Buying a Property in Mexico

Why Mexico?

The Mexican property market is already pretty established thanks to American snowbirds, and as a result it is well equipped to cope with foreign buyers. Property prices in Mexico have been rising year on year, with cities and popular tourist resorts reaping the benefits. Despite this, both land and property is much cheaper than in many other global property-buying destinations.

However it’s not just price that’s attracting investors, holiday homers and retirees. Fabulous weather, amazing beaches, a vibrant culture and good food all combine to provide an exotic holiday location – it’s no coincidence that Mexico is frequently cited as one of the worlds most popular honeymoon destinations.

The cost of living in Mexico is around half that in the UK, and labour is cheap, so if you are planning on emigrating, or even building your own home, you will be off to a flying start.

Popular buying locations

Cancun on the Yucatan peninsula is perhaps the most popular Mexican tourist destination – welcoming no less than three million visitors a year. A bustling nightlife compliments the wide range of water sports that are available during the day, making this an ideal family destination. Acapulco, the country’s most famous beach, also offers a mix of gourmet restaurants and lively nightclubs to occupy those balmy evenings, while diving and snorkeling are the order of the day.

Meanwhile, Los Cabos on the Pacific coast is keen to make its mark as the smartest new golfing destination in North America – it is claimed that a whopping 40 per cent of visitors arrive by private jet. Property prices in the golf developments here are some of the highest in the country, but this is a case of you get what you pay for, as luxury is the name of the game.

Puerto Vallarta is wedged firmly in the middle of the market, with new development complimenting cobbled streets and white-washed buildings. Prices here having been rising quicker than in both Cancun and Acapulco, as it attracts the wealthier middle-aged market.

Legal issues

In Mexico, foreigners are unable to buy land in restricted zones unless they set up a trust known as a fidecomiso. These zones comprise all land within 100 kilometres of any international border, and 50 kilometres from any coastline. The fidecomiso is set up via a bank, and it is really only a legality as the buyer is the sole beneficiary of the trust – unless you nominate anyone else. The bank will hold the title deeds, but you own the property in all but name, and are therefore entitled to carry out works, rent the property out or sell it without consulting the bank. In the event of your death the property will go to your chosen beneficiary, even if you don’t have a Mexican will.

There are many problems with clean title in Mexico, so it is absolutely essential that you seek the advice of an independent solicitor familiar with local law. If there is any doubt over the title whatsoever it is advisable to take out title insurance.

The buying process

Once a price has been agreed, and you have commissioned a notary public, you will need to sign a preliminary sale agreement, at which point you will be required to pay a five to ten per cent deposit. If you pull out after this stage you will lose your deposit. Your notary public will need to seek permission to buy the land from the Foreign Secretary’s office, and you will then be asked to sign the Calvo Clause, which states that you will not seek foreign jurisdiction in dealings with your property transaction.

If you are buying a new-build property your notary public will ensure the developer’s permits are in order, that the deeds are correct, and that the property is not built on ejido (public agricultural) land. An official appraisal of the land or property needs to be carried out, similar to a survey, following which you will need to produce a range of identification and your visa to prove that your stay in Mexico is legal.

The remainder of the balance is paid when the deeds are signed over to you, and all taxes and notary fees are due on this date. It is essential to note that, while you don’t legally need a solicitor to buy a home in Mexico, it is strongly advised – especially if you are purchasing a resale home.

Finance

It is important to note that all property transactions in Mexico are conducted in the US dollar as opposed to the peso, a fact which removes fears of currency devaluations. There are no limits as to how much money you are able to move in and out of Mexico, but for amounts over and above $10,000 (£5,300) you will always need to declare it.

Getting a Mexican mortgage is much more expensive than raising finance in the UK. Interest rates are currently around 14 per cent, and banks will require a deposit of between thirty and forty per cent. It is possible to get a loan from an American bank, but this can be difficult as most US banks will only lend according to equity that you actually have built up in the USA. As a result, if you are not in a position to pay cash, it is advisable to remortgage your British property in order to raise the funds required, as this way you will be paying far less interest.

Fees and taxes

There is no VAT payable on residential property, but you will be charged 33 per cent capital gains tax on the rise in value of your property when you come to sell. The cost of setting up the fidecomiso is around £1,600, and you will also have to pay an annual fee for the trust based on the value of the property. In addition to this yearly charge, you will also need to pay 0.25 property tax per annum. In total the cost of buying a home in Mexico – including trust formation, tax, solicitor’s fees and title insurance – will come to around eight per cent.

When selling your home, expect to pay an agent between three and six per cent plus VAT, but you should negotiate the exact figure before you agree to anything. Mexico has a double tax treaty with the UK, so you won’t be taxed twice on any profits that you make.

Visas, residency and work permits

In order to enter Mexico you will need a tourist visa, known as the Migratory Tourist Form (FMT). This is valid for multiple entries for a 180-day period, and it costs just under £10. If you wish to stay for longer than six months you will need to apply for either a FM2 or a FM3 visa.

The FM3 visa enables you to stay in Mexico as a non-immigrant for up to a year. You are able to renew this visa on an annual basis but, after five years, you will be entitled to apply for the FM2. The FM2 is awarded to immigrants who are now eligible to apply for permanent residency – but you will be restricted on the amount of times that you can leave and re-enter the country. The FM2 also needs to be renewed annually.

On both the FM3 and FM2 visas you are able to work in Mexico, but you will need to prove to the authorities that you have an established profession or trade.

New-build versus resale

Sarah Beeny eat your heart out, it seems that Mexico is the home of renovation. Buying a ‘fixer-upper’ is very popular with locals and international investors alike, as not only does buying the shell of a property enable you to put your own stamp on it, it also allows you to sell on at a profit. There is a wide choice of such ‘shells’ available in Mexico, even of old Colonial homes, but vendors have caught onto their popularity and they may not be the bargain that they once were.

Due to low labour costs, building your own home may also seem attractive. However, if you are not planning on spending much time in Mexico to oversee the build, this may be best avoided as finding a reliable and efficient project manager can prove difficult. If you do go down this route, ensure that the plot you buy is near a reliable water source and that it’s not on ejido land.

Buying off-plan is a popular alternative, and if you are looking to purchase in a tourist resort this type of property is likely to rent out easily, as well as provide good value for money.

Investment potential

Investors are favoured by Mexican law, and foreign buyers are not discriminated against in any way. Tourism is unlikely to diminish in the near future, meaning that rental returns should be favourable. In fact, in popular tourist areas, returns of 15 per cent can be expected, based on an average of 40 per cent occupancy.

Recent annual price rises have been cited between ten and 20 per cent, so when you couple these facts with low taxes and reasonable maintenance fees, you have a promising investment destination. The market is currently pretty stable and, thanks to moderate inflation, the peaks and troughs that many other markets suffer are unlikely to happen in Mexico.

Whatever type of property you decide to buy, ensure that it is near established infrastructure. Remote homes are harder to rent out, and also tend to witness slower capital appreciation.

Health and education

In general, the healthcare system in Mexico is very good, as the majority of doctors will have trained for at least a year in the USA. The cost of treatment in private hospitals is relatively high however and, so, as there are no reciprocal health agreements between the UK and Mexico, travel insurance is imperative if you don’t want to get hit with a large post-treatment bill. Before entering Mexico it is advisable to be vaccinated against tetanus, typhoid, poliomyelitis, hepatitis and paratyphoid, but malaria tablets are not needed unless you are travelling to the far South East of the country.

Thanks to the amount of American expats, there is a good choice of international schools in Mexico – and even a couple that are based on the British curriculum. Most of these schools provide primary and secondary school education, and most of them offer kindergarten and pre-school as well. Some of these schools teach only in English, but the majority lean towards a 50-50 ratio with Spanish.

Transport

A range of carriers, such as British Airways, fly directly into Benito Juarez – Mexico City’s modern airport. From here domestic airlines Mexicana and Aeromexico fly to all of the major cities and resorts.

Mexico’s road network is one of the most extensive in Latin America. Since 1994, 3,500 kilometers of four-lane highways have been built thanks to government concessions. The majority of these are toll roads but, despite this, journey times can be lengthy simply due to the size of the country.

There is a wide range of car hire firms available, but it’s best to avoid driving in Mexico City itself. If you do hire a car you will need to be over 25 and have a valid credit card, and when on the road ensure that you have valid documentation on you at all times. Driving is on the right, and be alert to any animals that are prone to wondering onto the road.

And finally…

Despite it not being a legal requirement, it is important that you seek the advice of an independent lawyer – especially if your notary public is not fluent in both English and Spanish. In addition to the conveyancing, they can check many things on your behalf – such as the state in which the property will be sold, as many Mexican resale homes do not include telephone lines and light fittings as standard.

Also be aware that estate agents in Mexico are not licensed or regulated in any way, so do not pay any deposits up front. It is also very wise to look at as many properties as possible before you commit to a purchase, that way you will know if you are getting value for money without having to trust an agents opinion.

Finally, be prepared to barter. The asking price of a property may vary dramatically to what the vendor is actually prepared to accept.

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All circumstances vary. BuyAssociation provides general advice for guidance purposes only. It is strongly recommended that you seek professional advice before making any purchase.