The
History of Real Estate Ownership in Mexico
In 1517, when Hernandez de Cordoba sailed from Spain to
the Yucatan Peninsula, foreigners laid claim to Mexican lands. Spain decided
that since they had landed here, it was now theirs. It was not until 1822 that
Mexico declared its independence from Spain, much like the U.S. declared
independence from England, but even with this new independence, the lands of
Mexico were still owned by wealthy foreigners, the Mexican upper class and the
Church. Porfirio Diaz, a former President of Mexico
for over 30 years, nearly sold all of Mexico to foreigners during his term.
The end result was the Mexican Revolution, which cost over one million lives
and was the basis for the Federal Constitution of 1917. The new constitution
imposed new laws and restrictions on foreign ownership and ownership of lands
by the Catholic Church. Article 27 of the constitution allows Mexican Nationals
and Mexican Companies to own property, however it restricts foreigners from
owning land with the restricted zone. It is also said that the U.S. was
involved in this new zoning in an effort to prevent the installation of foreign
military bases on our borders or near our coastlines. This "restricted
zone" is defined as property within 60 miles from any Mexican border or
within 30 miles of any Mexican coastline.
Not until the 1930's did the Mexican people truly see the property being
returned to them. President Lazaro Cardenas
disassembled the large property holding and distributed them in the form of
cooperative farms or "Ejidos". The people
were given ownership of these properties and were allowed to farm and cultivate
them and receive the profit from their efforts. After nearly 400 years, over 50
million acres of land was back in the hands of the Mexican people, however, it
was still owned by the Federal Government.
Even though the people were allowed to farm the properties and profit from
their work, it was not until 1992 that they were allowed to sell the
properties. The 1992 Agrarian Law recognizes property rights within the Ejido and allows for the owner of record to sell or lease
the property to a non-Ejido member. The property can
be removed from the National Agrarian Registry (removed from Federal Control)
and placed in the public land registry allowing it to be sold or leased. Today,
thousands of acres are being removed on a daily basis from the Ejidos, added to the public lands and being sold or leased.
There are well over 50 million acres of land that will go through this process
to be either leased or sold over the coming years.
Mexican Property Trusts (Fideicomiso)
In 1994, amendments to the Constitution permitted foreigners to purchase and
own real estate in Mexico located within the "restricted zone" which
is all land within 60 miles of a national border and within 30 miles of the
Mexican Coast. This Law permitted ownership through a land trust or "Fideicomiso".
A "Fideicomiso" is a Mexican Trust. The way
it works is the Mexican Government issues a permit to a Mexican Bank of your
choice, allowing the bank to act as purchaser for the property. The bank acts
as the "Trustee" for the Trust and you are the
"Beneficiary" of the Trust. The "Beneficiary" rights are
very similar to Living Wills or Estate Trusts in the U.S.
The law authorizes Mexican banking institutions to act as trustees. A trustee
takes instructions only from the beneficiary of the trust (the foreign
purchaser). The beneficiary has the right to use, occupy and possess the
property, including the right to build on it or otherwise improve it. The beneficiary
may also sell the rights and instruct the trustee to transfer title to a
qualified owner.
Many people refer to the trust arrangement in Mexico as a lease agreement...
this is not true. The home or property that you buy will be put into a trust
with you named as the beneficiary of the trust - you are not a lessee. You have
all the rights that an owner of property in the U.S. or Canada has, including
the right to enjoy the property, sell the property, rent the property, improve
the property, etc.
The initial term of the trust is 50 years. An investor can renew the trust for
an additional period of 50 years within the last year of each 50-year period,
and this process can be continued indefinitely, providing for long term control
of the asset.
Investing in Mexico
Mexico offers the foreign investor an attractive investment opportunity in an
economy that is undergoing dramatic improvement and growth. Following the
country's inability in 1982 to service its escalating foreign debt, Mexico
introduced structural changes in its economy designed to move the country
toward an open economy with more direct foreign investment. Among the most
significant changes were (1) Mexico's accession to the General Agreement on
Tariffs and Trade, (2) a government willing to work with the International
Monetary Fund and other sources to restructure the country's foreign debt,(3)
the liberalization of policies concerning foreign ownership of Mexican
companies, and (4) the encouragement of tourism development.
In an effort to promote foreign investment, Mexico enacted new regulations
designed to relax the restriction on foreign investment, which formerly limited
foreign ownership of Mexican companies to 49 percent. Under the new
regulations, foreign investor's can now own up to 100
percent of a large number of enterprises, including hotel companies,
development companies, etc. without prior authorization from the Foreign
Investment Commission. Thus, foreign investors in these enterprises have been
put on equal footing with local investors and are no longer required to engage
a Mexican investment partner.
The Mexican Federal Corporate Income Tax ranges from 25 to 38 percent.
Provisions in the income tax code have also been established to offset the
detrimental effects of inflation on monetary assets and liabilities,
inventories and depreciable assets.
Mexico will continue to offer foreign investors close proximity to the world's
largest market, a solid communications infrastructure, ample supplies of
energy, low labor costs, and skilled and trainable labor resources. The
liberalization of the foreign investment rules is a clear indication of the
very favorable attitude the government has taken towards foreign investment.
The combination of a rapidly improving economy and stable profitable base
foretell and excellent ongoing investment environment.
The Mexican government has stated that it aims to double the number of foreign
tourist arrivals into Mexico, representing foreign exchange revenue of $5
billion plus annually. A key to achieving the government's goal of ten million
visitors a year is to develop new tourist destinations with modern facilities
and infrastructure. The Los Cabos region is a
priority area for this targeted growth.