The Mexican government, hoping to pump more tourism dollars into its sagging economy, has unveiled a plan that will make it easier for individual investors and large development companies to build homes and commercial projects in two sleepy coastal towns in southern Baja California.
If the program proves successful, it could turn tiny San Jose del Cabo and even smaller Loreto into bustling resort towns by the end of the century.
Fondo Nacional de Fomento al Turismo -- the government agency responsible for developing new resorts in Mexico -- has, for the first time, obtained permits from the California Department of Real Estate to sell interests in land owned by the Mexican government to residents of California.
The agency, commonly called Fonatur, is acting as "master developer" of the San Jose and Loreto projects. It has already built the infrastructure in the two areas -- roads, sewers, electrical systems and the like -- which will reduce many of the development obstacles that American investors often face when building south of the border.
Fonatur officials believe that the program will be particularly attractive to American developers who want to build hotels, condominiums and time-share projects in the two targeted areas. The program has already drawn the interest of two hotel chains, Marriott and Sheraton, each of which plans to begin new resort developments in San Jose this fall.
Previously, a U.S. developer who wanted to build in Mexico had to cut through yards of bureaucratic red tape. The process was even more complicated if the developer intended to build condominiums or time-share resorts and then sell interests in the property to American investors.
Fonatur's role as master developer streamlines the process of building in San Jose del Cabo and Loreto, saves time and reduces development-related expenses.
The agency devised the plan with the help of David G. Ellsworth, a Beverly Hills attorney who has worked on dozens of resort ventures in 13 countries.
Fonatur has launched similar developer-oriented programs in the past, but has never before registered an offering with the California Department of Real Estate.
The agency's most impressive accomplishment so far has been the transformation of Cancun into a busy resort town that is now the third-most-visited destination in the Caribbean. Cancun was little more than a tiny island with about 100 inhabitants when Fonatur began developing the land in the early 1970s.
The agency hopes to repeat its success in Loreto, about 700 miles south of the U.S. border, and in San Jose del Cabo, at the southern tip of Baja, about 975 miles south of the border.
The Mexican government figures that the two resort towns will primarily attract California investors because both destinations can be reached by that state's residents in a plane-and-auto trip that takes less than two hours.
In San Jose del Cabo, Fonatur will initially open up 97 acres of land -- all of it either beach-front property or on a slope with a view of the Gulf of California. The land is subdivided into 39 lots; eight are zoned for beach-front hotels, eight others for town house or condominium projects, and the remainder for single-family homes.
In Loreto, the government will initially open 82 acres for development. Plans call for two beach-front hotels, seven town house or condo projects and more than 500 single-family homes.
Both areas will have additional hotels, condominiums and homes added in later phases.
Americans who have shopped for property along the coastline -- or even farther inland -- may have a hard time believing just how inexpensive land in Mexico is. In San Jose del Cabo, single-family lots with an ocean view will sell for an average of $9,000. The largest parcel, a 13-acre beach-front lot zoned for hotel use, will sell for $651,000.
Prices are lower in Loreto, where single-family lots will average about $3,000 and each of the two beach-front hotel lots will cost less than $95,000.
Although approval of Fonatur's projects by California regulators is expected to give Americans who invest in Mexican real estate a degree of confidence and security they never had before, the program won't allow Americans to actually own the property.
Both towns are in Mexico's so-called "prohibited zone," where land can be owned only by Mexican citizens. The zone extends 32 miles inland from the coast of Mexico and 64 miles from any Mexican border.
Essentially, Americans who buy lots in San Jose del Cabo and Loreto will be given the exclusive right to use their property for 30 years. Title will be placed in an irrevocable trust overseen by a Mexican bank.
At the end of 30 years, Ellsworth said, the American investor can either sell his interest in the trust and keep any profits, or he may be able to transfer the trust to another bank and continue to use the property.
Ellsworth, who has worked on several Mexican resort ventures and is now senior partner in the law firm of Finley, Kumble, Wagner, believes Fonatur's plans for San Jose del Cabo and Loreto could "set off a land boom" in the two resorts.
He likens the resorts to Cancun, where, he said, prices for beach-front property have multiplied 12-fold since Fonatur began developing the area 12 years ago.
But Fonatur Director General Kemil Rizk is quick to note that the structure of the program for San Jose del Cabo and Loreto will discourage land speculators, in part because any American who purchases property in the area must adhere to a strict construction schedule. If the investor tries to sell his interest in the property before construction is completed, Fonatur has the power to veto the sale.
Those requirements "will eliminate 90 percent to 95 percent of the speculators," Rizk says. "We don't want to make a bunch of money for a few dozen speculators; we want to create new jobs and increase tourism."