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Oil Spill Drives Property Values Down $56k,Sending Buyers to Mexico

12 September, 2012

“600,000 homes face $3 billion loss over 5 years” - Bloomberg Businessweek

Bloomberg reported yesterday,that in the wake of the BP oil spill (the largest in history),some Gulf Coast homes and properties have lost an average of $56,000 each,a whopping 35% since May alone. Over 600,000 waterfront properties in Mississippi,Alabama,and Florida face value losses of over $3 billion or more over the next 5 years. 

The disaster is expected to completely wipe out the premiums homebuyers and investors paid for water access and ocean views,and commercial buyers and developers will see even greater losses. Buyers have stopped calling real estate agents and pending sales are down at least 50% from 3 months ago. Home buyers,developers and investors are paralyzed with uncertainty.

Some coastal properties have been spared from the worst-case-scenario of tar balls landing on their beaches and there has been reportedly less oil seen on the sea surface recently. However,the main reason values are rapidly declining has more to do with the fear generated by the catastrophe,scarring vacationers,buyers and investors away to more pristine and unpolluted beach destinations like Mexico.

One such place that seems to be benefitting from this Gulf Coast Exodus lies 350 nautical miles from the southern tip of Florida and is protected from gulf oil spills by a powerful northerly current. This pristine-patch of white-sand beach is known as Mexico’s Riviera Maya. It’s a 80-mile swath of crystalline Caribbean coastline that spans from Cancun to Playa del Carmen and all the way down to Tulum. 

Amazingly,the number of visitors coming from the United States to the Riviera Maya is up almost 35% this summer and record growth in revenue and profits is being reported by airport operators and the department of tourism. It’s surprising because,summer,the off-season in this part of Mexico,is usually slower and visitor traffic starts to curtail in June and usually don’t pick back up again until November. Realtors and developers are also seeing an unusual up-tick in the number of inquiries from buyers and investors for this time of year.

This area is similar to where Florida was 40 years ago in its development and many beaches remain tree-lined and unspoiled. In fact,Conde Nast Travel recently proclaimed that Mexico’s Riviera Maya had the “The Most Beautiful Beaches in the World”. This is the same place the award-winning Corona commercials are filmed and is quickly becoming some of the hottest investment and vacation propertyon the planet.

What will happen for Gulf Coast real estate values in the future is uncertain. Many wonder about the long term effects that the largest oil spill in history will have on the Gulf’s fragile environment and economy. Compounding fears,there are over 4,000 oil wells still operating in the Gulf and another spill was reported just last week. Whatever the long-term economic future for property owners in this coastal region,for now one thing seems to be clear,values are dwindling and buyers are fleeing,driven by the stigma of a multi-decade environmental disaster.