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Mexico Real Estate

The Mexican Constitution

and Modifications that affect Foreign Real Estate Investments

 

By Thomas Lloyd

 

 

 

 

As more and more Americans, Canadians and Europeans are purchasing and investing into Mexican properties, a greater understanding and knowledge of the land acquisition regulations are greatly recommended. You should understand the legal requirements necessary to secure your rights in the property and know how to properly carry out the transaction.

 

The Mexican Constitution is the legal foundation for all real estate laws and regulations that govern all transactions. As well, each state in Mexico has its own Civil Code, and its own municipal regulations.

 

In the introductory article below, we will discuss the basic areas of the law.

 

Other laws and regulations that we will touch upon, and which we will discuss in further depth in future articles include the following:


Mexican Constitution

After the revolution, the 1917 Mexican Constitution addressed various themes and regulations for the new independent country. Our interest being in real estate, we will focus our discussion to Article 27. The article declares that the new Mexican nation has ORIGINAL ownership to all land and water in Mexico, as well as to all minerals, salts, ore deposits, natural gas and oil etc. The majority of the land is private. Private ownership, has and is continuously being transferred and assigned to individuals and non government entities.

 

The four legal categories of land tenure are as follows:

I.   Private ownership by a single owner, private ownership by co-owners, and private condominium ownership.

II.  Tenure held communally without private ownership rights ( eijido lands).

III. National, state, or municipal government lands that are defined as public domain, and therefore cannot be sold or otherwise transferred.

IV. National, state, or municipal lands that are defined as private domain land, and therefore can be sold, otherwise transferred, and legally are regarded as private property.

 

Another important regulation of the constitution dealing with acquisition of Real Estate, prohibits direct ownership of properties by non-Mexican foreigners in what is defined as the RESTRICTED ZONE. The RESTRICED ZONE encompasses all land within 100 kilometers of any Mexican border, and 50 kilometers of any coastline. Property in the interior of Mexico, beyond the RESTRICTED ZONE may be obtained in direct ownership by non-Mexicans.

 

Since the writing of the 1917 Constitution, and with the new global economies relying with greater importance to foreign activities, trades and investments, Mexico has realized various important amendments to these original articles. The goal of Mexico logically, is to impulse national market growth and job creations within the tourist and industrial sectors of various states and in their economy as a whole.

 

Therefore, today their exist two major tools available to Non Mexicans to ALLOW for such foreigners to invest and acquire real estate.

(1) indirect property ownership through a trust with a Mexican approved financial institution.

(2) direct property ownership through foreign ownership of a Mexican corporation which itself can own land in the restricted zones. The Mexican corporation, being a Mexican entity, can acquire direct ownership of property in the restricted zones.


Foreign Investment Laws

1973

 

In the year 1973, in order to permit foreign investments within the restricted zones, the Mexican Government created the FIDEICOMISO.

 

Through the Ministry of foreign Affairs, the Federal Government, was and is now able to authorize Mexican Financial Institutions to act as trustees in acquiring real estate whose beneficiaries are foreigners.

 

Upon acquiring a property in trust, the financial institution becomes its new legal owner, subject to the clauses of the contract granting the beneficiary the rights to use, exploit, rent or sell the property or transfer the said rights to a third party (testament will). When a foreigner acquires the right of using and developing a property, he can instruct the Trustee to purchase and retain within a trust for a term of 30 years (in 1989 a (50) fifty year term expansion was assigned).

 

The beneficiary can at any time during the term of the trust agreement or at its termination, arrange for the sale of the property to any person legally qualified to purchase the real estate. The trustee financial institution may not, without express written consent from the beneficiary, sell, transfer or encumber the property.

 

The beneficiaries of the trust (fideicomisarios) may be Mexican Corporations with foreign investment, Foreign individuals and other legal entities.

 

If selling a property held in a fideciomiso before the 50 year term has expired, the new buyer, if a non-Mexican, can choose to create a new Trust with a new 50 year term, or to assign the rights within the contract that the remaining balance of the original trust be respected by the financial institution (trustee) in benefit of the new buyer.

 

A common misconception exists that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. A real estate trust is not a lease. The beneficiary has a contractual right under the trust agreement with the Financial Institution outlining that all benefits that result from the use or sale of the property, is rightfully due to the beneficiary. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the constitutional amendments of the beneficiary.

 

1989

 

The Foreign Investment Law was modified stipulating an extended term to (50) fifty years for a Real Estate Trust to exist. Also, multiple renewals are allowed upon filing the application with the financial institution. A property therefore may be held by a family or business for various generations.

 

Additional notes for foreign Real Estate Investors

Ministry of Foreign Affairs.

When purchasing real estate in the restricted zones, an approval by the Ministry of Foreign Affairs ( Secretaria de Relaciones Exteriores , or SRE ) must be obtained. An efficient process that takes near 15 days to realize and which the financial institution or lawyer administers for a minor fee.

 

The "Calvo clause" of Article 27.

The document, requires that foreign individuals and/or corporations agree before the Ministry of Foreign Affairs to consider themselves as Mexican nationals in reference to their acquisition of real estate. They as well agree not to invoke the protection of their own government in regards to their property. This requirement is having less and less validity due to the NAFTA agreement and foreign investment protection regulations between Mexico, USA, and Canadian law makers and other existing foreign and trade agreements.


Corporation Law and Real Estate Introduction

December 27, 1993

 

The Foreign Investment Law in this year was again modified to incorporate the provisions of the NAFTA treaty allowing the Mexican foreigners more options and protection with their real estate holdings.

Whether the investment is a "maquiladora", a tourist development involving the construction of hotels or condominiums, or simply the construction of summer homes by foreigners, Mexico is adjusting and ensuring the protection in these segments for the non-Mexican investors.

 

Before 1993, Mexican Corporations were required to have at least 51% of the shareholders to be Mexican Nationals. Today, ownership can be 100% foreign owned with the exception of a very few select industries. A corporation established in Mexico is considered a Mexican Entity under the law, even if all the shareholders are foreigners. Thus, a Mexican Corporation with 100% foreign ownership can acquire real property in fee simple ownership, even if acquiring properties within the RESTRICTED ZONE. This is for non-residential property: a hotel, a bed and breakfast, a restaurant, and rental units for example. A Mexican tax consultant can be very helpful to determine specific classifications and definitions regarding these topics to assist in a beneficial corporate strategy.

 

Investment opportunities in Mexico are becoming more available every year. As Baby boomers and investors begin traveling, searching, and discovering Mexican water front properties, the demand and values in the real estate of this southern country are increasing dramatically.

 

We hope these articles to be helpful, educational, and practical in discovering new options and opportunities for all of your businesses, offices, and clients.

 

- Thomas L. Lloyd

Retiring in Mexico Advisor

 

 

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