Frequently Asked Questions
Q. May foreign persons (non-Mexicans) own property and hold title in their name in Mexico?
A. Yes. Literally, hundreds of thousands of foreigners from all corners of the globe own property in Mexico and hold title in their names, in their Mexican corporation's name or jointly with a Mexican Bank, using a fideicomiso (fiduciary trust agreement).
Q. How may a foreign person hold title to property in Mexico?
A. There are several ways a foreigner may own property in Mexico.
1. If the property is not located in the restricted zone (50-kilometers from the sea or 100-kilometers from the border), a foreigner may hold title to the property. The foreign person will still need to apply for a permiso (permit) from the The Mexican Goverment.
2. If the property is located in the "restricted zone", the Buyer will most likely utilize a fideicomiso (fiduciary bank trust agreement) for holding title.
The fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property with you (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property.
Advantages of the fideicomiso:
- The fidiecomiso gives you the rights and the vehicle to hold title to the property in perpetuity.
- The fideicomiso is a 50-year trust agreement that is renewable every 50-years by you or your heirs.
- You can transfer your rights in the fideicomiso to a foreign buyer.
- You may rent, sell, remodel or dismantle the improvements on the property.
- Your heirs may inherit the rights to the fideicomiso, effectively by-passing probate, should you depart without a proper will.
- There are tax advantages pertaining to capital gains taxes when you sell.
- The fideicomiso is easy to maintain by paying the annual fee to the bank.
The main disadvantage of the fideicomiso is that it is restricted to hold a property of, NO MORE THAN 2000 square meters. (There are exceptions and you can request a permiso for acquiring a fideicomiso that allows for a property larger than 2000 square meters. It is a complicated process requiring an invest plan, time line, inspections, architectural renderings, business plan, governmental red tape, etc.)
Another disadvantage of the fideicomiso is that it is limited to one specific property. Sometimes you can put two adjoining properties into the same fideicomiso. But, generally speaking the fideicomiso is usable for only one piece of property.
3. If the property is located in the "restricted zone" (50-kilometers from the sea or 100-kilometers from any Mexican border, the Buyer may decide to utilize a Foreign Owned Mexican Corporation to hold title to the property.
The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate. An attorney or notario can help to set up your corporation. It is important to know what your goals are in respect to the property, business and type of investment prior to setting up the corporation. Creating the corporation requires a minimum of 2-individuals (stockholders), of any nationality, at least 18-years of age. One of the stockholders will be required to be the managing partner. The managing partner will be required to acquire and maintain an FM-3 visa. The visa must be renewed every year. Additionally, the corporation is required to make monthly reports to HACIENDA (the Mexican Department of the Treasury) reporting income and expenditures. The reporting needs to be done by a certified accountant.
Advantages of the FOMC:
- Allows for the purchase of properties larger than 2000 square meters.
- No limit to the number of properties it may own.
- Allows for one or more of the stockholders to legally live and work in Mexico year round.
Disadvantages of the FOMC:
- The corporation requires more hands on attention than the fideicomiso.
- Does not have the ability to avoid capital gains taxes when it sells property.
- Requires a managing partner with a FM-3 visa.
- Monthly reporting of financial activity through a certified accountant.
Your Mexican attorney or Notario can setup your corporation. The following will be useful:
a. Full names of all stockholders as they appear in your passports.
b. Percentage of stock for each.
c. Dates and places of birth for each stockholder.
d. Marital status (if married a scanned copy of your marriage certificate).
e. Home address, phone numbers, fax numbers, email addresses.
f. Scanned copy of a current telephone or electric bill from your home address.
g. Scanned copy of all parties passport picture and data page.
h. Occupation (job title) of titleholders.
i. 5-names in priority order that you want to name your corporation, ie. "RELAX MEXICAN BEACH CORPORATION".
j. The purpose of the corporation, ie tourism, restaurant, etc.
k. The amount to order the permit for the corporation.
The corporation will need to hire an accountant to register the corporation with the Mexican Secretary of Economy, The Mexican Secretary of Foreign Affairs and the Mexican secretary of Treasury (HACIENDA). The accountant will also file the (REQUIRED) monthly corporate income reports to HACIENDA. One of the stockholders of the corporation is required to be the managing partner. This person is required to acquire and maintain an FM-3 visa. The FM-3 visa allows the managing partner to live and work in Mexico, year round, operating the corporation.
Q. How would you compare the cost of utilities in Yucatan to the cost of the same utilities in the United States? Electric, gas and water?
A. Electricity in nearly all of Mexico is controlled by the government owned CFE "Comision Federal de Electricidad" The amount you pay for electricity is based upon usage and is billed on a three level tier - Basic, Intermediate and High. The lowest level is generally subsidized to provide cheap electricity to the poor. However, as soon as you get into the higher levels, electric usage can be expensive. There is ample motivation to use energy efficiently.
Mexico generates electricity by utilizing thermoelectric, hydroelectric, coal-fired, geothermal, wind powered plants and a nuclear power plant. For more information on CFE see their website at: http://www.cfe.gob.mx/Paginas/Home.aspx There are a few pages in English.
Natural Gas in Mexico is basically the same price as it is in Texas. In 1997, the Comisión Reguladora de Energía of Mexico implemented a netback rule for linking the Mexican natural gas price to the Texas price. At that time, the Texas price reflected a reasonably competitive market.
Most residential user of natural gas purchase it by the tank. Some homes have tanks on the roof others use smaller tanks that are mobile. There are several gas companies that sell natural gas in Yucatan and they provide service directly to your home or you can refill your tanks at the operations facilities.
Yucatan is truly blessed to have an abundant supply of sweet water. Water in Yucatan and the cost associated with it's house hold use is very inexpensive.
Q. Can I get a mortgage to finance my purchase of a house in the Yucatan?
A. Mortgages are available in Yucatan for Mexican and Foreign home buyers. Scotiabank, Banamex, Bancomer and several other international banks and mortgage banks will provide mortgage backed funds for a home purchase in Mexico.
HOWEVER, the loan process is expensive, time consuming, brain damaging and very rarely utilized in Yucatan. There are numerous difficult issues that will confront a home buyer wishing to use institutional financing to purchase real estate:
- Most lenders will not make loans for purchases of less than $100,000.00-usd.
- Down payments run 30% or higher.
- Interest rates are generally much higher than what a buyer would pay in the USA.
The law requires that all transactions be recorded at actual sales price or an appraised value determined by the Office of the Catastro. The Catastro is concerned with establishing a valuation, the valor catastral, used as the basis of property taxation. Since this value of property in Yucatan is frequently much less than the actual sales price, a host of problems emerge for a financed purchase. It is very difficult to find reliable Comparables. There can be significant tax issues that severly impact the Buyer and Seller financially. Sellers who are not able to avoid capital gains taxes (ISR - Impuesto Sobre la Renta) face a 30% taxable rate on their gain. Buyers pay a 2% (in Yucatan) transfer tax based upon the purchase price or valor catastral of the property. To issue a mortgage, banks will require that the actual purchase price be recorded at the sale and an independent appraisal that supports the purchase price will be required.
Most lenders will not make a loan for raw land, raw beach, properties that are in very poor condition or located in industrial or business type areas.
Q. Where do most of the expats live in Merida?
A. By far, the majority of expats living in the city of Merida, live in the Central Historic District, known simply as "Centro". Centro is a very large geographical area. In fact, Mérida has one of the largest centro historico districts in Mexico (surpassed only by Mexico City). Generally speaking, Centro is a couple square miles and it is populated by thousands of colonial homes, shops, restaurants, parks, squares, theaters, schools, businesses, government offices, markets, art galleries, sidewalk cafes, stunning architectural treasures and a few, unfortunately ugly buildings like the Telmex box.
Most expats love the ability to walk to the theaters, parks, squares, markets and businesses located in Centro. There are cultural events nearly every night of the week in Centro - folkloric dance, concerts, poetry and musical recitals, ballet, the symphony orchestra, comedy, lectures, home and garden tours, The Merida English Language Library, cantina's and much, much more!
Q. Has the Yucatan housing market been affected by the downturn in the housing market in the USA?
A. The mortgage crisis of 2008 and the ensuing global financial crisis of 2009 had a an impact on the Yucatan real estate market. However, the S1N1 Flu scare of 2009 was more devastating to the Mexican economy and Yucatan real estate market than the global financial crisis. The double punch of the late 2008 mortgage meltdown and the April 2009 Swine flu pandemic scare lead to the worst real estate market we have witnessed in Yucatan since 9-11. Most Mexican schools and nonessential businesses were asked to voluntarily close for a week in April. The resulting negative press and global fear effectively killed the tourism, restaurant and real estate businesses for the remainder of 2009.
2010 was a good year and we saw a number of foreign and local buyers return to the market. The number of American buyers is still below average which we believe is due to the lingering weak economy and a "shell shocked" American consumer. Canadians, Europeans, Mexicans, South Africans and South Americans have returned to the market place. We believe 2011 will be a better year than 2010.