By: Katy McLaughlin

The Wall Street Journal

Aug. 13, 2015 9:49 a.m. ET

Jonathon Fischer, 52, and his wife Christine Avanti-Fischer, 44, have owned properties in Miami, Los Angeles, New York City and the Muskoka region of Canada. Their latest acquisition is in a destination where they can vacation in style and, they hope, see a return on their investment: Los Cabos, Mexico.

Last May, they bought a four-bedroom, roughly 4,000-square-foot house in the Villas del Mar resort for $1.85 million. The couple is now spending between $1.5 million and $2 million to add about 1,000 square feet and “renovate every square inch to make it modern,” said Mr. Fischer, a venture-capital investor.

“What intrigued us about the peninsula was that they had this concentration of really nice resorts and hotels and a surprising amount of activities in a small area,” Mr. Fischer said. Created about 20 years ago, Villas del Mar has a golf course, 16 miles of walking paths and property managers who pay owners’ bills and grocery shop for them.

In the wake of the U.S. housing crash and press about Mexico’s crime problems, Los Cabos saw transactions freeze, prices drop and construction stall. Real-estate brokerages fled the market altogether. Last September, Hurricane Odile closed the area’s luxury hotels for most of the tourist season.

But today, the recovery in U.S. luxury-home prices, particularly in California, is driving a post-hurricane revival in Los Cabos. A change in government and subsequent reduction in drug-related homicide helped reduce fears about violence in Mexico overall; Los Cabos has remained a relatively safe and low-crime area.

Developers of some of the world’s most luxurious resorts are moving in, while resort concepts that have been stalled for years are back to building. Sales reported to multiple listing services were up 18% in 2014 compared with the year prior, despite the hurricane, said Carol Billups, owner of Cabo Realty Pros.

Los Cabos, also known simply as Cabo, lies at the southern tip of Mexico’s Baja California peninsula. It consists of two towns—Cabo San Lucas to the west and San José del Cabo to the east—and a 20-mile corridor between them, where most of the beaches, resorts and high-end residential developments are located. Until the 1980s, the area was mainly undeveloped desert and fishing villages. Then, drawn by sport fishing, golf and nearly year-round sunshine, U.S. and Canadian visitors helped build the area’s current tourist-oriented economy.

Prices at the top end are now $1,300 to $1,400 a square foot—30% to 40% higher than during the crash years of 2009 and 2010, said Chris Snell, a veteran real-estate agent in the area. These figures include prime land costs and top-end construction of “air-conditioned space” (excluding terraces and patios). During the peak years from 2004 to 2007, top-end prices were a bit higher, at about $1,400 to $1,500 a square foot, Mr. Snell said.

Ms. Billups said that before the bust, her average sale was a $2 million property, but that transactions stalled so badly she revamped her company to serve retirees buying $300,000 to $500,000 homes. This fall, she will begin aiming for the luxury vacation market again, she said. Christie’s International Real Estate discontinued its relationship with a Christie’s affiliate in Los Cabos five years ago, but is currently searching for a new partner in the area, said Senior Vice President Zackary Wright.

Ohana Real Estate Investors, the group behind Hanalei Plantation Resort in Hawaii and the Montage Beverly Hills, began selling properties at its new resort, Maravilla, last year. The community includes family-friendly amenities such as a two-story climbing wall, an 18-hole putting course and a kids’ activity center that will include educational programming on the local habitat and history. Empty oceanfront lots cost between $5 million and $10 million. Condos and townhouses, the first of which were completed last year, also cost between $5 million and $10 million, said Director of Residential Real Estate Neil Johnson.