Mexico: Overview

RENTAL YIELDS

Last Updated: Nov 20, 2008

Prices per metre in 4 parts of Mexico

Currently there are no 2008 yields figures for Mexico. However, prices per metre are available for houses in Acapulco, Baja California, Los Cabos and Quintana Roo from anywhere between 80 to 1,350 square metres. Highest average can be found in Los Cabos at US$ 3,763 per square metre with an average price tag of US$ 2.8 million. Versus a fraction of the price in Baja California at US$ 290,000.

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TAXES AND COSTS

Last Updated: Feb 18, 2009

Mexico has high taxes on rental income

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	3.3%	4.8%	11.3%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Non-resident individuals are generally liable to pay 25% withholding tax on their gross rental income. However, they can elect to have their rental income taxed as business income and through this option; they will be taxed on their net income at progressive rates.

Capital Gains: Non-resident individuals selling Mexican property are generally liable to pay 25% withholding tax on the sales price. However, non-resident individuals with appointed local representatives may be taxed on their net capital gains (sales price less acquisition costs and related costs) at 28% for 2008.

Inheritance: There are no inheritance taxes in Mexico.

Residents: Mexican residents must pay income tax on their worldwide income at progressive rates, from 1.92% to 28% for 2008.

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BUYING GUIDE

Last Updated: Apr 20, 2007

Total transaction costs
range from low to high in Mexico

The total roundtrip transaction costs are around 4.3% to 17.8% of the property value, depending upon the location, and value of the property. Property acquisition tax, notary public fees and registration fees vary in each state and/or city. Additional costs for the buyer include title insurance, legal fees for Spanish-speaking lawyer, bank fees for setting up a trust (fideicomiso), and permit from the foreign affairs office. Real estate agent’s fee is around 3% to 6% (plus 15% VAT) and typically paid by the seller.

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LANDLORD AND TENANT

Last Updated: May 31, 2006

Laws are pro-tenant

Mexico landlord & tenant law is pro-tenant.

Rent Control: The rent freeze imposed in Mexico City in 1948, and lifted only in 1992, have driven investors out of the rental sector or to the informal rental market. Rent increases are generally tied to the consumer price index.

Tenant Security: The law favors the tenant and it is difficult for the landlord to evict the tenant upon the termination of the contract.

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ECONOMIC GROWTH

Last Updated: Apr 04, 2009

Mexico’s economy weakens with the US

The 1994 Tequila Crisis is one of the worst crises to hit Mexico. Years of overspending and fiscal irresponsibility led to a huge deficit and growing national debt. With the spending binge for the 1994 election combining with political uncertainty (the leading administration candidate was assassinated), risk premium for Mexico dramatically rose.

Since the peg of the Mexican peso to the US dollar could no longer be supported by borrowing, the government announced that it would allow the currency to float within a 15% band. This triggered capital flight. The massive pressure forced the government to abandon the peg. Within weeks, exchange rate rose from MXN4 per US dollar to MXN7.

The crisis led to massive economic disruption with millions of Mexicans driven back to poverty. Inflation was above 35% in 1995 and 1996, Short-term interest rates shot up to 48% in 1995 from around 15% from 1990 to 1995. Lending rates for mortgages skyrocketed while lending institutions were filled with huge non-performing loans.

Since then, the country has gradually recovered, while occasionally encountering political crises. After contracting by 6.2% in 1995, the economy grew by an average of 5.5% from 1996 to 2000.

However, Mexico’s recovery is highly anchored to developments in the US. About 90% of Mexico’s trade, nearly 90% of its foreign tourism, more than 75% of foreign investments come from the US. Remittances from more than 11 million Mexicans in the US amounted to US$24 billion in 2008, about 3% of GDP.

Hence, the economy contracted by 0.16% in 2001, due to the US techno-bubble burst and the 9-11 terrorist attacks. When the US economy recovered in the mid-2000s, Mexico’s GDP grew by average of 4% from 2004 to 2006.

With the US economy in recession since 2007, Mexico’s economy has also weakened. GDP growth in 2008 fell to 1.8% from 3.2% in 2007. Economic contraction is expected to continue in 2009, with GDP shrinking by as much as 3%. A minor recovery is expected in 2010 with 1% growth.