Mexico's beautiful beaches attract investors from all over the world. A large number of residential and commercial real estate projects, as well as plots by the sea for development, are put up for sale. Buying real estate in Mexico for foreigners is not particularly difficult, and the government respects property rights and protects owners.
Any non-resident can buy real estate in Mexico, including those who came to the country on a travel visa or electronic permit. The only basic documentation required for purchase is a passport. However, the purchase of residential real estate in Mexico by foreigners has its own characteristics.
Since 1917, Article 27 of the Mexican Constitution has prohibited the direct purchase of residential real estate by foreigners in the strategically important coastal and border areas of the state. However, the second section of the Law on Foreign Investments (Ley de Inversión Extranjera,1993) defines the mechanism for such a purchase on a legal basis — by creating a bank trust. El Fideicomiso en Zona Restringida — This is a bank trust in a restricted area.
This material is about purchasing real estate in Mexico through a bank trust. We have not detailed other aspects of such a transaction.
«Forbidden zone» — it is a strip of land 100 km (61 miles) wide near the border and 50 km (30.5 miles) wide on the sea coast. Given the enormous length of the land border and coastline, the exclusion zone occupies almost half of Mexico's entire habitable territory. Mexico considers these territories its strategic national asset.
Purchasing real estate in a restricted area by creating a bank trust does not violate the prohibition imposed by Section I of Article 27 of the Constitution. Bank Trust — This is not a “scheme” assembled from loopholes in the law to circumvent the ban. All provisions for such trusts are clearly spelled out in Article 11 of the Foreign Investment Law, the purpose of which is precisely to give foreigners the option to buy real estate in a restricted area without violating the Constitution.
Bank Trust — This is a legal agreement by which property is transferred to the management of a third party (the actual purchaser, aka the beneficiary). The purpose of trusts in a restricted area is to transfer to the buyer the maximum possible rights to use the object, but not the ownership itself, that is, so as not to contradict the Constitution. Title to the property belongs to the trust created by the bank on behalf of the foreigner, and not to the foreigner. But the non-resident is a trustee and has the right to dispose of the property. Essentially, a trust gives the foreigner the same rights as direct ownership. A foreign citizen has the right to use property, lease it or pledge it, and register any benefits associated with its use and profitable operation. Finally, property can be bequeathed or sold. At the same time, assets owned by the trust are not considered part of the bank’s assets and cannot be linked to bank liabilities.
Moreover, since the numerous trusts created in recent decades for the purchase of real estate by foreigners are all owned by banks, and banks in Mexico are mostly owned by foreign companies, the constitutional ban on direct foreign ownership of real estate in the exclusion zone has become irrelevant. It has been proposed more than once to cancel it, but so far the majority is satisfied with the current state of affairs.
So, a foreigner NEEDS a bank trust to buy residential property within the restricted area. This applies to the purchase of property by foreign individuals or foreign or Mexican companies that have foreign investment and/or a foreign founder.
A bank trust is NOT NECESSARY when purchasing commercial property WITHIN the restricted area and any property OUTSIDE the restricted area.
Sometimes, even on reputable websites, you can read that a company owned by a foreigner can buy residential real estate in a restricted area without creating a trust. In other words, it is possible to simply open a Mexican company and buy real estate on its behalf, bypassing existing restrictions. Such a purchase may be considered illegal, and the company will be subject to a fine equal to 100% of the purchase price (Article 38.5 of the Foreign Investment Law), which is extremely difficult to challenge.
Even if you have already received resident status in Mexico and are purchasing real estate through a company in this status, you will never receive a bank loan to finance such a purchase. At the same time, if you buy real estate through a bank trust and have a credit history in Mexico, you can qualify for a bank loan.
Only credit institutions (banks) can establish trusts for the purchase of real estate by foreigners. The legal document creating the trust is certified by a notary public and entered into the Mexican public registry.
Algorithm for buying real estate by a foreignerin the restricted area in the general charts may be as follows.
The buyer finds the object he wants to buy — new or on the secondary market. You can do this yourself or with the assistance of a realtor. The property will need to be checked for legal ownership, debts and encumbrances, even if the seller is a development company. A lawyer can handle this very well, but not a realtor. Although many realtors promise to support the transaction at all stages, in fact, most often their mission ends after all the conditions are verbally agreed upon between the seller and the buyer.
One way or another, the seller will have to request the cadastral data of the property and check it in the State Register of Real Estate to find out the status of the property, if it is included there. For example, you can check that the seller is indeed the owner, what other co-owners there are, that the property has no debts and is not under a mortgage.
Then a preliminary agreement is concluded with the seller, if it is necessary or you want to be sure that someone else will not buy the property. Sometimes a deposit may be required. A deposit will always be required when purchasing a new building before commissioning.
Then you need to contact a notary and draw up a purchase and sale agreement, and also begin the process of drawing up a document of ownership (escritura). In this case, the notary will ask the seller for all the papers for the property in order to check them again. The purchase and sale agreement is necessary because the completion of the transaction and payment will be made only after the creation of the bank trust, and not at the time of registration of ownership, otherwise it would be enough to simply obtain an escritura. The contract specifies payment standards, return of deposits, or penalties for violating the terms; this is a legally binding agreement. Therefore, the buyer may be asked for a deposit of 5-10% if his contractual relationship with the seller did not require the payment of such a deposit earlier.
Although any Mexican notary is considered a lawyer, during a real estate transaction he represents all parties at once: the buyer, the seller and the state. For this reason, his task is to correctly prepare the documentation, but not to represent any one of the parties. The notary will not discuss the rules for opening a trust with the bank for you.
Next, you need to select a bank that will open a bank trust — fideicomiso. All banks open trusts, but large ones are reluctant to do so — it's not their business. If you come to the bank “from the street,” it will most often be difficult to achieve clear conditions on the cost of bank services and the procedure for opening a trust. And here again you need a lawyer who knows the procedure and is able to significantly facilitate communication with the bank. On the buyer's side, the only documents required are a passport, FMM tourist card or resident/CURP card and proof of residence in Mexico (utility bill). The seller is obliged. in addition to other documentation, provide the bank with a notarized letter of intent to sell the property.
To create a bank trust, you must obtain permission from the Mexican Ministry of Foreign Affairs — this is a prerequisite. The bank itself must obtain such permission before signing the trust agreement, since this can only be done on the basis of a digital signature issued to the credit institution by the Tax Administration Service (SAT). Within 5 working days after submitting a request from the bank, the Ministry of Foreign Affairs is obliged to provide such permission. But in fact, drawing up a trust can take a month.
Three parties will participate in the transaction: the seller, the buyer and the bank as a fiduciary, that is, a trustee who will make the purchase on behalf of the buyer and, through a trust, transfer the property to him for management:
- Fedeicomitente (seller)
- Fiduciario (fiduciary, or trusted agent)
- Fideicomisario (buyer)
The fiduciario, following the instructions of the buyer, will, on his behalf, purchase the property from the seller.
First, a trust is opened, and only then a transaction to purchase real estate in a restricted area is completed. It is important that after issuing the permit, the bank provides the notary with a letter of consent to retrain the property with the assistance of the trust. Only after this the notary should begin to draw up the escritura.
The trust (formal legal agreement) is established for a period of 50 years. Within 90 days before the expiration of the trust, it is allowed to be extended for the next 50 years, while the intended purpose of the property must remain the same and cannot be changed. If the actual owner acquires Mexican citizenship (naturalized), the trust is automatically closed and ownership is transferred to him.
The formal transfer of ownership occurs on the day when the papers are signed by all three parties. But the buyer will receive notarized documentation only after the notary has entered data about the property into the State Property Register and a number of other registers. Data about the trust is entered into the National Register of Foreign Investments. The bank's obligation is to annually confirm the data entered in the National Register. All this can take from a week to a month, and only at the end the ownership document itself is transferred to the buyer.
In general, the process of buying property in Mexico takes about 2 months from start to completion, and this is the usual speed. In most cases, the speed of the process largely depends on the agility of the notary.
In parallel with the trust agreement, there may be other agreements: with a bank, a mortgage agreement, on the transfer of money, etc.
A separate bank trust is opened for each property. If a lot of land is purchased for residential development, its size does not have to exceed 2000 sq. m. If the lot is larger, it is necessary to use another purchasing mechanism through the company. If there are several real estate properties, it is also advisable to register them in the name of a company.
The approximate cost of creating a bank trust for the purchase of real estate in a restricted area will be $1800-2500 depending on the «appetites» bank, including MXN 15,500 for obtaining permission from the Ministry of Foreign Affairs (2020). In addition, you will have to pay for the services of a notary, a lawyer (2-3%), ISAI purchase tax (3% in the state of Quintana Roo, in other states it may be lower) and the cost of entering data into registers.
An annual bank trust renewal will cost approximately $500.
If a non-resident buys real estate from a foreigner, a trust is simply sold. In this case, the entire process will take much less time than opening a new trust.
Among other taxes, we note the annual property tax (predial), which can vary depending on the state, municipality and zone. It is calculated from the cadastral value of the object, including depending on the type of object, age, etc. In Quintana Roo it is less than a tenth of a percent. Let's say, in the municipality of Solidaridad (Playa del Carmen), the residential property tax for 2020 is only 0.0019 and for commercial property 0.0045 — 0.005 of the cadastral value. In other words, for a residential house priced at $100,000, you will need to pay $190. You can ask the seller for the amount of tax for last year.
Payment of this tax is also individual: in some places it should be paid once a year, and in others in installments every 2 months. In addition, at the beginning of the year, municipalities give discounts on the payment of this tax from 20 to 50%.
You can learn more about taxation and costs when buying and selling real estate in Mexico from thispublications.
How safe is it to buy real estate in Mexico by creating a bank trust? Absolutely safe. If you have a title deed and are registered as the owner in the public property registry, no one can take your property.
Owning real estate without obtaining a residence permit in Mexico does not provide any advantages when entering the country. If you are not a resident of Mexico, but inform upon entry that you own real estate in the country, with a high degree of probability you will be given an authorized period of stay not of 180 days, but much less, in particular, 2 weeks or a month.
Need a realtor in Mexico? Then youhere.