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Baja Water, Politics and Housing

Factors outside investor interest will play a big role in Baja California real estate this year

Much of what will happen in Baja California in 2007 depends on some past and present events. Decisions made in Mexico City, and surprises from Washington, D.C., directly impact Baja California and directly or indirectly San Diego.

In Mexico, the big news is new President Felipe Calderón Hinojosa who is from the same party as former president Fox, PAN. The election severely tested the infant democracy due to the closeness of the final tally. The result was not only contested in the courts, but also on the streets by the eventual loser, Andres Manuel López Obrador (AMLO), from the leftist party PRD. The issue is ongoing as AMLO did not accept the electoral court’s ruling, declaring himself the rightful president of Mexico, calling Calderón a usurper to the presidency, and created a shadow government from which he will govern.

Political uncertainty or unrest most often disrupts economic progress and discourages foreign investment, both much needed by Mexico and now taking place in booming Baja California. How seriously AMLO's behavior will affect Mexico will depend greatly on the new president’s strength. So far, Calderón is off to a good start. He hit the road running and was quick to demonstrate his willingness to bring the power of his office to bear on critical problems by deploying 10,000 troops to the state of Michoacán to seize drug cartels operating there with total impunity. He is planning on doing the same in other states, which may include Baja California.

To curtail the influence of AMLO, he has ordered special attention and aid for the neediest 100 communities in the nation, and has placed an austerity program on himself and on his cabinet by lowering his and their salaries. So far Calderón's actions are meeting with positive acclaim, providing encouragement to those watching and, in turn, dispelling reservations for the country's future. For Baja California this is good news.

Closer to home, 2007 is an election year for the governor's office. The PAN holds the office and will have several candidates vying for the nomination. The most prominent to announce so far is former Tijuana mayor Héctor Osuna Jaime, who also has served as a senator. Present Tijuana mayor, Jorge Hank Rhon, has said he would seek the PRI nomination. Members of the leftist PRD, who may seek nomination, have yet to come forth. If Hank Rhon officially declares, he must vacate the mayor's office, as in Mexico it is prohibited to seek another office while in office.

A great deal of what takes place in 2007 and years ahead will depend on the ultimate winner of the governor's office. If it remains in PAN hands with Osuna, a known quality, expectations of greater and planned growth can be expected.

If the PRI wins, be it Hank or someone else, the future would be cloudy, Many believe this would signal a return to the old standard of doing business in Mexico that enriches some at the expense of many. The PRD has not enjoyed much popularity in Baja, and there is nothing indicating any change at this time.

Another critical issue for Baja, one now mired in political strife on the U.S. side, is Colorado River water allotments. The river runs through many states before crossing the border to meet with the Sea of Cortes. San Diego needs as much water as it can to keep up with demand. So the region is part of a U.S. deal to line with concrete the All American Canal that runs through the Imperial Valley. At present, water seeps through the unlined canal and into into the water tables that in turn feed into Baja's Mexicali agricultural valley. If Mexicali's agricultural sector loses the water table, its fields will dry up or a fight will break out to take Colorado River water pumped to Tijuana, Rosarito and Ensenada. A cut back in water will have dire effects on those coastal cities, which already don’t have enough to meet future demands.

So there exists a power play between the needs of San Diego and Baja on this issue. The eventual results will play a major role in Baja's future, and indeed on the entire binational region.

Deliveries of houses under construction along the Tijuana-Ensenada coast purchased by Americans in 2005 are scheduled to begin in 2007. Successful deliveries will produce a new wave of full-and part-time residents along the coast. Satisfied occupants will in turn attract more buyers who, as long as such homes remain the relative bargain compared to U.S. coastal property, will allow the Baja boom to continue.

However, the added population will place a heavier burden on the local infrastructure that unless addressed by both the local governments and the private sector investors may cause burps on the boom.

Baja California real estate professionals see opportunities opening up, such as interest in American investors to finance desalinization projects. Other investment opportunities will be in the recreational and health care sectors. Golf courses, driving ranges, theaters, shopping malls, marinas, restaurants, etc., will find growing numbers of customers beginning in 2007 and growing in years to come.

The potential for investment success is possible because there are now more than 16,000 houses/condos planned for construction along the Tijuana-Ensenada coast. Combined, they represent more than $4 billion in potential sales. This is not counting the hotel-condos that have broken ground.

Added incentives attesting to the potential of Baja's continuing coastal development boom is the huge success registered by the Trump Ocean Resort Baja. In a one-day sales-a-thon, the resort’s marketers sold 188 of the 232 suites available in the first of the three towers, raking in $122 million. Delivery of the first phase is set for mid 2008.

Down the beach, ground breaking on the Rosarito Beach Hotel condo-hotel project, offering 271 units, also took place in late November. The project will include 192 one-bedroom, 65 two-bedroom and 14 penthouse units. About 40 percent of the units have already been reserved. Delivery is scheduled for March 2008.

Porto Hussong, at the entry to the city of Ensenada, is another major high-end product involving the Ensenada-famed Hussong family in partnership with Meridian Development Group of Reno, Nev. The developers broke ground on what will be a luxurious combination of 464 mixed units that also will feature 14 penthouses, five-star-quality fractioning units in their Meridian Club and a state of the art 250-slip marina that will accommodate yachts of up to 200 feet. These units will begin delivery in 2009.

Salsipuedes, a 750-acre, 2,900-unit development, is scheduled to break ground around mid 2007 on The Village with Phase I deliveries to begin in late 2008.

Provided the stars align right on the political scene the U.S. economy doesn’t go south and water does not become the unattainable commodity Baja California's real estate boom will continue in 2007, although not at as fast a pace as in the last two years.

Another region deserving our future attention is the Sea of Cortes coast. It is growing rapidly and is home to various projects such as Baja Diamante, a $2 billion residential community with 5,000 homes and a planned seaport village.

Patrick Osio Jr. can be reached at patrick@transbordercommunications.com