10 Frequently Asked Questions For Buyers Of Beachfront Property In Mexico!

May 5, 2010 - PRLog -- 1.   How can I as a foreigner own ocean front property in Mexico?
In 1917 Mexico drafted a new Constitution.  In the Constitution, there was a provision that created the Restricted Zone.  This Zone is 100 km (62 miles) from the borders and 50 km (or 31 miles) from the coasts.  Originally only Mexicans could own land in the Restricted Zone because it was considered the most valuable real estate in the country.  

However, in 1970 Mexico realized that there was a lot more money outside of Mexico than inside of Mexico.  To attract foreign investment, enabling legislation was passed in 1970 which permitted foreigners to own land in the Restricted Zone. This bill stated that a trust, called a 'Fideicomiso', could be set up with the foreigner as the beneficiary.  Since a Mexican bank is the owner and trustee, it satisfies the requirements to purchase land in the restricted zone.  The beneficiary (foreigner) could occupy the land, rent it, improve it, sell it, etc...  Because of this bill, major foreign investment flowed into Mexico and we saw not only Cancun (now 36 years old), but also Cozumel, Acapulco, Puerto Vallarta, Ixtapa, Mazatlan and other tourist resorts take off.  


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There are, however, limitations to the Trust system. For each property you later purchase, you need a separate trust.  The cost to set up each trust or Fideicomiso is from $3,000 to $5,000 USD.  In addition, there is an annual administration fee to the Bank of $1,000 USD, for doing nothing more than holding the deed on your behalf.  In addition, the bank charges an exit fee of $1,000 USD or more when you desire to sell your property.

To address the problems experienced with the old trust system, in 1994 Mexico passed the new corporation law.  This law provides that a Mexican corporation, wholly owned by foreigners, can be the Mexican entity required by the Constitution to own property in the Restricted Zone.  Now, foreigners can own the Mexican corporation and hold all the papers to it.  Your Mexican corporation holds the deed, which means, you get to personally possess the deed.  You no longer need to go through the bank to get approvals to build, sell, or improve your property and there are no bank fees.

An added benefit to establishing the Mexican corporation is that your corporation can own more than one property. You do not need to form a separate corporation for each property, as is the case with the Bank Trust system.  Also, if you should decide to sell your property in the future, you can sell your entire corporation (all of your stock), sell part of it (some of your stock), or sell just the property out of it and keep your corporation.  

Also, after you buy land via the corporation system, you are permitted to file a dormancy election, which means, your company is "asleep", until you decide to activate it. The government intentionally made it very easy for foreigners to own land in Mexico.  So much so, that in 1998, the Mexican Government noticed that the revenues from the Industry of foreign investment & tourism, surpassed the revenues from the Oil & Gas Industry.  Foreign investment & tourism is now their main source of income and the Mexican government welcomes your participation.


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2.  Which is better the Mexican Corporation System or the Bank Trust System?
In addition to the above limitations of the trust system, Mexican law provides that the beneficiary of the trust (you) may not receive any income from the property placed in trust and furthermore may not engage in any gainful employment with the trust.  The trust can last for up to 50 years, whereas, the corporation lasts for 99 years and may be renewed by the stock holders after 99 years.

Another added benefit of the corporation is that you can get an FM-3, which is a working visa, permitting you to live and work in Mexico.  The FM-3 can be renewed annually and with it you can obtain a Mexican drivers license, open bank accounts, get credit cards, earn an income, and operate a business. There are many benefits to having your own corporation.  


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3.  As a foreigner, do I actually own my ocean front property?
Yes, but not in your personal name, you own it in the name of your Mexican corporation.  Keep in mind that you own 100% of the Mexican corporation, so you do own the land.  You do NOT need a Mexican national or Mexican citizen to be part of your corporation.  Your Mexican corporation is recognized by the government to be a legal Mexican entity.

4.  How do I form my Mexican Corporation if I need two stockholders?
If you are buying property by yourself, we suggest that you might have your Mexican accountant, or your Mexican attorney hold 1% of the corporation’s shares, with the agreement that he / she will not participate in any vote concerning your corporation or in any profit from your corporation.

5.  Is the Mexican Corporation a 99-year lease?
No it is not.  It is a legal corporation recognized by the state and federal governments.   Every 99 years the corporation’s charter will need to be renewed.  You may not be around in 99 years, but your heirs might enjoy your legacy.

6.  Can the Mexican Government take my property after I close?
No. Mexico is a land of laws and there are real estate laws, just as in the United States and in Canada, protecting the rights of property owners whether they are foreign or domestic.  Mexico has had a stable democratic form of government for the past 90 years, and has no plans of changing.

And, since Mexico is part of NAFTA (North American Free Trade Agreement), there are multi-billion dollar foreign trade ties to the United States and Canada. Any dramatic change in the Mexican Government could jeopardize the economic dependency which Mexico has with these two countries. No benefit would accrue to Mexico in taking away property from foreigners who are Mexico’s main source of revenue each year.

7.  When are real estate tax notices sent out?
Tax notices are not sent out in Mexico.  At your request your Mexican attorney can arrange to pick up your tax notice, advise you of the amount to remit and take care of the payment on your behalf.
 
8.  How much are annual real estate taxes?
Annual real estate taxes in Mexico’s Yucatan Peninsula are really quite remarkable.  For an average ocean front lot the real estate taxes will be less than $200 USD per year, and depending on location, may be less than $50 USD per year.

9.  How do I know the land I am buying is really the land I saw?
This is very simple.  You can compare the survey of the land to the legal description on the closing documents.  Your Mexican attorney will know if the legal descriptions compare and match up.  You can also compare the property survey to the corner markers on the ground.  This way, you can determine that the property and the survey are the same.  


10.  Will the sellers negotiate?
Some sellers will negotiate price and some sellers will not.  The main reason that some will not negotiate is that they feel that they have no reason to.  When you choose not to pay their asking price that is your decision and yours alone.  You have absolutely no obligation to pay it. However, with the entire infrastructure going into place at the government’s expense, ocean front property values are rising.  By choosing not to pay the sellers asking price, you are allowing the seller to continue receiving the benefit of the properties price appreciation.

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Gary is the President of International Holdings & Trust Company located in Cancun, Mexico and has been selling beachfront property as investments in the Mexican Caribbean for the past 10 years.

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