Mexico: Overview

RENTAL YIELDS

Yields are high for luxury housing in Mexico

The small supply of good quality rental units as compared to the huge demand from expatriates, retirees, and tourists have driven up the yields for Residential and Residential Plus segment houses. Rental yields for apartments and houses in Mexico City and Guadalajara City start at 7.7%. This can go as high as 15% for 350 sq. m. Residential Plus properties.

Rents dropped by 13% from 1994 to 2001. It rose by 4.6% from 2001 to 2003 before falling again. Rents are still about 11% lower than its 1994 level. On the other hand, real house prices dropped by 20% and 17% for economic and middle segment houses from 1994 to 1996. It remained stable until 2000 before it rose slowly rose. Middle segment houses are still 7% cheaper now than in 1994.

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TAXES AND COSTS

Mexico has high taxes on rental income, typically at 25%

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: Nonresident 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: Nonresident individuals selling Mexican property are generally liable to pay 25% withholding tax on the sales price. However, nonresident individuals with appointed local representatives may be taxed on their net capital gains (sales price less acquisition costs and related costs) at 28% for 2007.

Inheritance: There are no inheritance taxes in Mexico but nonresident individuals inheriting Mexican property are taxed at a flat rate of 20% on the gross value of the property.

Residents: Mexican residents must pay income tax on their worldwide income.

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BUYING GUIDE

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

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

Sound economic recovery from crisis

Mexico (pop. 106.8 million, GDP/ cap US$7,594) is a traveler’s paradise, crammed with a multitude of opposing identities: desert landscapes, snow-capped volcanoes, ancient ruins, teeming industrialized cities, time-warped colonial towns, glitzy resorts, lonely beaches and a world-beating collection of flora and fauna.

The Republic of Mexico was established in 1824 after the war of independence from Spain (1810-1821). Mexico faced many difficult social and economic problems after gaining its independence. These problems eventually led to a bloody revolution during the second decade of the 1900s.

The end of the revolution brought a new constitution, approved in 1917, which provided the structure for the modern Mexican government. Mexico is divided into 31 states and a Federal District.

Since the catastrophic 1994-95 financial crisis thrust millions of Mexicans into poverty, there has been rapid and impressive progress in building a modern, diversified economy, improving infrastructure and tackling the causes of poverty.

Private sector expansion and membership in the North America Free Trade Agreement (NAFTA) have helped Mexico benefit from the advantages of globalization, while sound macroeconomic management kept the Mexican economy resilient even during recession in world markets.

NAFTA has incorporated Mexico into the world economy and has increasingly tied the Mexican and US economies together. Already about 90% of Mexico’s trade, nearly 90% of its foreign tourism, more than 75% of foreign investment and 95% of the remittances of Mexican workers living overseas come from the US.