Tulum is booming on both the tourism and real estate fronts. There is construction happening everywhere of buildings with very appealing architecture. But does Tulum make for a good real estate investment? We’ll explore this in detail.
I obtained permanent residency in the Mexican state of Quintana Roo and must admit that I quite like it here.
In this article we will explore
- The macro outlook for Mexico
- The Real Estate Market in Tulum
- Key catalysts for Tulum real estate
- In which neighbourhoods to make a real estate investment in Tulum, Mexico
- A visual demonstration of the Real Estate boom taking place in Tulum
- Conclusions on making a real estate investment in Tulum
- Who should invest in Tulum real estate?
Mexico has attractive demographics
With a fertility rate a bit above two children per woman, Mexico ranks higher than any Western country. It is quite visible when traveling around the country.
People tend to forget that Mexico is an absolute ogre population-wise with its 128 million inhabitants. It is the second most populous Latin American country after Brazil, with 210 million people, and well ahead of the third, Colombia with 50 million people.
A large economy that has been growing steadily, but somewhat sluggishly
The most objective way to look at the country’s growth is on a per capita PPP basis, to capture how much people are really gaining from GDP growth.
These numbers are decent, but in all honesty they are a bit disappointing when taking into consideration the (mostly) free trade agreement with the US and Canada. A massive country with such a surplus of affordable labour, should objectively be doing better.
A slightly disappointing current account for such a large manufacturer
The 2022 and 2023 current account deficits are projected to be between -0.5% and -2% of GDP.
This is in spite of booming remittances
Remittances from Mexicans working in the US represent 4% of Mexican GDP, and are a lifeboat for many families. Uncle Juan in Oakland is more of a safety net than the Mexican government. It also demonstrates the hard work of Mexicans in the US, considering the amount of Mexicans did not grow by such an amount proportionally over time.
Clearly, Mexicans in the US have been gradually moving up the food chain in terms of income.
However, Mexico is a country with very decent government finances
In a world of government debt to GDPs in the Western world of mostly 100%+, Mexico’s figures are quite sobering.
However there are two massive trends that forecasters are not yet taking into account for Mexico
The world is bifurcating between East and West, with a third, more neutral block in-between just as during the Cold War (Mexico is in this latter block).
The inevitable result of all of this drama, is that re-shoring will become a top priority for Western companies and governments. After having outsourced most of its production of goods to China over the past 20 years, the US finds itself in a situation where it must re-shore production, and reduce its exposure to China.
The collective West installed a new sanctions regime – “If we don’t agree with you, we sanction you and seize your assets overseas”, which it did to Russia and its foreign reserves. China now knows how the collective West behaves, and will seek to create massive damage to Western supply chains in case of increased tensions.
Western companies, whether they like it or not, will have to diversify away from China. A lot of this production with go to the likes to Vietnam, etc. But an obvious candidate is just across the border. Mexico will be in a prime position to massively benefit from this de-globalization and re-shoring trend. It is a huge catalyst that is not being taken into account by mainstream forecasters.
In a world of natural resources supply shortages, Mexico is a prime producer
This should greatly bolster Mexico’s current account deficit thanks to exports, and render Mexican industry more competitive.
Mexico is flush with natural resources. It is the world’s biggest silver producer and a top 10 miner of gold and copper, as well as lead and zinc. It is also trying to develop its energy-transition Lithium deposits.
Importantly, in spite of government efforts to increase environmental and regulatory checks & balances on mining operations, Mexico is the 4th biggest recipient of mining foreign direct investment (FDI) in the world.
Mexico’s energy policy is a mixed bag. It is a net crude oil exporter, but net importer of refined petroleum products, and a net importer of natural gas, though it has substantial reserves. It is the world’s 13th largest oil producer and has the world’s sixth-largest technically recoverable shale gas resources.
For many years the oil & gas industry was not prioritized, was not incentivized to explore, and the large state-owned company PEMEX was used for political gain.
The government is now trying to heavily encourage oil & gas exploration. This is undoubtedly the right decision, but it will take time for results to be visible. The current energy crisis will absolutely be a catalyst for faster action.
Mexico has an economy that will meddle along, but with pockets of excellence
I believe that Playa del Carmen and Tulum are two such areas of excellence. But before digging into the driving forces, I must say a few words on the mortgage market.
The mortgage market in Mexico is primarily for homeowners who live in their homes, rather than investment properties as the rates are really high (almost 9% and going up).
The advantage of investing in a market with a lot of leverage is that when times are good real estate values goes up a lot, but when times are bad, they descend with a vengeance.
This is a core advantage of making a real estate investment in Tulum these days – prices are less likely to go down than in Phoenix, Vancouver or Paris. Both locals and foreigners who invest in this market are mostly cash investors.
H0wever prices are already relatively high
Tulum is not cheap if you want to buy an interesting apartment in one of the central areas. It’s more expensive than Mexico City, and together with Cancun and Playa del Carmen is the second most expensive area in Latin America after Punta del Este in Uruguay.
But unlike these other Latin American cities, prices are much more heavily linked to the North American market, as this is the main target market, as well as Mexican industrialists who are themselves very tied to the American economy.
So yes, absolute prices are expensive relative to the region, but it’s a completely different market.
Overall, I don’t feel that Tulum is a market to seek substantial capital gains. I rather see it as great diversification, a potential lifestyle play, a residency play in some cases, and mostly a cash flow play. One can get decent rental yields as things stand, though it is hard to predict what they will be in the future. We’ll touch on this topic later in the article.
I also believe that structurally, this market has a lot less downside than most Western markets due to its cash nature, and the many catalysts.
5 key catalysts that make a real estate investment in Tulum interesting
1. Staggering development in the Riviera Maya
The government has made it a key national priority to develop this whole region. I don’t need to elaborate too much on Cancun airport, which is Latin America’s 4th largest by passenger volume (after Mexico City, Bogota, and Sao Paulo). Almost 15 million (mostly tourists) flock through its terminals every year. Cancun Airport is even better connected to Europe than Mexico City for example.
Let’s not forget that originally, Cancun was nothing. It was just a stretch of pretty coast. In the 1970s the Mexican government decided to create a resort city there and national funds were used to develop infrastructure and hotels.
So yes, the Mexican government can be rather inefficient in many regards, but it pull this one off as Cancun is now one of the world’s top beach destinations.
The Mexican government is now doubling down. It is building a whole railway system linking Cancun to the rest of the Southern coast and Yucatan. People call it the “Maya train” as it’ll cover all the main tourist attractions such as nice beach towns, airports, Maya ruins, and colonial cities such as Valladolid and Mérida.
It’s not just a far-fetched plan; it’s actually happening. I saw some of the construction and building myself. There are some hiccups due to environmentalists wanting to stop the economic development, but the first stations will be operational from late 2023.
Importantly, Tulum will be one of the key stops. As it stands, one must take a two-hour taxi or bad public transport to get from Cancun to Tulum, a turn-off for many people. In the future they will be able to easily zip between the two cities.
One of the drawbacks of Tulum is that is sometimes feels a little small, so once the train link is established, people will be able to get to Cancun very easily to do what they need to do there. This extra accessibility is a major catalyst.
Additionally, the government was working on a second international airport in the region, in Tulum.
The airport was meant be operational from 2024 with direct flights to Chicago, Dallas, Panama, Mexico City, etc.
Unfortunately there have been delays as government decided to focus on the train. However new dates / timelines for Cancun International Airport are expected to be announced in the coming weeks.
2. Digital Nomads
The reality is that a few hours flight away from Tulum is a massive market of high-earning Americans who simultaneously realized a few things:
- They can work almost entirely remotely.
- They can work from abroad, thus leaving behind an increasingly toxic environment. This perception of toxicity applies to Americans of all political stripes.
- They can live a quality life for less money abroad and in many cases can save on taxes if structured properly (feel free to get in touch with my tax consultants here)
Millions of Americans have either reached these conclusions, or soon will. Europeans too, but the main market in Tulum will be North Americans as they are closer, the time zones are the same, and they earn more than Europeans so are inherently more interesting target customers.
First-time American digital nomads will stick to the name brands in terms of travel destinations, which is bullish for making a real estate investment in Tulum.
Tulum is one of the world’s top digital nomad destinations, along with places like Chiang-mai, Bali, Budapest, Medellin, and Playa del Carmen.
3. North American political and cost-of-living refugees
The influx has already started, and is bound to grow. I am not referring to digital nomads who move here for a few months or a year before bouncing off somewhere else. I am referring to people, of all political stripes and ages, who move down to Mexico full-time. They sometimes have online businesses, but often they still have businesses back home which someone manages for them, they are retired, they live off passive income, or start actual businesses in Mexico.
I have met a few types of such people:
Liberals who fear a right-wing dictatorship in America
I’ve met a few of those. They fear that they are gradually losing their rights in America (recent supreme court rulings) and that the country is just waiting for a radical turn to the right.
Conservatives who fear a left-wing dictatorship in America
They feel the federal government is after them, that the IRS will persecute people, and that their rights and freedom of speech are under attack.
Apolitical Americans who are sick of all the politics in America
They just want to live in peace away from all the nonsense. The beach in Mexico is a good destination for this.
Unvaccinated people
People who don’t want to get vaccinated and who feel they have more medical freedom in Mexico. Of all political stripes. Conservatives, health practitioners and hippies. Lots of Canadians.
Europeans who flee conflict
Tulum has a lot of Ukrainians who fled the conflict, and Russians who relocated to flee the sanctions. Increasingly, forward-thinking Western Europeans are preparing Plan Bs outside of Europe as they feel their governments are behaving too aggressively. They fear that their governments will draw them into yet another war as they did in WW1 and WW2.
Cost of Living refugees
As inflation eats away people’s savings in Western Europe and North America, and as the healthcare systems gradually fall into decay (Europe and Canada) or become too expensive (America), many people will move down South where the cost of living is lower.
Granted, Tulum is not the cheapest destination in Mexico, let alone in Latin America. But it is conveniently located, English is relatively widely spoken, and it is nevertheless affordable and comfortable. We can expect tens of millions of such Westerners to leave the West in the coming decades. Tulum will attract quite a few of them, especially as obtaining residency in Mexico is easy.
Investors must understand that not all such people are “cheap”. If you earn $70,000 in Illinois you can live a decent enough life, but in Mexico you will live extremely well.
Same thing with Europeans, €30,000 per year in Belgium will afford you an average existence, but in Mexico life will be more than comfortable.
4. Walkability and cycle-bility are true competitive advantages for the real estate investment market in Tulum
Cancun is all about driving a car and taking cabs. This is not what people want nowadays. They want to fly into their destination, and once they settle in they want to be able to walk and / or cycle around.
Playa del Carmen is known for its walkability. Tulum on the other hand, is know for both walkability and all its cycle paths.
Looking at Tulum’s geography, there are a few clusters where people can just walk around such as in the Centro and in the Aldea Zama and Selva Zama areas. However, going between areas, or heading down to the beach by foot is a bit much.
This being said, it’s close enough that you don’t really need to take a cab. This is why many scooters, ATVs and bicycles can be seen in Tulum. This gives the town nice holiday vibes.
Many cycle lanes are being built, which demonstrates the city’s commitment to such a vision.
5. Tulum as a health and spiritual destination
Tulum is quite unique in the world in terms of its positioning with regards to health and spirituality.
Sure, we have all seen the pictures of wonderful beaches, cool beach clubs packed with “influencers”, and Mayan ruins, but Tulum is also widely known as a place where people go to recharge.
Health bars, vegan restaurants, yoga classes and secular spiritual experiences of all kinds await young Gen Zs and Millenials.
Whether you personally like this lifestyle or not is besides the point. As real estate investors we must recognize that these are huge growth sectors.
Owning real estate in such a place is interesting and unique diversification from a trends point of view. There aren’t many destinations in the world that are positioned in such a way, with beautiful real estate that foreigners are allowed to invest in.
Tulum is unique in many aspects.
In which neighbourhoods to make a real estate investment in Tulum, Mexico
As Tulum is developing fast, it’s important to have proper guidance to make sure you don’t buy in the “wrong” areas. Though Tulum doesn’t look very confusing on a map, in reality it’s easy to get lost there due to many circular roads, and an ever changing environment.
The key point to understand about Tulum is that the Centro is far away from the beach, and that there are only two roads that link the two. You need to either drive or cycle in-between.
Investing in the Centro of Tulum
The centro is where most of the locals live, but also where you find longer term expats hanging out. It’s the main strip where you can find shops, restaurants, and bars that are not beach clubs. It’s much more affordable to eat, drink, and have fun there than on the beach.
For this reason, there is demand for rentals, particularly from backpackers, budget travelers, and long term digital nomads.
I would be very careful not to venture more than a block or two north of the highway as this area will never become premium. It is destined to be mostly developments for locals, which are cheap to build and plentiful. I don’t see prospects for interesting capital gains north of there.
However, the core Centro is investable, though hardly exciting.
Hotel Zone
Absolutely lovely area; the reason people go to Cancun. But barely anything is for sale here. It’s all high end boutique hotels, beach clubs and cute shops.
People often wonder why it’s not possible to build anything on the third and fourth line behind the beach. The reason is that most of the area cannot be built on due to environmental restrictions and issues with aquifers. This is the core reason why the beach area is so far removed from the rest of Tulum.
West of Tulum
There is a lot of construction going on in this area, but it is done in an unplanned fashion. Most roads are still unpaved and fiber-optic cables haven’t arrived yet. There is a true feeling of wild west out here. In many ways, if you want a Tulum-type building with amazing amenities and stunning architecture, you’ll find the best value here.
However, the area is not walkable for now, nor can you cycle around. You absolutely need a car to access this area..
It will be nice a few years from now, but it will take time. Much is left to be done. It’s not a bad long term play as prices are more affordable in this area, and if Tulum continues to develop it will eventually become a very nice area.
Aldea Zama and Selva Zama
This is my preferred neighbourhood for investment purposes. Why?
The architecture is stunning everywhere, and there is very decent infrastructure and urban planning.
This area has tons of cute cafes, co-working spaces, cycle lanes, and cool buildings with amazing architecture. It is extremely livable, and is halfway between the Centro and the beaches. There is a lot of construction going on, and a lot of people living mid-long term in this area. If I were to make a real estate investment in Tulum, I would personally go for this area.
What are the rental yields when making a Real Estate Investment in Tulum?
In all of my detailed reports on real estate markets around the world that I visit, I typically give a few examples of apartments and then breakdown the exact rental yield calculation, including all costs to get to realistic numbers (such as in my Playa del Carmen real estate investment article).
Roughly, based on past figures, investors could expect net rental yields, after costs, of about 5%-7%. However, the Tulum real estate market is too dynamic to give any realistic numbers. Why? Because both demand and supply are booming.
On the one hand, construction of investment real estate in Tulum is undergoing a massive boom, which will increase the amount of supply and available rentals on the market.
On the other hand, tourism is booming like crazy based on Tulum being exceptional at marketing itself, and having much to offer.
At any given point there will be market imbalances. This really feels like a frontier market from a business development point of view. Tulum has an extremely appealing market positioning, and has a vision it is implementing bit by bit.
For now, net rental yields are higher than in Playa del Carmen as rents are a bit higher, and purchase prices lower. However, nobody can predict how the numbers will be going forward.
Vizualizing the Real Estate Investment boom in Tulum
My buyer’s agent Luigi, from Montreal, and I spent time in Tulum discussing the real estate investment market there. We also visited a few different areas, neighbourhoods, and developments to give people an idea of the true boom that is taking place there.
So who is a Real Estate Investment in Tulum right for?
People who want to spend part of the year in Mexico would do very well making a real estate investment in Tulum
People who want to mix lifestyle and a place they can rent out. Tulum is an amazing destination, there is a lot to like about it, and it is absolutely possible to spend a few months of the year there as a tourist, or even obtain Mexican residency, and then rent out the apartment on Airbnb for the remainder of the year. If people want to maximize their ROI, I recommend they list the condo on Airbnb from mid-December until end April, which is the peak season.
The fact that the architecture of these buildings is stunning, and that they are packed with young digital nomads from all over the world makes Tulum a fun place to own investment real estate and spend time.
A real estate investment of a minimum of $175,000 using the right structure qualifies the investor for residency in Mexico. There are many other ways to qualify for residency in Mexico (more details here).
Westerners who want to diversify without taking on too much geopolitical risk, in an established destination
People who want to diversify away from Western countries, without taking geopolitical risk. Mexico is unlikely to get involved in any war, and investments are welcome from all over the world. In many ways it is a bit of a safe haven. Granted, Tulum is not the cheapest of destinations, but it is very established, and importantly comes with minimal currency risk on rental income as rents are set in USD, not in Mexican Pesos. The yields are (probably) lower than in Medellin for example, but the risk is much lower.
Tulum also encompasses so many powerful trends in its very essence, that it is a unique real estate play.
The fact that it is mostly a cash market also offers downside protection compared to Western markets and their rapidly rising interest rates.
Conclusions on making a real estate investment in Tulum
Overall I view the Tulum the real estate investment market as relatively safe diversification with decent cash flow and a great lifestyle component. Compared to Playa del Carmen, I would say the rental yields are more uncertain, but that there is more long term potential for capital gains if you invest in the right neighbourhoods.
People are increasingly looking for cool architecture, beautiful beaches, co-working spaces, health and spiritual retreats, and all of this in an international environment. Tulum fits the bill.
Finally, the transport infrastructure that is expected to be completed in the coming years is a substantial catalyst for Tulum as a tourism, lifestyle and investment destination.
Make sure to get in touch with Luigi to make a real estate investment in Tulum or Playa del Carmen
Luigi, originally from Montreal, has been living in Mexico for many years and even obtained Mexican citizenship. What I like about him is that he is extremely numbers and investment focused, which is very valuable. Most realtors in Tulum think only lifestyle, but Luigi is also interested in finding good investments for his clients. You can find out more about his buyer’s agent services here. Alternatively, you can send him an email: luigi@thewanderinginvestor.com. Include your Whatsapp number if you use it as he is a keen user 🙂
If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.
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