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Myth vs Reality of Purchasing a Home in Mexico

Garza Blanca Real Estate’s full-time ownership specialist, Barry Myatt would like to share with members some intriguing insight into the Mexican real estate market. Over the years, Barry has interviewed more than 25,000 real estate clients and was involved with the early fractional real estate market. He operated a private travel agency as well as worked as a consultant in tourism. He has lived in the Caribbean, New York City, Hawaii, and Mexico. You can find Barry working alongside Maria Estela Nuñez at the real estate office on site at Garza Blanca Resort & Spa in Puerto Vallarta on your next trip. Why not ask him for some advice?

Some Facts & Figures – Tourism and Mexican Real Estate

The Mexican government began strategically encouraging tourism to Mexico in the 1960s and 70s, and the country has seen exponential growth of tourism every year since then. Many tourists fell in love with Mexico and decided to purchase part-time or full-time residences inside of Mexico. There is a Mexican saying, “De la vista nacer el amor,” which means, “You fall in love with things you can see.” A brief history…

In 1960 there were just one million visitors to Mexico annually. Airline travel was in its early days, and Mexico was working on a national road construction program. The government established a cabinet-level authority to promote tourism. They worked hard to make sure tourists were comfortable in Mexico, even establishing the “Green Angels” program which provided free roadside assistance to travelers. Hollywood movies were being filmed in Acapulco, and the film “Night of the Iguana” was filmed in the Puerto Vallarta area, which put Puerto Vallarta on the map.

In 1967, Mexican businessmen used a computer to analyze which areas of Mexico would be best to develop into tourist destinations. They used factors such as beaches, climate and distance, and found that Cancun, Los Cabos, Ixtapa-Zihuatanejo and Puerto Vallarta would be optimal for tourism. The government started developing those areas in the early 1970s, starting by building marinas, docks and harbors, and providing incentives to people for moving there.

The strategic long-term planning paid off, and resulted in enormous growth in tourism. At the same time, the Mexican government put in place laws and regulations to make property ownership possible for foreigners.

 

In 1917 the Mexican constitution established land rights decrees including Restricted Zones to protect coastal and national boundaries to meet national and international obligations. The Restricted Zones are defined as all land located within 100 kilometers of any national border and within 50 kilometers of any ocean. The Mexican constitution states that foreigners cannot own property inside of the Restricted Zones, however they can own property outside of the Restricted Zones.

With the surge of tourism the 1970s, foreigners fell in love with Mexico’s coastal cities and wanted to buy property inside of the restricted zones. Realizing the opportunity for economic growth from foreign investment, but not wanting to change the Constitution, the Mexican government designed a system that allows foreigners to buy property inside of the restricted zones through a bank trust.  

The first forms of bank trusts in Mexico were developed in 1926 and were based on prior examples from Europe and Latin America. The system has been amended over the years to keep up with modern needs. In 1971 a 30-year bank trust was established, which allowed foreigners to purchase property inside of the restricted zones. This bank trust is called a Fideicomiso in Mexico, and it operates like a Living Trust in the United States.

1973 the Foreign Investment Act was passed in Mexico, which made it clear to foreigners that the government wholly supports foreign investment and safe instruments for foreign property owners. This gave foreign investors a lot of confidence to buy in Mexico, and a surge of massive capital into Mexico followed.

In 1989, the 30-year trust was extended so that it could be renewed for 30 more years. In 1993, the trust was extended to 50 years, renewable for 50 more.

 

Myths vs Facts

MYTH: Foreigners cannot buy property in Mexico.

FACT: Foreigners CAN buy property inside the restricted zones with a trust, and outside of the restricted zones with no trust needed.

 

MYTH: Foreigners cannot buy property inside of the “Restricted Zones” (within 100 kilometers from any national border and 50 kilometers from any ocean.)

FACT: The Fideicomiso system was specifically designed to allow foreigners to purchase property inside of the Restricted Zones.

 

MYTH: The bank trust system is not safe, I could lose my property because I never own it.

FACT: A Mexican Bank trust is as safe as a U.S. deed. You can occupy it, enjoy it, lease it, improve it, depreciate it, 1031 exchange it (U.S. tax rule), you can finance it with an IRA. The changes made during 2000-2004 guarantee trusts allow collateral instruments. In addition to this you can bequeath it, and beneficiaries can renew the trust as well. They also avoid probate and disputes and claims, and provide its own validity because it is its own will.

 

MYTH: The Mexican government does not support foreign property ownership.

FACT: Mexico has done a superb job in accommodating foreign investment in the real estate market through all the amendments to the Bank Trusts over the years.

With an estimated 2 million United States citizens living in Mexico today, it is clear that foreigners want to spend time and money in Mexico, and many are choosing part-time or full-time homeownership.

Last year saw an increase of 9% in real estate activity in Mexico. The average purchase price of a home was was $208,000 USD. In Puerto Vallarta, the average purchase price was $331,000 USD.

Fractional ownership is also still on the rise. In 1980 there were 14 vacation clubs in all of Mexico; now there are over 400.

We hope this information gives you some background and history to help you understand that yes in fact, you can own property in Mexico. If you would like to buy Mexico, rest assured the road has already been well paved. Garza Blanca’s real estate specialists are always here to answer any questions you have.

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