Residential Real Estate Investment in Mexico: What Do You Mean I Can’t Really Own My Property?
Purchasing property in Mexico can be an excellent investment for various investors. Whether one wants to develop a new residential subdivision or whether one is looking for a second home, buying real estate south of the border should be approached with caution and certain nuances regarding ownership must be understood. Stemming from a cultural uneasiness about foreign ownership of Mexican assets, article 27 of the Mexican Constitution sets restrictions on which land can be owned by foreigners and how it can be owned. Depending on the purpose for which the land is being purchased, land ownership may only be available through the formation of a land trust called a fideicomiso.
The Mexican Constitution expressly forbids a foreigner from directly owning property for residential purposes in the “restricted zone;” an area extending roughly 31 miles inland from the coastline and 62 miles from any border. This “restricted zone” covers almost 40% of Mexico’s territory. While the investor is prevented from directly owning land within this territory, the fideicomiso allows foreigners to invest in these restricted areas without infringing on the Mexican Constitution.
The fideicomiso provides a trust-like contract where a foreigner maintains the beneficial right to property within the “restricted zone” for fifty years. While the foreign citizen maintains the beneficial right to the land, legal title is retained by an authorized Mexican bank. The fideicomiso only lasts for 50 years however this ownership period can be extended. Additionally, even though the property is held in a trust, the fideicomisario, owner of the beneficial interest, has virtually the same rights as a direct owner of real property. As the property’s beneficial owner, the fideicomisario retains the ability to use the property, improve the property, earn income from it, and sell the property to a third person.
Land outside the “restricted zone” may be owned directly regardless of whether it is being used for business or residential purposes. However, acquiring direct property ownership outside the “restricted zone” requires some preparation and renunciation of certain liberties. First, an investor must enter into a convenio (Calvo Clause)with the Secretaria de Relaciones Exteriores (SRE). Essentially, this convenio requires that an investor relinquish certain rights in exchange for acquiring direct ownership. In addition to the convenio, variousregulations may be imposed depending on how the land will be used. For example, if the interior land is to be used for mining or water exploration, the interested party must file a petition and receive approval from the SRE before direct ownership is established.
In the end, depending on who is purchasing the property and for what purpose, Mexico has specific procedures that must be followed in order to secure real property ownership. While the fideicomiso is a foreign concept and may cause unease to some investors, it is a well established institution that provides similar benefits as direct ownership. While quirky ownership methods may confuse the unaccustomed first time investor, accurately understanding their role is crucial for any investor looking south of the border.