Buying Real Estate in Mexico

There’s a misconception that foreigners are barred from owning property in Mexico, but the truth is quite the opposite. Foreign individuals or corporations have the legal right to purchase various types of real estate in Mexico, except for properties situated in the Restricted Zone.

According to the Mexican Constitution, within 100 kilometers along the border or 50 kilometers along the coast, direct land ownership is restricted for foreigners. These designated areas are referred to as the “Restricted Zones” or “Prohibited Zones.”

However, the Mexican Foreign Investment Law, established on December 28, 1993, offers a solution. In the Restricted Zone, foreigners or foreign corporations can secure full ownership rights through a bank trust, commonly known as a Fideicomiso.

THE FIDEICOMISO

a trust arrangement akin to the American beneficial trust, offers an avenue for both foreign individuals and Mexican nationals to procure real estate across Mexico, including the Restricted Zone. Despite the option to hold property in unrestricted areas, many prefer the security of a Fideicomiso.

To establish this arrangement, the buyer engages a chosen Mexican bank to act as a trustee. Subsequently, the bank secures permission from the Ministry of Foreign Affairs to acquire the specified property in trust.

A Fideicomiso can extend for a maximum of 50 years and can renew automatically for an additional 50-year term. Throughout these periods, the title can be transferred to any party, even a family member. The bank assumes legal ownership of the property, exclusively for the benefit of the buyer/beneficiary, who enjoys full owner’s privileges, such as leasing or transferring rights to a third party.

The trustee bears responsibility to ensure meticulous adherence to the trust, in compliance with Mexican law. They oversee technical, legal, and administrative aspects to safeguard the buyer/beneficiary’s interests. It’s important to note that Fideicomisos are not considered assets of the bank.

Alternatively, purchasing non-residential property through a Mexican corporation, with specific conditions allowing 100% foreign ownership, is an option. The corporation’s by-laws mandate adherence to Mexican laws, waive recourse to foreign laws, and necessitate registration of acquired real estate with the Foreign Affairs Ministry. Under these terms, foreigners can directly obtain properties designated for tourist, commercial, and industrial purposes.

THE REAL ESTATE INDUSTRY

The Mexican real estate sector mirrors several aspects of the highly sophisticated industry in the United States, known as one of the world’s most advanced markets. Embracing modern technology, Mexico’s real estate industry is evolving rapidly, yet it appears to be following a trajectory that closely aligns with the established system in the US.

LICENSING

The Mexican Association of Real Estate Professionals (AMPI) stands as a distinguished nationwide body within the realm of professional real estate, boasting numerous chapters dispersed across Mexico. Much akin to its US counterpart, the National Association of Realtors (NAR), AMPI operates in tandem with NAR through a collaborative partnership. This unique affiliation ensures that AMPI membership seamlessly extends to encompass NAR membership. Specifically within the Vallarta region, three prominent AMPI chapters—AMPI Vallarta, AMPI Riviera Nayarita, and AMPI Compostela—hold sway.

As of now, Mexico lacks government licensure laws governing the brokerage and sale of real estate. This regulatory absence effectively means that anyone can engage in property sales. Consequently, it becomes imperative to exercise prudence in selecting a well-established and reputable real estate entity. Prospective buyers would do well to explore www.mlsvallarta.com, a comprehensive platform showcasing most real estate agencies in the area and providing access to the Multiple Listing Service (MLS).

FINANCING

In the past, cash transactions prevailed in Mexico due to the absence of robust capital markets and the prevalence of high interest rates. Nevertheless, this landscape is swiftly evolving, with numerous local and international banks now extending diverse financing alternatives. It proves beneficial to conduct a comparative analysis since loan conditions tend to exhibit considerable divergence. In Puerto Vallarta, a handful of mortgage brokers specialize in elucidating the intricacies of terms and conditions, offering pre-approval services to ascertain the potential extent of available financing.

MULTIPLE LISTING SERVICE (MLS)

Since 1989, MLSVallarta has been offering its MLS service to real estate agencies, developers, and the general public. It holds the distinction of being the inaugural and presently the most enduring MLS platform in Mexico. Additionally, the real estate association, AMPI, provides its own MLS service accessible at www.vallartanayaritmls.com.

ESCROW, TITLE INSURANCE AND HOME INSURANCE

Utilizing an escrow account is advisable when engaging in real estate transactions. Several companies specialize in offering this service, often accompanied by the provision of title insurance, a relatively recent addition to Mexico’s real estate landscape. Numerous insurance companies extend comprehensive home coverage options as well. Your broker can offer recommendations for reputable choices in this regard.

PURCHASE-SALE

Typically, real estate transactions commence once a written purchase offer is accepted by the seller, and both parties sign a purchase-sale agreement, also known as a promissory contract. To initiate this process, a deposit is required by the broker to convey the offer to the seller. (In cases where the transaction occurs directly with the seller, it’s highly advisable to seek counsel from a real estate broker or lawyer before signing any documents or making payments).

Upon signing the purchase-sale agreement, it’s customary to provide the seller with an advance payment, usually ranging from 10-30% of the total price, inclusive of the initial deposit. This agreement ought to incorporate a penalty clause applicable in case of contract breach by either party. Subsequently, during the signing of the escritura (the official deed, necessitating certification by a Public Notary), the remaining balance is settled, and the property is transferred. This finalization process usually occurs within a timeframe of 45 days. Employing an escrow account for all real estate transactions is a recommended practice.

THE NOTARY PUBLIC

A Public Notary, appointed by the government, plays a pivotal role in overseeing and certifying all real estate transactions. This includes the meticulous preparation and scrutiny of all closing documents, ensuring their accurate transfer. Additionally, the office of the Public Notary handles and officially records various legal matters such as powers of attorney, establishment of corporations, drafting wills, and serving as an authorized witness. This official is accountable to the government for the comprehensive collection of associated taxes.

In the context of real estate transactions, the Public Notary, upon request, receives crucial official documents mandated by law for any property transfer:

1. A non-lien certificate obtained from the public property registry, established through a thorough title search.
2. Documentation from the treasury or municipality outlining property evaluations, water charges, and other relevant taxes that may be outstanding.
3. An assessment of the property for tax purposes, providing an official appraisal.
4. These documents are essential components in facilitating a legally sound and valid property transfer under the oversight and expertise of the Public Notary.

COST OF THE FIDEICOMISO

According to the current tariff, individuals seeking a Fideicomiso are subject to an initial fee ($400-500 USD) imposed by the bank for the creation of the agreement and establishment of the trust. Additionally, the bank levies a percentage fee based on the property’s value. Furthermore, an annual fee is charged by the bank to encompass its services as a trustee throughout the duration of the Fideicomiso.

REAL ESTATE BROKER’S COMMISSION

Real estate agencies typically apply a commission (inclusive of taxes) based on the property’s sale price, commonly falling within the range of 6-8%.

CAPITAL GAINS TAX

Laws concerning capital gains taxes in Mexico appear to undergo frequent revisions annually. For the most recent and updated information, it’s recommended to refer to an article penned by local Mexican attorney David Connell, known for regularly maintaining and refreshing this resource.