As a seasoned Mexican real estate broker with over two decades of experience living and working in Mexico. I have witnessed the ebb and flow of currency trends. Particularly the dynamic relationship between the US dollar (USD) and the Mexican peso. Over the years, the prevailing trend has been a strengthening USD against the peso. Therefore, presenting significant advantages for expats and investors from the USA and Canada. However, the landscape has evolved. In the past year of 2023, we’ve seen an exciting change in these trends where the peso gained strength against the USD. There are minor exchange rate differences, but enough that I suggest a simple review and understanding to see if you might find some opportunities.
Currency Trends and Real Estate Growth: A Perspective on Mexico’s Market
Living in Mexico, the benefits of earning in USD while spending in pesos were undeniable benefits I enjoyed for 20 years. Expats from the United States and Canada find their wealth can grow more than in countries with higher living costs. And with the allure of high appreciation rates in the Playa del Carmen real estate market, these have been decisive factors for the rapid growth experienced in the past decade. As Mexico’s economy strengthens, with projections placing it among the world’s top 10 most robust economies. The dynamics are shifting quickly in various real estate markets. As sizeable international manufacturing businesses begin setting up new, extensive mega facilities in Mexico, nearshoring also creates areas of opportunity.
Along with the resort, residential regions such as Riviera Maya, Puerto Escondido, and Baja California, where millions of international tourists continue to visit. There are also positive factors of the growth potential in Mexico. For example, the Mexican government has recently opened up a new international airport in Tulum and a Mayan train transportation infrastructure through the southeastern peninsula of Mexico. These billion-dollar projects have brought even more significant Tulum real estate appreciation potential to the next level.
So, how do the currency trends impact the real estate market in Mexico? Let’s delve into three scenarios based on my direct experience in the field.
Scenario 1: Dynamic Exchange Rates
In scenarios where the purchase price of Mexico real estate is negotiated in pesos, and the first deposit is executed at a specific peso amount, fluctuations in the exchange rate can impact the final payment.
For instance, if the USD strengthens between the negotiation and the closing date, usually 45- 60 days, the amount paid in USD could represent an additional discount for the buyer. This dynamic nature of exchange rates adds an element of required management and understanding to the real estate transaction. Mind you, the dollar savings might be in the hundreds. Still, in the cases of more significant sums of money, the difference could range up to thousands of dollars.
Scenario 2: Agreed Exchange Rates in Contracts
Another common scenario involves the buyer and seller agreeing to and formalizing an exchange rate in the promissory contract. The dollar amount is set at the agreed-upon rate, transferring the risk of peso fluctuations to the seller. In this case, the seller hopes to strengthen the USD to maximize the pesos received during the payment period, potentially increasing profits.
Scenario 3: Variable Exchange Rates and Seller Safeguards
Let’s explore a more intricate scenario. A seller may agree to receive a specific amount of pesos in their Mexican bank account. Yet, at a variable exchange rate based on a doMllar amount. For example, a recent transaction included a situation where the seller developer added a clause in the promissory contract agreement that ensured that the seller received a minimum exchange rate of 18 pesos per 1 USD in those months, where the exchange rate fell to 17 or 17.5 pesos or below.
This safeguarded the sell from the potential downside of a depreciating peso, offering security in uncertain currency markets. I introduced an additional option where the buyer could pay in USD directly to the developer’s Mexican bank but in a USD account. It took the developer about two weeks to set up a new bank account in USD. Most Mexican banks do allow for such USD accounts. So, this was another scenario on how to find opportunities and options in a fluctuating currency exchange environment.
Navigating 2024 & Beyond
As of the writing of this article in the first week of January of 2024, the peso exchange rate stood at approximately 17.00 pesos per 1 USD. Certainly an unique situation given the historical trend of a regular, continuous strengthening of the USD over long periods. 2015, the exchange rate was approximately 16.5 to 17.5 per 1 USD. In 2016, it rose to 18 – 19 pesos. Then in 2017, it was approximately 18 – 19.5 pesos. Afterwards in 2018, it was exchanged from 18 to 20 pesos. Finally, in 2020, the greenback was getting about 20 – 23 pesos. So, the usual trend is a slow dollar-strengthening situation with the Mexican peso.
On the one hand, 2023 is a unique year, given the inflation obstacles the US is battling and the worldwide defensive measures that we are witnessing. Which has revealed a stable Mexican economy and is reflected in a strong peso. On the other hand, 2024 brings a new factor of influence: the upcoming elections in Mexico and the USA.
The elections play a significant role in influencing these currency trends. Historically, Mexican presidential elections have introduced uncertainties that have led to a loss of peso strength. While the Mexican election is likely to exert a more pronounced influence. Certainly, the interconnected nature of global economies means one thing. That the USA election will also contribute to the fluctuations in the USD to peso exchange rate. My humble opinion is that the exchange rate will reach about 18 pesos at the midway point of 2024 and continue growing upwards to reach 18.5 pesos by December 2024.
Final Thoughts
In conclusion, the evolving landscape of currency trends adds a layer of opportunity to real estate transactions in Mexico. As investors, it is advisable to understand the exchange rate movements to avoid surprises. With this understanding, you can capitalize on the vibrant Mexico real estate market’s ever-changing relationship between dollars and pesos. Whether considering or evaluating Merida real estate, Playa del Carmen condos for sale, or land opportunities in Tulum, a nuanced understanding of currency trends helps make informed investment decisions.
