The Mexico real estate market is considered an attractive for investment becuase of the country’s relatively low cost of living, growth potential as a major retirement destination, and increasingly liberalized, trillion-dollar economy.
Foreign ownership of real estate in Mexico is permitted, provided that the property is not located within the Restricted Zone. The Restricted Zone is defined as an area within 100 kilometers of the frontier, or 50 kilometers from the coast. In order for a foreign entity or individual to own property in the restricted zone, the purchase must be set up through a real estate trust opened by a Mexican bank, on behalf of the foreign purchaser. Such a Mexican real estate investment trust is known as a fedeicomiso. Alternatively, if the property to be purchased is non-residential or commercial, a Mexican corporation, which need not be completely owned by Mexicans, can directly purchase property within the restricted zone.
While some of the documents and procedures for property transfer may appear similar to those used in the United States, a wary buyer should first seek competent legal help, gain a basic understanding of the differences between Mexican and U.S. real estate laws, and make no assumptions.
Real estate buyers should retain a professional and work with them to finalize the purchase of property, whether in or out of the restricted zone. Buyers should be aware that, unlike in the U.S., real estate agents or brokers are not legally licensed nor are real estate transactions regulated by the Mexican government. Anyone legally permitted to work in Mexico can claim to be a realtor, as such, buyers should proceed cautiously, and exercise due diligence when retaining a real estate agent.
The U.S. Embassy in Mexico provides a list of reputable real estate professionals, and provides some general guidelines for purchase or lease of Mexican property. However, it’s important to know that they assume no liability for the integrity of those individuals or companies listed, which supports the basic premise of caveat emptor.
Tourism is one of Mexico’s most important industries, especially in many of the most popular real estate markets for foreigners. According to the Mexican Chamber of Commerce for Tourism and Services, tourism grew by 7.30% in 2007, outpacing the country’s total economic growth of 6.30%.
FINDING PROPERTIES IN MEXICO
Finding property in Mexico can be much different than finding property in the U.S. MLS or Multiple Listing Services are cooperative ventures among local real estate brokers which are quite common in the U.S.. MLS are rare in Mexico, but there are systems in Los Cabos, La Paz, and Puerto Vallarta’s real estate markets.
MAKING AN OFFER
Making an offer to purchase begins with an “oferta” or offer which is an initial document which sets forth the offer of price and general terms, and/or a “contrato de promesa”, a promissory agreement. These preliminary documents are followed by the more formal “convenio de compraventa” or, purchase contract, which sets forth all of the terms of the sale and must be approved or protocolized by the Notario. The “convenio” should accurately reflect all details of the transaction. It is the guide for the transfer of the property and is also the source of information for subsequent documents such as the “fideicomiso” and the “escritura” deed, as well as tax valuation. The Notaries will refer to the information in the “convenio de compraventa” in order to prepare the final deed.
The purchase contract can take the form of a real estate trust, a reserve title agreement, or an assignment of real estate trust rights. In order for a document to be considered legal in Mexico, it must be written in Spanish. Translations of transaction-related documents in English and other languages are available. They are not legally enforceable, but may be used as a reference. It is advisable for a buyer to engage a local attorney, preferably bilingual and bi-cultural, before signing any documents.
LANDLORD TENANT LAWS IN MEXICO
According to Global Property Guide, the minimum term for a lease contract in Mexico is one year. The maximum is ten years. The law does provide for leases with an indefinite term, provided either party can cancel with 15-day written notice. Evicting a tenant can be difficult and can take more than a year. Global Property Guide estimates the average judicial dispute involving eviction is resolved in approximately eighteen months.
CAPITAL GAINS TAX ON A SALE
The capital gains tax rate for foreigners with property in Mexico is 28% minus deductions. Mexico does have a capital gains exemption, but it only applies to permanent residents that have lived in their home for the last five years. The tax payment made in Mexico counts as a credit for Americans against their US tax liability if there is one. Canadians do not get a credit but pay Canadian taxes as if none were paid in Mexico. Mexicans pay their tax in Mexico.
Global Property Guide