A failed Brazilian beach community visited in 2012. Notice that most lots are more than one kilometer from the beach.
I get occasional e-mails or phone calls by or about someone contemplating buying a vacant lot in a waterfront subdivision in Latin America or the Caribbean, and these would-be buyers have probably not read some of my older posts.
I recently received two inquiries related to Belize and Panama. Both inquiries related to oversized subdivisions (as large as 1000 lots), of which only a handful of homes have been built. Both would-be buyers, though, were not planning to relocate soon to these communities. One just wanted to flip. The other wanted to “buy before it’s too late”.
For several years, private lenders have sent me to appraise such planned communities in Costa Rica, Belize, Mexico, Brazil, Barbados, St. Maarten, the Bahamas, Jamaica, and Trinidad. The situations were approximately similar in that homebuilding or lot sales had stalled and the whole subdivision was reeling in debt, yet each community had glossy brochures and dazzling web sites. Sometimes there were many lots sales having occurred several years ago, but these were to flippers who put 20% down and got financing from the developer, as they sometimes disclosed in on-line investor forums. They often responded to advertisements such as “Own your own beachfront lot for only $200 per month!” Few homes were built compared to the number of lots sold.
Then, when buyers realized that their lots had declined in value by more than 20%, they stopped making payments, and the lots reverted back to the developer through foreclosure. Meanwhile, the developer may be still be advertising that his planned community is 70%+ sold. For some developers, this has become a racket: Collect the down payment and monthly payments, foreclose, and then start the selling process all over again while crowing about the number of lots sold.
In communities like these, I see nothing but falling land values. The developer is having to compete with lot owners who want to sell their own lots, which is a classic oversupply situation that only depresses lot values.
For those who bought lots with the intention of actually building and occupying them, they are also at risk of loss in value and loss of promised amenities. I have seen so many subdivisions which were advertised as gated communities with luxury amenities, but ended up with abandoned guardhouses and no security from outside intruders.
If you really want to live in “Paradise”, I would advise to buy in a community which is mostly built out, with actual homes built and occupied, and with a history of recent sales. If sales have stalled, some of the promised amenities, such as spas, clubhouses, and golf courses may not get built after all.
Also beware of marketing tricks. If the developer claims that “Phase One has already sold out!”, ask to see Phase One. Are there any homes built? I saw a situation in Brazil where there was no Phase One developed before they started advertising Phase Two. I saw a situation in North Carolina where all but one duplex in the sold out Phase One was a non-arm’s length sale between a partnership and its partners at the inflated price of $500,000. These looked like mobile homes on stilts. Most of the units had “For Sale” signs in front. Despite my warning, a client of mine went out of business lending $17 million on future phases. Even if homes are built, the subdivision can still fail if most of the homes are still empty.
If the advice to "buy before it's too late" comes from Ronan McMahon, consider the source and my previous post about him. I have similar suspicions about Katherine Peddicord.
Flipping foreign properties is a dangerous sport, best left to clever local investors. And if you want to live in a new “foreign paradise” community, make sure that there are people actually living there.
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