Buying a property is such a nice sounding idea that many people just jump in to it without understanding the basic tenets. Most of the times real estate involves large amounts and legalities because of which no aspect can be ignored. Today, more and more people are investing in properties in tourist destinations such as Mexico, Costa Rica and Dubai.
As a real estate agent in Akumal, I receive many queries regarding real estate investing in Mexico. Many of the prospective buyers have a very little clue about Mexico laws and procedures regarding property. In this article, I will try to educate my readers about the Mexico’s real estate system in an easy and concise way.
Let me start with a bit of history first. In the year 1917, Mexico’s constitution proclaimed that all Mexican land will be communal (“ejido” in spanish). That means that only Mexican citizens owned land in Mexico. Ejido belonged to every village and could not be sold.
But a constitutional amendment was made in 1973 which paved the way for foreigners to buy land in Mexico but will some riders. Under the Foreign Investment Law, non-Mexicans could buy land anywhere in Mexico except the restricted zone consisting of areas within 100 km of international borders or within 50 km from the coastline. While this gave foreigners some leeway, this was not enough to boost their interest. Sensing the need to make laws more flexible so as to attract international buyers and investment, another constitutional amendment was made in 1993. Now, foreigners were allowed to buy property in the restricted zone also through a “fideicomiso”. (Like Aldea Zama which few kms inside the coast but still is in the restricted zone)
The “fideicomiso” in simple is a bank trust in which the bank acts as the “trustee”. It holds the trust deed for the buyer who acts as a “beneficiary”. Even though the trustee is the legal owner of the Mexican property in question, the foreign buyer who is the beneficiary retains all ownership rights and responsibilities. The beneficiary in effect can sell, lease and mortgage the property. The fideicomiso has all the legal sanctity and is authorized by the Government of Mexico under the Ministry of Foreign Affairs.
Since the Bank acts as the trustee, it is required to check ownership and insurance. It also has to confirm that the property is free of liens. A trust is granted for a 50-year period. The fideicomiso is renewable at any time (for another 50-year period) by submitting an application to the bank. The owner is given an extension of 10 years in which the owner has to file an application for renewal in case the fifty year period expires without renewal.
In case you’re buying a property which already has a fideicomiso then the existing trust will be simply transferred to you for the remainder of the validity period. The buyer also has the option to renew the trust. In such cases probate and transfer tax are not applicable.
A way to own property in Mexico without a trust is to open a Mexican corporation which is 100% foreign-owned. The caveat is that only commercial properties can be purchased which attract utility rates.
Residential property doesn’t attract any VAT whereas for commercial properties are VAT is applicable at the prevailing rate in addition to the acquisitions tax.
Once both parties agree on the deal and the price, “Convenio de Compra/Venta” is drawn up. This is the written initial agreement to sell and buy the property and a 5%-10% of the decided price is deposited bu the buyer.
A foreign buyer has to fulfill some legal obligations such as getting a permit from the Foreign Secretary’s Office in which the buyer will be required to sign the “Calvo Clause”. Under thus clause the buyer cannot seek foreign jurisdiction in any matter related to the property transaction. The seller will then submit a copy of the Land/Property Deed. A lawyer is important to verify all the documents.
The buyer has to give the entire pending amount to the seller once the deed is transferred to him. While there are no limits on how much money can be transferred in and out of Mexico, any cash or monetary instrument above 10,000 USD needs to be declared.