like values are expressed in USD to be accommodating to foreign buyers – which is partially true – but in reality, this manner of pricing benefits Mexican national buyers in a more substantial way.
2) Hedging against currency fluctuations. Many Mexicans use purchasing USD priced real estate as a “safe haven” to protect against variations on the currency market. Let’s use some simple math to help illustrate how this works:
· A Mexican national spends $5,000,000 pesos to purchase a home valued at $250,000 USD when the exchange rate is 20 MXN to 1 USD.
· After the real estate purchase is made, let’s say the peso devalues to 25 MXN to 1 USD, which can happen very rapidly, as we saw in 2020. Had the buyer held on to his or her 5 million pesos, those pesos would now be worth only $200,000 USD.
· However, the buyer is still in possession of a home worth $250,000 USD (or perhaps more), which means that they have retained $50,000 because of the hedged equity in the property.
Essentially, for many Mexican buyers, purchasing USD-priced properties is a way of “parking” their money in dollars, avoiding losses due to currency fluctuations, and potentially increasing their asset base.
This explains why Mexican real estate is often priced in USD, but it does open up another question that buyers, both national and foreign, will often ask: “Is a property that is priced in USD being sold at an
inflated price versus a property that is listed in pesos?”. It’s an understandable question and effectively the answer is no, there is not a separate system of value for USD or MXN listings. Pricing in either currency generally reflects current value on the real estate market. But having an experienced, professional real estate agent on your side helps to ensure that you’re getting good value for your home.
Do you have more questions about the real estate market in Puerto Vallarta? Contact us! Our agents are here to help. Click here for more Puerto Vallarta real estate and lifestyle tips from Tropicasa Realty.
Click here for more Puerto Vallarta real estate and lifestyle tips from Tropicasa Realty.