Property Ownership in Mexico
Mexican Property Trusts (Fideicomiso)
To really understand how ownership in Mexico works, it is important to understand the history of property ownership. 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.
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 Mazatlan region is a priority area for this targeted growth.