The Mexican Constitution
regulates the ownership of the land and establishes that'...
in a zone of 100 kilometers along the border or 50
kilometers along the coast, a foreigner cannot acquire the
direct ownership of the land'. These areas are known
as
the "Restricted or Prohibited Zones". Nevertheless, the
latest Mexican Foreign
Investment Law, which became law
on December 28, 1993, makes the allowances
mentioned
above.
3. FIDEICOMISO OR BANK
TRUST
Any foreigner or Mexican
National can constitute a Fideicomiso (the equivalent
to
an American beneficial trust) through a Mexican bank
in order to purchase real estate
anywhere in Mexico,
including the Restricted Zone. To do so, the buyer requests
a
Mexican bank of his/her choice to act as a trustee on
his/her behalf,
The bank, as a matter of normal course,
obtains the permit from the Ministry of
Foreign Affairs
to acquire the chosen property in trust. The Fideicomiso can
be
established for a maximum term of 50 years and can be
automatically renewed for
another 50 year period. During
these periods you have the right to transfer the title
to
any other party, including a member of your
family.
The bank becomes the legal owner
of the property for the exclusive use of the
buyer/beneficiary
who has all the benefits of a direct
owner, including the possibility of leasing or transfering
his/her rights to the property to a third party or to a
preappointed heir. During this period, the foreigner is
considered as a Mexican National.
The trustee is responsible to
the buyer beneficiary to ensure precise
fulfillment of
the trust, according to Mexican Law, assuming
full
technical, legal and administrative supervision in
order to protect the
interests of the buyer/beneficiary.
Fideicomisos are not held by the
trustee as an asset of
the bank.
For practical purposes, even in
unrestricted zones many foreigners
and Mexican Nationals,
for that matter, prefer to hold their property
under a
Fideicomiso.
The Real Estate
Industry
1. STATUS
The real estate industry in
Mexico is similar in many ways when compared
to that of
the United States, which is most probably the most advanced
in
the world. It is developing quickly taking advantage
of today's technology.
However, Mexico seems to be
paralleling the system as it exists in
the
U.S.
The only national professional
real estate organization in Mexico is the
"Asociacion
Mexicana de Profesionales Inmobiliarios" or "A.M.P.I."
(
Mexican Association of Real Estate Professionals) with 24
chapters in
38 cities.This organization is somewhat
similar to the National Association
of Realtors (NAR) in
the United States.
2. LICENSING
At this time, there are no
Government license laws regulating real estate
brokerage
and sales in Mexico. Anybody can , in effect, offer
properties for
sale and, therefore, caution should be
taken to search out for an established
and reputable real
estate company. A potential buyer may want to check
with
the local Chamber of Commerce Associations or prominent law
firm.
3. FINANCING
Historically, due to lack of
capital markets and high Mexican interest rates,
most
transactions were made in cash. In 1993 and 1994, the
Mexican
economy picked up to such an extent that annual
inflation went down to
one digit and interest rates were
more or less accessible.
Banks introduced attractive
mortgage programs and, consequently, sales
proliferated
throughout Mexico. Due to the devaluation in December
1994,
the present situation has reverted and the few
banks that offer mortgages
do so at such high variable
interest rates that very few buyers are in a
position to
take advantage of them.
The future of financing in Mexio
is moving towards a secondary mortgage
market, which
should open up international financing resources to
possible
desirable mortgages at reasonable rates. For
foreign investors, however,
this devaluation has created
some excellent values for real estate purchases
utilizing
foreign funds. We expect during the next year or two that
outside financing will be brought into Mexico for financing
purposes.
4. MULTIPLE LISTING
SERVICE
A couple of electronic multiple
listing services (MLS) are now operating
in Mexico, this
service will soon be widely offered with the state of the
ad
technology, measuring up to the highest standards
found in the United
States.
5. FRANCHISING
In 1989 "CENTURY 21 Mexico, S.
A. de C. V." established in Mexico the
first real estate
Franchise System wherein "Each CENTURY 21 Office
Is
Independently Owned and Operated". More than 80
CENTURY 21 franchise
offices are now open to the public
in more than 38 cities, making it the
major real estate
network in the country.
This multinational corporation
has helped to establish performance standards
throughout
the real estate industry, thereby benefiting the industry
itself as
well as the consumer. Other American real
estate organizations such as
ERA, Really World and
Re/Max, have also initiated operations in Mexico.
6. ESCROW, TITLE INSURANCE
AND HOME INSURANCE
It is the Notario Publico who,
in effect, acts as a 'Holding agent" for the
involved
parties and for this reason there are few escrow companies
in
Mexico.
At the present time there is no general use
of title insurance in Mexico,
although some American
companies are providing coverage in some resorts
areas
of the country. On the other hand, insurance companies do
provide
full home coverage - throughout
Mexico.
7. SEARCH
To find the required property,
be it for lease or for purchase, it is advisable
to
contact a reputable real estate company or a relocation
firm. Otherwise,
be prepared to go house hunting by
combing the desired areas on the
lookout for lease signs
or by going through all classified advertisements
in the
newspapers. Be sure to use brokers benefiting from a MLS
System.
Purchase-Sale
1. PROCESS
Most real estate transactions
are 'opened" after a written purchase offer is
accepted
by the seller and when a purchase-sale agreement
(promissory
contract) is signed by both parties. In most
cases, a deposit is required by
the broker in order to
transmit the offer to the seller. If the transaction
is
being conducted directly with the seller, it is highly
recommended that a
real estate broker or a lawyer be
consulted before signing any papers or handing
over any
money.
In some areas it is common practice to deliver to
the seller, as an advance payment,
the equivalent to a
20-50% (including the initial deposit) of the total price
upon
signing the purchase-sale agreement which should
contain a penalty clause
applicable in case there is a
breach of contract by any of the parties.
Normally, when
signing the escritura or official deed, which needs to be
certified
by a Notario Publico or notary public, the
balance is paid and the property is
delivered. This
should not take more than 45 days. In certain resort areas
the
custom of using "escrows" is being
implemented.
2. NOTARIO PUBLICO OR NOTARY
PUBLIC
The Notario Publico is a
government appointed lawyer who processes and
certifies
all real estate transactions, including the
drawing and review of all real estate
closing documents,
thus insuring their proper transfer.
Furthermore, all
powers of attorney, the formation of corporations, wills,
official
witnessing, etc. are handled and duly registered
through the office of the Notario
Publico, who is also
responsible to the government for the collection of all
taxes
involved.
In connection to real estate
transactions, the Notario Publico, upon request,
receives
the following official documents, which, by law, are
required for any
transfer:
o A nonlien certificate
from the Public Property Registry based on a
complete
title search.
o A statement from the Treasury
or Municipality re arding property assessments,
water
bills, and other pertinent taxes that might be due.
o An
appraisal of the property for tax purposes.
3. CLOSING
COSTS
It is common practice that the
buyer pays the transfer or acquisition tax as well
as all
other closing costs including the Notario fees and expenses,
and the seller,
pays his capital gains tax and the
broker's commission.
Since January 1, 1996, the
federal law regarding the real estate transfer tax,
which
was 2% for all the Republic of Mexico, was modified in order
to allow
each of the Mexican States to determine its own
tax. The range may be from I-
4%, of the tax appraisal
value, generally less than the sales value.
The rest of the closing costs,
which exclude the transfer cost mentioned above,
may vary
from 3-5% of the appraised tax value or more, depending on
the
particular State. These percentages are applied to
the highest value of the following:
o The amount for which the
property is sold.
o Thevalueof the official tax
appraisal.
* The value designated by the property
assessment authorities
4. COST OF THE
FIDEICOMISO
Based on a present tariff, the
bank charges the person desiring the Fideicomiso
an
initial fee (approx. $500.00 US) for the drawing up of the
agreement and
establishment of the trust, plus a
percentage according to the value of the
property. In
addition the bank charges an annual fee (depending on the
value
of the property) to cover its services as a
trustee.
5. REAL ESTATE BROKER'S
COMMISSION
Most real estate companies in
Mexico charge a 5-7% commission based on
the actual sale
price of the property. However, different area broker rates
reflecting
higher broker expenses may be found, such as
in the resort areas.
6. CAPITAL GAINS
TAX
In Mexico, the concept of
capital gains tax does not apply in the sense in which
it
is determined in the United States. Here, the gain from the
sale of the property
is considered as normal income at a
tax rate of up to 35%. In order to determine
the gain,
the following costs and expenses are deducted from the
amount for
which the property is officially
sold:
o The original land cost and the
depreciated construction cost, based on the
number of
years the property was held and adjusted for inflation
according
to the official consumer price indexes.
o
Additions, modifications and improvements, but not
maintenance, made on
the property (construction),
adjusted as above.
o Commissions paid to real estate
brokers by the seller.
o The closing costs, including all
expenses, taxes and fees paid by the seller.
The Notario will retain the
calculated gain after deductions forwarding it to
the
Mexican tax authorities.
The seller will then deduct this
amount against his her annual tax return, which
becomes
an adjustable tax credit in the U.S.
On the other hand, there is no
capital gain tax in Mexico if there is conclusive
proof
the seller has had the property as his primary residence for
the previous
2
years.
