Mexico’s real estate landscape offers compelling investment opportunities, but not all markets are created equal. Two destinations that frequently appear on investor radars are Oaxaca City and Tulum. While both locations boast cultural richness and growing tourism sectors, the investment dynamics between these two markets couldn’t be more different in 2025. Understanding these differences is crucial for making informed decisions that align with your financial goals and risk tolerance.
The Tale of Two Markets: A Critical Overview
Tulum captured global attention during the pandemic era, transforming from a bohemian beach town into a high-profile investment hotspot. However, the market is now experiencing a significant correction. According to the Mexican Association of Real Estate Professionals, property purchases in Tulum have dropped by 40% since 2024, with rental prices plummeting by 80% in the most affected segments. This dramatic shift represents one of the most significant market corrections in Tulum’s modern real estate history.
Meanwhile, Oaxaca City has quietly emerged as a stable, growth-oriented market. The UNESCO World Heritage city benefits from organic demand driven by cultural tourism, expatriate relocation, and Mexico’s burgeoning digital nomad community. Unlike Tulum’s speculative boom-and-bust cycle, Oaxaca’s growth trajectory reflects sustainable, long-term fundamentals that favor patient investors.
Current Market Conditions and Investment Returns
The Tulum market presents a mixed picture in 2025. While promotional materials still tout returns of 8-15%, the reality on the ground tells a different story. The market faces a severe oversupply issue, particularly in the condo and apartment sector, with enough inventory to last three to four years at current sales rates.
Current challenges in Tulum include rental occupancy rates that once consistently exceeded 70% but now average 50-60% for many condo properties, with some struggling to reach even 40% during shoulder seasons. Many condo owners report that rental income now only covers expenses, with profits eroding due to intense price competition in oversupplied segments. Property prices for studio and one to two-bedroom condos have declined 10-20% from peak 2024 levels, though luxury villas and beachfront properties above $500,000 maintain resilience with modest annual increases of 5-8%.
The average days on market have increased dramatically, from 30-45 days in 2022 to 90-120 days in 2025 for standard properties. Several developers face financial difficulties, with many projects behind schedule or at risk of bankruptcy.
Oaxaca City: Steady Growth and Strong Fundamentals
Oaxaca City presents a markedly different investment landscape. The market demonstrates consistent appreciation without the volatility plaguing coastal destinations. Neighborhoods such as Xochimilco, Jalatlaco, and the historic center have seen steady property value appreciation driven by authentic demand rather than speculation.
Investment returns in Oaxaca are characterized by more modest but reliable figures. Short-term rental properties can achieve ROI between 8-11% with effective management, though realistic first-year expectations start at 4-5%. Long-term rental investments typically yield 4-6% annually, providing stable cash flow. Property appreciation in desirable neighborhoods averages 5-8% annually, reflecting organic market growth. Most importantly, the market shows minimal oversupply concerns, with strong underlying demand from tourists, expatriates, and domestic buyers.
Market expert Mary Aquino of RE/MAX Cantera explains that foreigners are investing primarily within the capital city due to its tourism and gastronomic appeal. While prices aren’t cheap, they represent good value for future returns compared to the inflated and now correcting Tulum market.
Price Point Analysis: Entry Costs and Value Proposition
| Property Type | Tulum Price Range | Oaxaca City Price Range |
|---|---|---|
| Studio/1-Bedroom Condo | $120,000 – $200,000 | $80,000 – $150,000 |
| 2-3 Bedroom Home | $250,000 – $550,000 | $180,000 – $350,000 |
| Luxury Villa/Colonial Home | $500,000 – $3,000,000+ | $400,000 – $1,500,000 |
| Price per Square Foot (Center) | $300 – $500+ | $100 – $150 |
The price differential between the two markets is substantial. Oaxaca offers significantly more value per square foot, with prices in the historic center averaging around 2,500 pesos per square foot, while nearby Xochimilco comes in at approximately 1,500 pesos per square foot. This compares favorably to Tulum’s inflated prices, which often exceed $300-500 per square foot for standard properties.
Tourism Dynamics and Rental Market Performance
Tourism fundamentals play a crucial role in determining rental investment success. Tulum’s tourism sector experienced explosive growth during the pandemic but has since normalized. While the destination still welcomes over 3.5 million visitors annually, these numbers haven’t matched the COVID-era peak. Local tour operators report a significant slump, describing the current situation as unusually severe.
Oaxaca presents a different tourism profile altogether. The city has been named one of the best places to visit in Mexico by numerous international publications. The constant flow of visitors is driven by cultural attractions, world-famous cuisine, and authentic experiences rather than party culture or beach tourism. This creates demand for accommodations that tends to be more stable and less seasonal than beach destinations.
The rental market dynamics favor Oaxaca’s long-term stability. Vacation rental properties in Oaxaca’s historic neighborhoods benefit from year-round cultural tourism, particularly around major festivals like Guelaguetza and Day of the Dead. The market attracts a different type of tourist seeking cultural immersion, often willing to pay premium rates for authentic experiences in restored colonial properties.
Infrastructure and Development Outlook
Tulum’s Infrastructure Gamble
Tulum’s real estate sector has pinned significant hopes on major infrastructure projects, particularly the Maya Train and the Tulum International Airport. While these developments have improved accessibility, they haven’t yet offset the oversupply crisis affecting most property segments.
Properties within a two-kilometer radius of Maya Train stations have shown modest price premiums of 3-5% compared to similar properties in more distant locations. Tourism arrivals are projected to increase by 10% in 2025, adding over 600,000 visitors annually. However, industry experts caution that these infrastructure benefits will take years to fully absorb the current excess inventory.
Oaxaca’s Organic Growth Pattern
Oaxaca City benefits from steady infrastructure improvements without the speculative frenzy that characterizes mega-projects. Recent developments include the Oaxaca-Puerto Escondido highway, which has improved connectivity to coastal areas, enhanced airport facilities serving domestic and international routes, and ongoing preservation efforts in the UNESCO World Heritage historic center.
The city’s status as a UNESCO World Heritage Site provides both protection and challenges. Strict renovation guidelines enforced by INAH ensure that development proceeds thoughtfully, preventing the kind of reckless overdevelopment that has plagued Tulum. This regulatory framework actually protects long-term property values by maintaining the authentic character that attracts tourists and residents.
Legal Considerations and Foreign Ownership
Both markets require foreign investors to navigate Mexico’s property ownership regulations, but the implications differ. In Tulum, as a coastal destination, all foreign property purchases within 50 kilometers of the coastline require either a fideicomiso or establishing a Mexican corporation. This adds complexity and ongoing costs to property ownership.
Oaxaca City properties located outside the restricted coastal zone can be owned directly by foreigners through fee simple ownership, simplifying the legal structure and reducing costs. Properties must still undergo proper due diligence through a notario público, but the overall process tends to be more straightforward for city center locations.
For properties in Oaxaca, working with experienced local real estate professionals who understand both the legal requirements and the market nuances is essential for successful transactions.
Risk Assessment: Understanding What Could Go Wrong
Tulum’s Risk Profile
Investing in Tulum today carries substantial risks that weren’t present during the boom years. The oversupply situation means continued downward pressure on prices for standard condos, extended holding periods before achieving positive returns, and increased competition among rental properties driving down nightly rates. Developer bankruptcies could leave some projects incomplete, stranding investor capital. Environmental concerns regarding water supply and ecological impact may lead to future development restrictions.
Real estate experts note that many developers are behind schedule, late with construction, and could face bankruptcy in the next year or two. Only developers with good track records and unique projects continue to perform adequately in this challenging environment.
Oaxaca’s Risk Considerations
Oaxaca presents a different risk profile, characterized more by regulatory complexity than market instability. Historic center properties require compliance with INAH preservation guidelines, which can complicate and increase renovation costs. The market moves more slowly than coastal destinations, requiring patience for appreciation. Property values remain sensitive to broader economic conditions and tourism trends. Water supply issues in certain neighborhoods require careful due diligence.
However, these risks are largely manageable through proper research and working with knowledgeable local professionals. The market lacks the systemic oversupply issues plaguing Tulum, representing a fundamentally more stable investment environment.
Investment Strategies: Matching Market to Goals
When Tulum Makes Sense
Despite the current challenges, certain investor profiles may still find opportunities in Tulum. The market could work for lifestyle investors who plan to occupy the property part-time and don’t depend on rental income for returns. Bargain hunters with cash ready to purchase distressed properties on the resale market at significant discounts may find value. Long-term investors with a five to seven-year horizon who can weather the current downturn and wait for infrastructure benefits to materialize might also see opportunity. Ultra-luxury investors focused on unique, high-end villas above $500,000 that have maintained value could consider Tulum.
Current market conditions favor buyers over sellers in Tulum, creating opportunities for those who can be selective and patient. As one local expert notes, investors who bought during the COVID boom expecting very high returns are now disappointed and looking to sell, creating opportunities for sophisticated buyers on the secondary market.
The Oaxaca Advantage
Oaxaca City appeals to a different investor psychology focused on fundamentals over speculation. The market suits income-focused investors seeking reliable rental returns without excessive volatility. Cultural tourism enthusiasts who appreciate the authenticity and heritage that drives Oaxaca’s appeal will find value here. Renovation investors interested in restoring colonial properties for boutique hotel or vacation rental conversions can capitalize on unique opportunities. Long-term appreciation investors who understand that steady 5-8% annual growth compounds into substantial wealth over time will be rewarded.
The city’s growing appeal to digital nomads and remote workers provides a new demographic of long-term renters, diversifying income sources beyond traditional tourism. This trend strengthens the fundamental case for residential property investment in Oaxaca apartments and colonial homes.
Expert Perspectives and Market Sentiment
Industry professionals offer sobering assessments of Tulum’s current situation. Mario Antonio San Miguel Herrera, President of AMPI in Tulum, acknowledges the stark reality of oversupply and warns that favorable macroeconomic conditions would be needed for Tulum to enter a new phase of real estate development in a more orderly and strategic manner.
In contrast, Oaxaca market experts express cautious optimism. Dolores Pérez Islas of Silmexico notes that the carefully preserved colonial architecture gives a magic touch that every owner wishes to obtain. She emphasizes that it’s surprising there are still places like Jalatlaco that look exactly as they did 100 years ago, highlighting the unique preservation that protects long-term value.
John Harvey Williams of Real Estate Oaxaca points out that values in Mexico are the sum of land and construction value, with land in sought-after neighborhoods like Jalatlaco valued around $100 per square foot and construction valued up to $75 per square foot for finest quality finishings. Empty lots in these prime neighborhoods are few and far between, indicating healthy demand fundamentals.
Making the Right Choice for Your Investment Goals
The comparison between Oaxaca and Tulum ultimately depends on your investment objectives, risk tolerance, and timeline. Tulum offers the possibility of higher returns for those willing to navigate a distressed market, time their entry perfectly, and potentially hold through several difficult years before infrastructure benefits materialize. The risks are substantial, but opportunities exist for sophisticated investors on the secondary market.
Oaxaca presents a more conservative but fundamentally sound investment case. Returns may be more modest in the short term, but the market demonstrates stability, organic growth, and minimal speculative excess. For investors seeking steady appreciation, reliable rental income, and exposure to authentic Mexican cultural tourism, Oaxaca represents the superior choice.
The data strongly suggests that Oaxaca’s real estate market offers better risk-adjusted returns for most investors in 2025. The combination of reasonable entry prices, steady appreciation, stable rental demand, and minimal oversupply creates a favorable investment environment. While Tulum’s headlines and beach appeal remain seductive, the fundamentals favor Oaxaca’s cultural capital for investors focused on sustainable, long-term wealth creation.
Taking Action: Your Next Steps
Whether you choose Oaxaca or Tulum, successful real estate investment in Mexico requires thorough due diligence, local expertise, and realistic expectations. For those interested in exploring Oaxaca houses and villas, the current market conditions present an excellent entry point before the next wave of appreciation.
Begin by visiting both destinations if possible to understand the lifestyle and tourism dynamics firsthand. Spend time in different neighborhoods during various seasons to gauge rental demand. Work exclusively with licensed real estate professionals who have established track records in their respective markets. Conduct thorough legal due diligence through reputable notarios públicos. Consider starting with a smaller investment to learn the market before committing significant capital.
For investors specifically interested in Oaxaca’s real estate opportunities, explore our comprehensive blog resources covering market trends, neighborhood guides, and investment strategies. Our team specializes in connecting international investors with authentic Oaxaca properties that deliver sustainable returns while honoring the cultural heritage that makes this region unique.
The Mexican real estate market offers tremendous opportunities, but success requires matching the right market to your investment profile. In the comparison between Oaxaca and Tulum, the evidence points clearly toward Oaxaca City as the smarter choice for most investors seeking sustainable returns in 2025 and beyond.
Ready to explore investment opportunities in Oaxaca? Our team has deep expertise in the Oaxaca City real estate market and can guide you through every step of the investment process. From identifying properties with strong appreciation potential to navigating legal requirements, we’re committed to helping you make informed decisions. Contact us today to schedule a consultation and discover why Oaxaca represents one of Mexico’s most compelling real estate investment opportunities.
Connect with us:
Disclaimer: This article is for informational purposes only and should not be construed as financial or legal advice. Real estate investment involves risk, and past performance does not guarantee future results. Always consult with qualified legal and financial professionals before making investment decisions in Mexican real estate.
