Buying
property in Mexico, whether land, a serviced apartment or a house,
can offer good value for money in comparison to prices in the
US and Europe. Mexico's land costs can be lower, building and
maintenance is more economical and cost of ownership (taxes, utilities)
unprecedented. Though there are 'horror stories' associated with
buying property here (as in every country in the world), the overwhelming
majority of all real estate deals go through legally and smoothly.
The reasons to buy property in Mexico come down to a personal
choice, and depend on your individual circumstances. Perhaps
you will be living in Mexico for some years and you see long term
rental as 'wasted' money, or perhaps you're looking for an overseas
property investment that will surrender a rental income, while
providing you with a place to stay on holiday when you visit.
If you're considering the purchase of property in Mexico, you
will need to undertake extensive research, choose your location
and property very carefully, and ensure that you hire the right
professionals and that the letter of the law is followed. Thousands
and thousands of foreigners have successfully purchased land and
property in Mexico. With the right approach and plenty of homework,
there is no reason why you should not become one of them if you
want to.
FINANCING
YOUR MEXICAN PROPERTY INVESTMENT
Historically, most property/real-estate deals in Mexico are cash
only. Mexican Banks are now beginning to offer mortgage products
for the purchase of real-estate in Mexico, although 30-40% deposits
are required and interest rates are not as attractive as those
in the US, Canada and Europe.
There are some banks in the US who are now offering mortgages
on Mexican Property, but they are usually offered on the back
of equity built up in a property in the USA. Rates are higher
on the additional loan amount, to reflect the additional risk.
Many Americans HAVE mortgaged a house in Mexico using this financial
vehicle so it is possible.
Financing inside Mexico is still difficult and relatively expensive,
so if you plan to buy real-estate in Mexico you will be well advised
to have your own foreign funding available; either through an
equity-release scheme or other fund. Some people who are planning
to retire to Mexico will sell their house in their home country
and use the proceeds to finance property in Mexico; those who
want to keep a 'base back home' may release equity from their
existing home, rent it out, and use the dual proceeds to fund
their retirement home in Mexico.
It's important to think carefully beforehand about how you are
going to finance your property in Mexico. An Estate Agent in Mexico
may be able to advise you, and some even have connections with
financial institutions in the USA who can proffer solutions depending
on your personal circumstances.
MEXICAN LAW: PROPERTY OWNERSHIP
Mexican Law provides for private ownership of land by foreigners,
and its law is very specific about the way in which land rights
should be transferred from seller to buyer, and also what type
of lands are not eligible for public ownership. A Notary Public
(or Notario in Spanish) will guide you through the details of
these, but generally:
•
Property may be purchased and owned outright for residential
use by foreign nationals outside of the 100km restricted
land border zone, or outside of the 50km coastal zone. • Inside of the restricted border/coastal zones, foreign nationals may own land through a fidecomiso (a trust) which is set up through a bank and provides for ownership of the land and property in all but name. |
The Mexican Constitution previously banned foreign nationals from
owning property that was within the restricted border zones. This
old law was intended to protect Mexican soil from foreign invasion.
Because the Constitution cannot be altered in this respect, the
Government introduced a system of land trusts, so that foreign
nationals could invest in property inside of the 'restricted'
zones. In this current manner, foreigners wanting to buy a dream
home with a stunning beach view now can, except that it will be
by means of a trust, set up through one of the main banks in Mexico.
The trust holds the deeds to the property, and you and/or other
named persons which you specify are sole beneficiaries to the
trust (and therefore the property). You have full rights to do
whatever you like with your property: it can be developed (in
accordance with local planning regulations), rented, leased, sold,
or given away. In other words, you own the property in all but
name.
The trust enables you to name a beneficiary upon your death, and
you do not need to have a Mexican Will in order for your wishes
in regard to the trust to be executed (an efficient step in the
process).
You do not have to be resident in Mexico to own property there,
so there is no need to qualify for resident status under immigration
laws in order to have a property investment in Mexico.
Mexican Law on property ownership is comprehensive and provides
protection for the seller and the buyer in all property transactions,
provided that the law is followed, and you ensure that all necessary
documentation is present and that the procedures are adhered to.
Your Notary Public (see below) is an important person in this
process, and he/she will guide you.
Title Insurance in Mexico: When you buy real
estate in Mexico, you would do well to consider taking out Title
Insurance on the property. Title Insurance covers you should the
property you buy subsequently turn out to have liens associated
with it. This is especially relevant if the property you are buying
has been privatized. Title Insurance will protect you if any other
previously unforeseen lien or charge is brought against the property
before you took possession of the Title Deed. Rates for Title
Insurance are around US$5-US$5.50 per US$1,000 of the property's
value; payable once only at the point of purchase. A good Estate
Agent in Mexico will be able to advise you further about Title
Insurance.
THE ROLE OF THE NOTARIO (Notary Public) IN MEXICO
The Notary Public is the most important person you will deal with
when you make a property investment in Mexico. Do not confuse
the role of the Notary Public in the US or UK with its counterpart
in Mexico: they are quite different. In the UK for example, almost
anyone can become a Notary Public. Not so, in Mexico, where the
role is appointed directly by the State Governor (the highest
seat in State Public Office). The Notary Public has the power
to witness and certify important business documents which require
absolute authenticity. The appointment also holds responsibility
for the management and secure storage of original records. Notary
Publics must be Mexicans of at least 35 year in age with a degree
in Law, have three years work experience at a Notary Public office
and they must pass a stringent exam. Those who pass, in time,
are appointed as Notary Public by the State Governor.
Under Mexican Law, the deed to the property must be prepared by
a Notary Public. As a buyer, it is your right to choose the Notary
Public, and it should be your first port of call - or second after
your lawyer.
The Notary Public will ensure that all documentation and permits
are in order so that the transaction can proceed.
Everything official to do with your transaction should be done
via the Notary Public: Do not take anyone's word about documentation
(like property deeds) being valid - take copies to the Notary
Public for official verification. A good lawyer will
be able to advise you on such matters.
CHECKS
TO LOOK INTO
The Notary Public and/or your lawyer will do a series of checks
on the property and ensure that the property has a 'clean' history,
and that there are no liens on the land (e.g. an old unpaid mortgage).
Under Mexican Law, liens are passed on with title
of the land - BEWARE!
Your Notary Public should also check that all land taxes have
been paid during the last five years (if applicable) and that
utilities (electric, gas, water and phone) have also been paid
during the last two years. By Law, you are not liable
to debts after these times.
Other items to be checked include: Checking all buildings are
on tax registers and have the required building permits, utilities
were legally installed and payments are up-to-date, the property
is not jointly owned, or if it is, that both (or all) owners agree
to the sale, and that the seller/s has/have the right to sell.
The Notary Public is legally responsible to ensure that all documents
are in order and that all legal procedures have been adhered to.
He will do a thorough check and will not destroy his reputation
by hiding any problems, or potential problems from you.
OUTLINE PROPERTY PURCHASE PROCEDURE
If you have hired a lawyer (which is recommended but not compulsory)
then he/she will likely act as an intermediary between you and
the Notary Public / Seller.
The exact process will vary in each case, but you (or your lawyer)
will follow a process that goes along these lines:
•
Find a property you like; agree a price verbally • Agreement to sell/buy, with detailed costs, inclusions and exclusions, as well as deadlines, is set out in an initial "Convenio de Compra/Venta" (sale agreement), at which point a deposit (5-10%) is paid by the buyer and cancellation penalties are set (usually equal to the deposit) if either party pulls-out. • If the property is inside the 50/100km coastal/border zone, you will need to set up a trust. • Next, you seek permission from the Foreign Secretary's office (a formality) to buy land. You will be asked to sign the "Calvo Clause", which states that you will not seek foreign jurisdiction in dealings with your property transaction. • If you are buying from a developer (e.g. a new housing estate) advise the Notary Public who will ensure the developer's permits are in order • Get a copy of the Land / Property Deeds from the seller. The Notary Public will check these out. • Ask the Notary Public to check that the land is not Ejido land, as discussed earlier • An official appraisal of the Land (Avaluo) needs to be carried out; your Public Notary can arrange this. • Your Notary Public (or lawyer) will ask for official documents that can include (but are not limited to): Photo ID (passport), Birth Certificates, Marriage Certificates (if appropriate), and your visa (could be a Tourist Permit) to show your stay in Mexico is legal. • The seller will need to present to the Notary Public documents including (but not limited to): original property deed, up-to-date tax receipts for the property, public utilities bills (shown as paid), plus up-to-date details of land-service fees (shown as paid) • Capital Gains Tax is paid by the seller, unless you have agreed to pay CGT as part of the buying agreement. The Notary Public will state how much this is. • Payment is made (see note below) at the time when the deed is signed over to you, and this is done at the Notary Public's office. • The Notary Public's and Solicitors (if applicable) fees are paid at this time as well, as well as other taxes associated with land purchase (see Taxes, below). |
Payment: Whether
you are paying with cash or via some kind of financing you (or
your lawyer representing you) will need to have the agreed funds
available for hand-over at the Notary Public's office on the date
the deeds are signed across to you
Money Transfer Declartion: Cash or monetary instruments (of any kind) with a value of or exceeding USD$10,000 MUST be declared when you enter Mexico (and the enter/exit the USA - even if you are in transit to Mexico from elsewhere via the US). There are no limits on how much you can transfer in or out of either country - but sums over the US$10K limit must be declared on a special form.
COSTS
AND TAXES: Buying
When you buy property in your home country, you are usually faced
with the associated costs like agent fees and taxes. Mexico is
no different, although the net value of these costs as a percentage
of the property values may be lower overall, but this is not guaranteed
as professional fees have risen recently too.
Acquisition
Tax: This Tax is paid on the sale value
of the property and is equivalent to about 2% depending
on the State in which you buy. This tax is paid whether
the property is sold, transferred, donated, placed into
trust, split off or merged. |
COSTS
AND TAXES: Selling
When you sell a property in Mexico, you will be subject to the
fees of any professional services you contract, plus the following
taxes and fees:
| Income
Tax on Property Gains: If the home has not been your
main residence for at least the last two years, will be required
to pay income tax on the property. You may either
pay 20% on the gross amount of the transaction, or elect to
pay 40% tax on the net profit obtained from the property.
This law prevents short-term speculation on the property
market. Commercial property is taxed at above
rates, regardless. Agent Fees: If you employ an agent, expect charges of around 3-6% of the value of the sale as a fee, but you may want to negotiate on this beforehand. You will also need to pay VAT (Sales Tax) on agent fees. |
TIMEFRAME
Timeframes can vary dramatically from a few weeks, to several
months! If agreeing to 'deadlines' in your initial
sales agreement, leave yourself plenty of time to meet deadlines
that you agree to.
On average, you can expect the process to take up to 3 months
from the time the initial sale agreement is drawn up and the deposit
is paid.