Investment Property in Mexico

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Off plan properties in Mexico is a great way to diversify your investment property portfolio.

Long gone are the days when the peso was up one day and way down the next now it is a recognised strong currency and at an all time high against the dollar. The politics are stable with the current government open to the idea of foreign investment. The two previous presidents invested huge resources in improving road and travel networks as well as tourism based and health care infrastructures. Investing in Mexico now represents a very lucrative market with limited risk.

Mexico share over two thousand miles of border with the USA and tens of thousands travel between the two countries on a daily basis quite legally, however many preconceptions of Mexico are to say the least, wrong.

Mexico is a leading partner in the economy and politics of the Western Hemisphere and has been since they signed the North American Free Trade Agreement - NAFTA - some 14 years ago on January 1^st 1994. Since that momentous agreement was signed foreign investment has doubled to well over 10 billion dollars per annum.

The strength of the peso against the dollar is partly due to the foreign investment, but also to a growing GDP, higher wages, lower unemployment and an improving industry sector. Wages have increased immensely in Mexico in the last decade, but are still around a third of those in the United States

If we add to the above:

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  • Increased tourism
  • More foreign residential tourists who visit for several months each year
  • Increased interest as a destination to retire to
  • A relatively safe haven for Americans and some Latin countries to invest in and or relocate industries
  • Privatization has been encouraged especially in the telecommunications and national travel industries
  • On-going government investment in infrastructure and tourism, especially in eco-friendly tourism such as those in the Costa Maya area just north of the Belize border. With government backing and recommendation, these approved resorts are attracting many private and several corporate investors.

Currently there are no direct incentives offered by the Mexican government to generate investment or benefit investors in real estate, essentially as they feel that they are genuinely not necessary. Property taxes are inexpensive compared to it northern neighbours. Capital Gains Taxes for residents are not applicable and for overseas owners and nationals who own second or third properties are taxed at either 20% of the gross sales price or 40% of the equity gain.

Appreciation in most of Mexico is very strong, but more so in coastal and resort areas with upto 50% per year achieved in recent years. Mortgages are becoming easier although still basic when compared to other countries and we would currently suggest taking mortgage advice in your own country until the Mexican mortgage market has matured.

The Mexicans are generally very friendly and Mexico is reminiscent of Spain 30-40 years ago, as is the real estate market which is destined to blossom, given the care that the authorities are taking to avoid ruining the beautiful landscapes and over populating the towns along the stunning coastlines.

Prices remain very affordable throughout most of Mexico although they are rising year on year, making investing in properties in Mexico an extremely attractive one.

Off plan developments are one of the easiest and affordable ways to enter the Mexican real estate market. Locals, nationals and international investors are snapping up properties in established areas and also in up and coming areas that have good international transportation links.

Lifestyle resorts are one of the most popular types of off plan developments as they appeal to so many different people. A golf course resort near to the beach with good on site amenities holds a great deal of upside for off plan investors because the end product offers various exit strategies. Many of these lifestyle resorts offer on site management or even guaranteed rental schemes. Some either come furnished or offer furnishing solutions that take the headache away from trying to furnish a property from overseas.

With the growing tourism market both internationally and nationally, these types of properties - apartments, townhouses and villas - within gated communities are of great interest to holidaymakers, residential tourists and also to local families who want a better quality of life.

The general consensus between investors is that as long as the property is in a good location, priced correctly, be suitable for the tourist industry and have the safety net of being a property that will appeal to the local home buyers market in the future it should represent a good investment property.

Old rules still apply:

• Location, location, location

• Ensure that the property is large enough to fulfill you requirements

• Make sure that it is in an area either with good transport links and with quality amenities or with them due to be developed

• Check the off plan price with those of similar properties that are already completed â€" if the off plan property is suitably discounted it should be a sound investment. If it is of a similar price to the resale property then perhaps it is worth looking elsewhere. Remember to judge like for like otherwise it will never be a true comparison.

• If you are considering flipping the property, confirm that you will be able to do this without penalty from the developer some developers allow you to resell the property freely, others make certain stipulations which may include:

  • You cannot sell until all of the development is sold

  • You can only sell through the developer in which case you may be charged hefty commissions

  • First options must be given to the developer to buy back the unit

  • Any guaranteed rental schemes could be made invalid

If you check the points above and find that you are still happy with the purchase, then chances are you have found a good investment property in Mexico

The cost and taxes incurred when buying an investment property in Mexico

Acquisition Tax - this is a tax that is paid based on the sale value and equates to approximately 2% - state dependant.

Appraisal Tax - The Mexican Tax Authorities can choose to perform a commercial appraisal after you have purchased the property. If they value the property at greater than 10% more than the amount you paid, you will be asked to pay 20%tax on the difference between the two figures.

Foreign Office Permit - this will cost approximately $150 and can be obtained from the Mexican Foreign Office

Lawyers Fees - Your lawyer will typically charge a percentage of the total sales price of the property you should negotiate this fee well in advance.

Land and Building Surveys - These fees are separate from the purchase transaction and should be paid when utilised

Notary Fees - You will be asked to pay the notary Fees at the point of signing and will typically equate to 1.5% of the purchase price plus the price of the official appraisal

Registration Fees - These Registro taxes are paid so that the Public Records are upto date. Based on 1.3% of the sale value

Service Fees - these could be community costs or HOA fee equivalents are typically due of you have purchased in a resort community or an apartment. Fees vary depending on the facilities and amenities - you should check on these before buying fees range from $100 a year to $100 a month on exclusive resorts.

Title Insurance - this is an optional service which acts as a guarantee against any liens that may not have been observed during the due diligence process.

VAT - Sales Tax is NOT payable on residential properties in Mexico.

Capital Gains Tax - if the property has not been your principle residence for the last two years you will be obliged to pay EITHER 20% on the gross sales price or 40% of the equity gain.

Estate Agents Fees - Real estate agents in Mexico typically charge between 3% and 6% plus VAT

Some of the established areas to invest in Mexico are on the Yucatan Peninsula and Baja. New areas include Costa Maya in the south east close to Belize and Campeche/Merida north of the Yucatan Peninsula but still on the Gulf of Mexico