Buying in Mexico
In 1989, regulations were passed to “promote Mexican Investment and Regulate Foreign Investment”. Just recently, those regulations also became law and included significant and beneficial changes. The most beneficial change increased the length of the renewable trusts to 50 years. Now foreign owners can extend their trusts for an indefinite number of 50 year terms. The relaxed political environment has given non-Mexicans their first real access to pristine coastal property.
As a result of Mexico’s commitment to tourism, and the recent relaxation of its Foreign Investment Law, resort properties in Mexico are expected to develop at a rapid pace. What once may have been seen as a complex form of property ownership is quickly becoming familiar to non-Mexican buyers.
Here are some frequently asked questions about buying property in Mexico:
Q: I have always heard non-Mexicans cannot buy coastal property in Mexico. Is that true?
No. While it was once true, times have changed. Prior to 1973, foreigners were not allowed to hold legal title or to exercise direct titles to real property in an area located within 64 miles of Mexico’s borders and 32 miles of its coastlines. But laws passed in 1973 and 1993 have made it possible for foreigners, foreign firms and Mexican firms with foreign participation to acquire interests in coastal real estate through a bank trust (Fideicomiso). This is very similar to how many of our clients in Canada and the USA have real estate trusts or living trusts set up to protect their assets. The difference is in Mexico your trust is set up automatically as a part of your closing process.
Q: Who is involved in this bank trust?
Three parties. The seller in the property is the Trustor. The bank is the Trustee (Fiduciario), and the buyer, or Beneficiary, is the Fideicomisario. Basically the banks are given the responsibility by the government to set up and register the foreign trusts.
Q: How does the trust operate?
Simply put your title is registered in the public registry. It will state what bank set up the trust and that you are the Beneficiary (Property owner). The trust agreement is formalized by the issuance of a permit from the Mexican Ministry of Foreign Affairs. The lot or home buyer is designated as a Beneficiary in the Trust and the Beneficiary rights are recorded in the public record by a Notary Public. You have all the rights without restriction of any property owner. The trust also gives you the benefit of naming your heirs at the time of purchase, just in case your will is not up to date this property will not become part of an estate dispute as it will be handled the way it was set up when it was purchased. You can change your heirs anytime.
Q: What are my rights as a buyer?
You have the right to use, lease, improve or sell your property without restriction as any owner would. You may also transfer your rights to a third party by selling your property, or pass it on to named heirs.
Q: Is the trust renewable?
Yes. According to the Foreign Investment Law passed in 1993, trusts can be renewed for an indefinite number of successive 50 years periods. In effect they run in perpetuity.
Q: How do these procedures work in master planned communities?
It is the same procedure.
Q: How are closing costs calculated and who pays for them?
Closing costs are determined by the sales price. The value becomes the basis for all related taxes and fees. Generally, the buyer is responsible for the transfer tax and the cost of establishing the bank trust (if it isn’t already in existence), notary fees, registration fees, tax appraisal fees and trust permit fees. The purchaser’s total closing costs average about 8% of the purchase price.
Q: How much will I be charged for property taxes?
Mexico’s annual property taxes are .25% of the assessed value for tax purposes. This is one of the huge benefits in Mexico. I don’t think I know anyone paying over 700 dollars a year property taxes, most people I know are paying less than 500 dollars a year.
Q: If at a later date, I decide to sell my property, can anyone buy it?
Yes, if the new buyer is also a foreigner, you simply assign your beneficial interest. If the new buyer is a Mexican National, you can instruct the bank to endorse the title in favor of a buyer.
Q: If the buyer is a foreigner, is his interest limited to the balance of my 50 year trust?
No, in some cases in the past it would be done that way but at this time it is not common. The bank will set up a new renewable 50 year permit.
Q: Do many foreigners currently own coastal property in Mexico?
Today, thousands of foreign owners enjoy their Oceanside property.
