Real Estate or Land IN Mexico
A Guide to Real Estate For Foreigners in Mexico
What you need to know about restrictions on purchasing real estate or land in Mexico.
Are you planning to invest in land or real estate projects in premium locations like Rivera Maya, Playa del Carmen, Los Cabos, Puerto Vallarta, or is the acquisition of land for industrial purposes?
In simple terms, the transfer of a real estate or land ownership is subject to several conditions, including the land regime, the property location, and the buyer’s legal nature and nationality.
1. Land Regimes in Mexico
Keeping the explanation simple, Mexico has two private land regimes, the private property regime and the common land regime (e.g. ejidos). Therefore, an investor, through his or hers trusted advisor, must always review the ownership title.
Private Property Regime
In general terms, ownership of land subject to private property regimes is, normally, freely transferable.
Common Land Regime (or Agrarian Regime)
The Agrarian Law prohibits the sale of the land subject to the common land regime. Needless to say, land subject to this regime may be transformed into the private property regime provided the process is followed and conditions are met.
2. Location of the Real Estate or Land in Mexico
For location purposes, the Mexican Constitution categorizes the national territory into two zones, namely the so-called “Restricted Zone” and “Unrestricted Zone”.
The Restricted Zone
Notably, the Restricted Zone is the 100 km strip of land along the international borders and 50 km along the beach and, as the name suggests, restrictions applicable to foreigners may apply to the purchase or acquisition of land or real estate. For instance, if planning to acquire land or real estate in a beach for residential purposes, say Tulum or Los Cabos, foreigners or a real estate developer (with foreign capital) will have to resort to the “neutral investment” mechanism.
For more information on the neutral investment mechanism, visit our Foreign Investment Guide.
Unrestricted Zone
Consequently, the Unrestricted Zone is the land that falls outside the area considered as Restricted Zone.
3. Foreign Investors as Buyers.
As a general rule, foreign investors may acquire real estate ownership of land –subject to private property regime– either as a Mexican legal entity or as individuals in the Unrestricted Zone. Hence, acquiring land near or in Mexico’s industrial cities, such as Monterrey, Guadalajara, Puebla or Mexico City, do not have foreign investment restrictions as such; however, buyers should always carry out the due diligence on the ownership title.
Buying Land in the Restricted Zone
In contrast, foreign investors, as individuals, branches, or a Mexican enterprise with foreign capital, are subject to restrictions regarding direct ownership of land in the Restricted Zone.
Foreign investors, as individuals or a foreign enterprise branch, have to resort to the Neutral Investment Mechanism to have the right to use and enjoy a property in the restricted zone.
How Does the Neutral Investment Mechanism Work?
Mexican enterprises with foreign capital and Land in the Restricted Zone
If a Mexican enterprise with foreign capital seeks to use the land for residential purposes, the said company must also resort to the neutral investment mechanism, setting up a trust, and include the “Calvo Clause” in their corporate by-laws.
However, Mexican enterprises with foreign capital may acquire ownership of land in the restricted zone for non-residential purposes provided that the enterprise includes the “Calvo Clause” in their corporate by-laws and the Ministry of Foreign Affairs grants an authorization.
Land or Real Estate Ownership Title
Real estate property rights are registered in a Local Public Registry of Property. The Registry’s purpose is to provide certainty, legal security, and publicity of legal acts, such as the sale of land or real estate.
The legal right to private property is not absolute since ownership may be subject to expropriation, provided that public welfare causes are justified; compensation shall be paid.
Furthermore, public interest restrictions as well as regulation on the use and development of the land may apply to private property.
Transactions Costs and Taxes on the Transfer of Ownership of Land or Real Estate
The sale of real estate involves costs, including property appraisal, sales commissions, administrative charges, government fees to register deeds, notary fees, other expenses caused by a notary deed, and taxes.
Each State determines the fees that are paid to a notary. For example, Mexico City has the so-called “Table of Notary Charges” to ensure uniform costs applicable to similar services.
Sales commissions are normally equivalent to 5% of the price of the property.
The buyer and seller are subject to the following taxes as a result of a real estate sale:
- The Income Tax is applicable to the seller’s sale income at a 30% rate on profits, if he is a company, or 1.92% up to 35%, if he is an individual.
- Buyers must pay the 16% Value Added Tax rate on the real estate’s sales price, except when purchasing a house.
- Buyers must pay the Real Estate Acquisition State Tax on the sales price. The tax rate varies from State to State, the average rate is 2%, however, some states reach a 6.5% rate.
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The export-oriented manufacturing industry, also known as the maquiladora industry, represents one of the most important pillars of the Mexican economy. The IMMEX program is, to a great extent, used by companies within the manufacturing industry. In this guide, Doing Business in Mexico provides a general overview on the IMMEX program.
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