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The following information offers a simple and concise summary about owning real estate in Mexico.

 

ALTERNATIVES:
For foreign citizens, purchasing an owning real estate in Mexico has never been a safer or more viable proposition than it is today. Specific guidelines have been put into place for purchase to purchase property in Mexico. All purchases are completed through a trust deed established with a Mexican Bank. The Mexican banks acts as a trustee on behalf of the foreigner purchaser and the purchaser holds all rights of ownership.

It is a common misconception that foreigners cannot own real estate in Mexico, but the reality is that they can. Outside the Restricted Zone, define below, a foreigner or foreign corporation can acquire any type of real estate, holding the property as a direct owner complying with Mexican law.

Click here to browse current Puerto Vallarta real estate opportunities...Homes, Condos, Land, and more!

In addition, Mexico’s new political climate gives foreign citizen’s even more reasons to look south of the border when seeking to purchase a resort home, With a strong economy, lucrative investment opportunities and increased cross-border relationships, a new economic arena is opening in Mexico. Mexico’s Government has made the continued growth in North-American Trade Policy a priority for its agenda. Record international investment in Mexico has fuelled rapid growth in Mexico’s economy, without adding inflationary pressure. Analysts predict this is just the beginning of a growing trend in foreign investment in Mexico.

MORE REAL ESTATE ARTICLES AND INFO
"Bargain-hunting South of the Border": Article by Benedict Mander in Financial Times
CASE HISTORIES provides a varied view on how and why other people bought homes and property, some for retirement, in Vallarta.
Puerto Vallarta's Neighborhoods and zones...a quick review of the different areas to consider.
Puerto Vallarta and Mexico Attracting Flood of Expatriates for Retirement and Part Time Residences

Puerto Vallarta is clearly positioned as the ideal place for those considering a second home.

However, there is the Restricted Zone. The Mexican Constitution regulates ownership of the land and establishes that..." in a zone of 100 kilometres (62 miles) along the border or 50 kilometres (31 miles) along the coast a foreigner cannot acquire the direct ownership of the land " These areas are known as the " Restricted or Prohibited Zones ".

Nevertheless, the latest Mexican foreign Investment law provides a solution in the form of a FIDEICOMISO. Any foreigners or Mexican National can establish a Fideicomiso (the equivalent of an American beneficial trust) through a Mexican Bank to purchase real estate anywhere in Mexico, including the Restricted Zone. For practical reasons, even in unrestricted zones, many foreigners, and Mexican Nationals for that matter, prefer to hold their property under a Fideicomiso.

To do so, the buyer requests a Mexican Bank of his choice to act as a trustee on his behalf. The bank, as a matter of normal course, obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in trust. The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for another 50 year period. During these periods you have the right to transfer the title to any other party, including a member of your family.

The bank becomes the legal owner of the property for the exclusive use of the buyer / beneficiary, who has all the benefits of a direct owner, including the possibility of leasing or transferring his rights to the property to a third party or pre-appointed heir. The trustee is responsible to the buyer / beneficiary to ensure precise fulfillment of the trust, according to Mexican law, assuming full technical, legal and administrative supervision in order to protect the interests of the buyer / beneficiary. Fideicomisos are not held by the trustee as an asset of the bank.

Another alternative is to purchase non residential property through a Mexican corporation, which under certain conditions can be 100% foreign-owned, with a provision in its by-laws the foreigners accept being subject to Mexican laws and agree not to invoke the laws of their own country. Also, they agree that the real estate acquired be registered with the Foreign Affairs Ministry and be used for non-residential activities. In order words, under these conditions foreigners can directly acquire properties destined for tourist, commercial and industrial use.

 

THE REAL ESTATE INDUSTRY

 

STATUS:
The real estate industry in Mexico is similar in many ways to that of the United States, which is probably the most advanced in the world. It is developing quickly, taking advantage of today's technology; however, it seems to be paralleling the system as it exists in the U.S.A. The only national professional real estate organization in Mexico is the “Asociacion Mexicana de Profesionales Inmobiliarios " ( Mexican Association of Real Estate Professionals ) or A.M.P.I. with 24 chapters in 38 cities. This organization is similar to the National Association of Realtors (NAR) in the United States.

 

LICENSING:
At this time there are no government license laws regulating real estate brokerage and sales in Mexico. Anybody, in effect, offer properties for sale. Therefore, caution should be taken to select and established and reputable real estate company.

ESCROW, TITLE INSURANCE AND HOME INSURANCE:
It is the public Notary who, in effect, acts as a "Holding Agent" for the involved parties, so there a few escrow companies in Mexico. At the present time there is no general use of title insurance companies in Mexico, although some American companies do provide full home coverage throughout Mexico.

PURCHASE - SALE 

Can Foreigners own property in Mexico?

Article 27 of the Mexican Constitution states that foreigners cannot own property within 100 kilometres (62 miles) of the border and 50 kilometres (31 miles) of the coast line. This is a protection measure, put in place after foreign invasions repeatedly threatened the Country’s sovereignty. Foreigner may directly own rural or urban land in the interior of Mexico subject to certain limitations on specific agricultural tracts. As time has passed, and as the Mexican government has come to realize the benefits of opening these attractive areas up to foreign investment, they have modified this constitutional restriction. Since 1973 foreigners (non-Mexicans) have been able to purchase coastal and border properties if done through a Mexican Bank Trust, known as a “Fideicomiso”.

PROCESS:
Most real estate transactions are "opened" after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker to transmit the offer to the seller. (If the transaction is being conducted directly with the seller it is highly recommended that a real estate broker or lawyer be consulted before signing any papers or handling over any money.) It is common to deliver to the real estate agency or an escrow agency, as an advance payment (deposit) the equivalent of 10% of the total price upon signing the purchase-sale agreement, which should contain a penalty clause applicable in the case there is a breach of contract by one of the parties. Normally, when signing the “Escritura publica” or official deed, which needs to be certified by a public Notary, the balance is paid and the property is delivered. It is recommended that an escrow be used for all real estate transactions.

THE PUBLIC NOTARY:

A public Notary is a government-appointed lawyer who processes and certifies all real estate transaction, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer. Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the public Notary, who also is responsible to the government for the collection of all taxes involved. In connection with real estate transactions, the public Notary, upon request, receives the following official documents, which, by law, are required for any transfer:

* A non-lien certificate from the public property registry, based on a complete title search. 
* A statement from the treasury or municipality regarding property assessments, water bills and other pertinent taxes that might be due. 
* An appraisal of the property for tax purposes.

CLOSING COSTS:

Closing costs to the buyer tend to be roughly 2 to 4 times higher in Mexico than they are in the U.S. or Canada, averaging 4 to 6 percent of the purchase price (If property less than $100K, this percentage increases to an 8-10%, due to some fixed costs, such as trust fees). Closing will usually take between 30 to 60 days depending on contingencies and financing requirements. Escrows are now starting to be available via private escrow companies specializing in this function, and will cost an average of $600 US per transaction (Stewart Title Guaranty de Mexico, Firs American Title Insurance).

It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary's fees and expenses, while the seller pays his capital gains tax and the broker's commission. Since January1, 1996, the federal law regarding the real estate acquisition tax, which was 2% for all the republic of Mexico, was modified to allow each of the Mexican states to determine its own tax. The range now maybe from 1-4% of the tax appraisal value, which is generally less than the sales value. The rest of the closing costs mention need above; vary from 3-5% or more of the appraised tax value, depending on the particular state- These percentages are applied to the highest value of the following:

* The amount for which the property is sold. 
* The value of the official tax appraisal. 
* The value designated by the property assessment authorities.

COST OF THE FIDEICOMISO (Trust):

What is the trust, and how does it work?

Essentially, it is like a trust in the United States – the bank holds the legal title to the property, with all rights and privileges of ownership, including exclusive use and enjoyment, held by the Trust beneficiary – the foreigner -. The foreign beneficiary enjoys the right to occupy or rent the property, and may cause the transfer of title or beneficiary transfer to the property to any legally qualified person he may designate. Beneficiaries are also allowed to modify their property in accordance with local zoning regulations.

These trusts have an initial term of 50 years. They are renewable at any time or at the end of the 50-year period for a relatively small fee (aprox. $1,000 US) for additional 50-year periods. The property may also be sold to a person legally authorized to own property or to another foreigner via a Trust, at any time, with the foreign buyer capturing the amount of the appreciation of the property value. This process is designed to protect the rights of foreigners, and ensure the transactions are legal.

How are these trusts created?

To establish a real estate trust (fideicomiso), banks will charge a predetermined fee, plus a percentage of the property value, to cover the costs of preliminary studies and the drafting of the trust agreement. The bank also charges an annual fee for maintaining the trust, roughly averaging $450 to $550 per year. The trusts are carried as off balance sheet assets by the banks who act as trustees. The Mexican government specifically set the trust system up to allow non-nationals the security of ownership without having to change their 1917 Constitution.

Based on the present tariff, the bank charges the person desiring the Fideicomiso an initial fee (approx. $ 500 USD) for drawing up the agreement based on the value of the property. In addition, the bank charges an annual fee (depending on the value of the property) to cover its services as a trustee.

REAL ESTATE BROKER'S COMMISSION:
Most real estate companies in Mexico charge a 6-8% commission (plus I.V.A. or sale tax) based on the actual sale price of the property. However, in resort areas broker rates are usually higher because of increased broker expenses.

CAPITAL GAIN TAX:
In Mexico, the concept of capital gain tax does not apply in the same way it is determined in the United States. Here, the gain from the sale of property is treated as normal income at a tax rate of up 35%. To determine the gain, the followings costs and expenses are deducted from the amount for which the property is officially sold:

* The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.

* Additions, modifications and improvements, but not maintenance, made on the property (construction) adjusted as above. 
* Commissions paid to real estate brokers by the seller. 
* The closings costs, including all expenses, taxes and fees paid by the seller. 
* The Notary will retain the calculated gain after deductions, forwarding it to the Mexican tax authorities. The seller will then deduct this amount against his annual tax return, which becomes an adjustable tax credit in the USA. On the other hand, there is no capital gains tax in Mexico if there is a conclusive proof (electricity and/or water receipts for the last six months) that the seller has used the property as his primary residence for at least six consecutive months and must hold a residential status in Mexico.

Are there differences in other aspects of property ownership in Mexico?

Financing is relatively new in Mexico. If financing is something one wants or needs, get pre-approved ahead of time, just as you would in the U.S. or Canada. There is some mortgage companies out of the US that now offers financing for properties in Mexico, bought by US citizens.

If the transaction does not include financing, the buyer does not need to be present at the closing, and if desired, may me represented by their sales agent via a power of attorney.

What about the availability of insurance on the transaction (title insurance), as well as the property itself?

To date, there are no home inspection agencies or home warranty policies available in Mexico. However, in recent years, Title Insurance has become available. Other types of insurance, including property, liability, damage and earthquake, are all readily available, at low costs. Please ask your Coldwell Banker La Costa agent for further information regarding this matter.

What about taxes? What can I expect to pay in Mexico?

For the buyer, the subject of real estate taxes generally comes as good news: especially in the Puerto Vallarta area real estate taxes tend to be very low. Known as “Predial”, the tax is calculated as a percentage of the assessed value determined at the time of sale, paid bimonthly or yearly (in advance). Property taxes have been historically low in Mexico, because they have never been considered source of governmental revenue (plus, if you pay for the whole year in advance, before February 15th, you get a 15% discount).

What other expenses should I consider on the purchase of property in Mexico?

If you are not planning on living full time in Mexico, property maintenance will need to be considered for the time you are away. For condominium owners, maintenance and security is handled by the Condominium Owners Association, paid for through monthly fees. Homeowners may want to consider a property management company.

How can I be assured of dealing with a qualified Real Estate Professional in Mexico?

One of the major differences in buying properties south of the Border stems from the fact that Real Estate agents in Mexico are not subject to any national certification or educational requirements. As such, the best advice you can act on is to always deal with an established Real Estate Agency, whose references you have checked personally with several former clients.

 


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