Buying Property in Mexico as a Foreigner

Guide on the property purchase process in Mexico.

An overview of what to expect when you decide to purchase real estate in Mexico. We have laid out the process on a high level. At the end of the article you will also find a rough estimate of the costs that will occur during the whole acquisition process.

How to purchase property in Mexico as a foreigner?

Property purchases by foreigners in Mexico take place through the fideicomiso system. The Constitution of 1917 proclaimed that all land in Mexico would be "ejido" (communal), or owned by Mexican nationals only. Ejido land was given to every village and could not be sold.

Mexico luxury house in Puerto VallartaIn 1973, a constitutional amendment known as the Foreign Investment Law allowed foreigners to purchase real estate anywhere in Mexico except the restricted zone that consists of areas within 100 km (64 miles) of international borders or within 50 km (32 miles) from the coastline at high tide. In 1993, Mexico amended the constitution to allow foreigners to purchase real estate within the restricted zone by means of a fideicomiso.

The fideicomiso is a bank trust wherein the bank (trustee) holds the trust deed for the purchaser (beneficiary). While the trustee is the legal owner of the real estate, the beneficiary retains all ownership rights and responsibilities and may sell, lease, mortgage, and pass the property on to heirs. The fideicomiso is authorized by the Mexican Government under the Ministry of Foreign Affairs

The bank is required to check ownership and insurance, and to verify that the property is free of liens. A trust is granted for a 50-year period. The trust is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which he may submit an application to renew the trust. If property is purchased that already has a fideicomiso, the existing trust may be transferred to the new owner and will be good for the remainder of its 50-year period, or the trust may be renewed. If property is already in a fideicomiso, probate and transfer tax are avoided when the property is transferred.

A Mexican corporation may be 100% foreign-owned, and may purchase property in a restricted zone without a fideicomiso. But property owned by a corporation is commercial property, and pay higher water, electric, and telephone rates. However, a Mexican corporation may not own a single-family residence.

The Tax Authority may choose to perform a commercial appraisal after the purchase. If appraisal value is 10% greater than the declared value, the difference between the two amounts is subject to 20% Appraisal Tax, payable within 15 days after the appraisal.

No Value Added Tax (Sales Tax) is payable on residential property. Commercial Property transactions are liable to VAT at the current rate in addition to the Acquisitions Tax.

Once the property price has been agreed, a "Convenio de Compra/Venta" is drawn up, which includes deadlines. This is the written initial agreement to sell/buy. A 5%-10% deposit is expected from the buyer.

Mexico luxury housesObtain a permit from the Foreign Secretary´s Office. The buyer will be required to sign the "Calvo Clause", stating that foreign jurisdiction will not be sought to deal with the property transaction. The seller will then have to provide a copy of the Land/Property Deed. It is important to hire a lawyer to review the document.

Once the deed is transferred to the buyer, the buyer will have to turn over the payment to the seller. Cash or monetary instruments of any kind over US$10,000 must be declared when entering Mexico. There are no limits on how much can be transferred in or out of the country.

The whole process of registering a property can be completed in around 48 to 108 days.

Property purchase costs

Transaction Costs

    Who Pays?
Property Transfer Tax 2.00% - 5.00% buyer
Notary Fees 0.50% - 1.00% buyer
Legal Fees 1.00% - 1.50% buyer
Real Estate Agent´s fee 3.00% - 6.00% (+ 16% VAT) seller
Costs paid by buyer 3.50% - 7.50%
Costs paid by seller 3.00% - 6.00%
Source: Global Property Guide

Footnotes to Transaction Costs Table

The round trip transaction costs include all costs of buying and then re-selling a property - lawyers´ fees, notaries´ fees, registration fees, taxes, agents´ fees, etc.

Acquisition Tax (Impuesto sobre Adquisiciones o Transmisión de Dominio)

Acquisition tax is levied at progressive rates set in the tax code of the federal district. The buyer is liable to pay the acquisition tax. Rates are approximately 2.00% to 5.00%

Notary Fee

Services of a notary public (notario publico) are required in a real estate transaction. Based on the law, the Notary Public must ensure that all documents are in order and that all legal procedures have been adhered to. Notary fees are set by the federal district but generally fall between 0.50% and 1.50%

Other Fees
Foreign buyers should allot an additional 0.50% to 1.50% for setting up a bank trust, foreign office permit, and legal fees.

Set-up fees for a bank trust range from US$450 to US$1,000, with an annual service charge of around the same amount. The permit from the Mexican foreign affairs office is around US$1,100.

Most foreign buyers hire Spanish-speaking lawyers to deal with the notary public and to check the contract.

Title Insurance
Since there is no State guarantee of title, title insurance is highly recommended. Several US companies offer insurance for Mexican real estate at around 0.50% to 0.70% of property value.

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