Buying Real Estate in Mexico
Today, the buying process is much easier and better protected. Long gone are the days when foreigners could only lease land. Nowadays, buyers safely purchase properties through professional real estate agencies that use U.S. escrow companies, secure their investments with title insurance and obtain an Escritura Publica–irrevocable ownership under the Mexican Constitution.
RIGHTS OF OWNERSHIP FOR PROPERTY IN MEXICO'S RESTRICTED ZONE
While the Mexican Constitution prohibits foreign ownership of real estate within its Restricted Zone (100 kilometers from international borders and 50 kilometers from coastlines), the country’s miles of pristine shoreline, endless summer and fabulous resort destinations, coupled with dramatically growing growth and demand, provide the foreign visitor with a desirable and very attractive investment opportunity. Recognizing the value of foreign real estate investment in these areas, in 1973 the Mexican government officially liberalized these restrictions with the advent of the ¬’fideicomiso’, or trust mechanism for ownership.
Mexico’s mechanism for establishing rights of ownership in the restricted zone for foreigners is the fideicomiso, or bank trust. This legal instrument, similar to an estate trust, allows the foreign trust beneficiary all the rights and privileges of fee simple ownership. The rights to build, lease, and sell and even to pass the rights on to an heir are all established in the terms of the trust agreement. A Mexican bank acts as trustee, taking direction from the buyer who is established as beneficiary of the trust. These secure, buyer-friendly revisions to the laws governing foreign investment in Mexico, have allowed sophisticated investors throughout the United States and Canada, to enjoy the benefits of property ownership in Mexico’s restricted zone.
Trust Ownership in Mexico – Fideicomiso
“Fideicomiso”, or bank trust, is defined for real estate purposes as transaction entered into between a Mexican bank and foreign individual or firm investing in areas otherwise restricted to foreign investment, with the bank serving as trustee or legal owner with respect to a certain real property interest and the investor serving as the legal beneficiary of the trust. The bank holds title to the property in trust for the beneficiary who retains the exclusive right to the use and control of the property.
As trustee, the bank acts on behalf of the beneficiary in transactions involving the property held in trust. However, the beneficiary controls and makes investment decision regarding the property, including the decision to transfer, assign or otherwise dispose of this or her interest in the property.
The trust is essentially a contractual arrangement which, in most respects, is identical to the type of trust commonly used in the United States. Trusts are established for initial 50 year periods and can be renewed indefinitely.
How does the Fideicomiso work?
A Credit Institution holds the property, and grants the beneficiary the rights to occupy, modify, improve, lease or transfer property to a third party. The beneficiary also bares the financial responsibilities and liabilities of the property.
How can a Foreigner acquire property located in a Restricted zone?
A foreigner can acquire Property in the Restricted Zone through a Fideicomiso “Trust”
There are 3 parties involved in a Fideicomiso
- The Settlor (Fideicomitente): The seller of the Property
- The Trustee (Fiduciaria): Is a credit Institution that acts as a Purchaser of the Property
- The Beneficiary (Fideicomisario): A Foreigner that has the right to use and enjoy the property; being entitled to modify, improve, lease, or transfer the property to a third party. The Beneficiary is entitled to appoint Substitute Beneficiaries in case of demise.
Investment in Real Estate through Trusts
Real estate investment trust enables foreign entities to invest in Mexico’s coastal and border areas, once restricted from foreign investment of any kind. The trust permits foreign investors to obtain almost all of the economic benefits that accompany equity ownership in some of Mexico’s most attractive beachfront properties. Through the real estate trust, foreign investors can, among other things, construct, establish, sell, rent, and operate:
International-standard resort complexes Five-, four- and three-star hotels, Motels, hostels, campgrounds and mobile home parks along Mexico’s growing highway network, Residential parks and developments, Condominiums, with opportunities for time-share sales, Commercial centers, Marinas and related facilities, Golf courses and sports complexes, and Restaurants, cafeterias, and bars.