By Solomon Freimuth
Re-posted from www.mymexicanlawyer.com
On April 23rd, 2013, Mexico’s House of Representatives, by an overwhelming majority, voted to reform Article 27 of the Mexican Constitution to allow foreigners to directly own residential real estate within the restricted zone.
I have been seeing the news on this historic vote and also getting lots of emails about the reforms that passed the “Camara de Diputados” on the 23rd of April and thought it was time that tried to clear up a few doubts. Realistically, this is a good thing for the country and I certainly hope that it will (and expect it to) pass the next steps fairly quickly (relatively):
Although the “Diputados” have passed the bill, before it becomes law it will need to be approved by the Federal Senate, then the majority of the State congresses, then finally will need to be signed into law by the President and then published in the daily government newspaper. I think this will most likely happen, but the Senate’s session ends on April 30th and they will not meet again until September. I have a feeling that this reform will be one of the first orders of business for the September session, because this is one of the many initiatives that is being pushed forth by the multi-party alliance “Pacto por México”.
Once the reforms are approved, the fideicomisos (trusts) that are currently in place will remain so, even though they will no longer be a requirement. The Mexican land trust, the fideicomiso, is really just a contract with a financial institution that stipulates that the bank is going to hold onto a piece of property (can be real estate, a corporation, liquid assets, whatever) and therefore the contracts that are currently valid will remain so.
Even though foreigners will now be able to cancel their land trusts, many people may actually choose to maintain their property in trust for any of the following reasons:
That all said, I think that this IS a big step in opening up Mexico to future foreign investment. Many foreigners feel more comfortable being able to directly own their investment properties, which is understandable. I hope to see in the years to come further advances in the ease-of-operation for foreign investment, including easing the foreign investment restrictions in businesses (lawyers offices must be 51% Mexican owned). Until then, we will have to continue to find ways to work around these restrictions, but for now I think Mexico is making a huge step in the right direction.
I have been seeing the news on this historic vote and also getting lots of emails about the reforms that passed the “Camara de Diputados” on the 23rd of April and thought it was time that tried to clear up a few doubts. Realistically, this is a good thing for the country and I certainly hope that it will (and expect it to) pass the next steps fairly quickly (relatively):
Although the “Diputados” have passed the bill, before it becomes law it will need to be approved by the Federal Senate, then the majority of the State congresses, then finally will need to be signed into law by the President and then published in the daily government newspaper. I think this will most likely happen, but the Senate’s session ends on April 30th and they will not meet again until September. I have a feeling that this reform will be one of the first orders of business for the September session, because this is one of the many initiatives that is being pushed forth by the multi-party alliance “Pacto por México”.
Once the reforms are approved, the fideicomisos (trusts) that are currently in place will remain so, even though they will no longer be a requirement. The Mexican land trust, the fideicomiso, is really just a contract with a financial institution that stipulates that the bank is going to hold onto a piece of property (can be real estate, a corporation, liquid assets, whatever) and therefore the contracts that are currently valid will remain so.
Even though foreigners will now be able to cancel their land trusts, many people may actually choose to maintain their property in trust for any of the following reasons:
- Transferring the property out of the trust will be somewhat costly - The bank will be transferring your property to you and therefore the transaction will incur many of the standard fees and taxes that you would pay when if you were to sell your property to someone else. This is important, because you may even have to pay the dreaded “Capital Gains” tax on the property (which could be an interesting tax strategy, maybe I’ll talk about this in another post). You can expect to pay at least 4.5% of the value of the property in closing costs.
- Land trusts make estate planning in Mexico a lot easier - In the trust contract you designate who gets the property rights if anything happens to you: In order for your heir to collect they just have to go to the bank and produce the death certificate and they can easily transfer the trust to their name. If you have the land in your own name it is will need to be either stipulated in a will in Mexico and have the Mexican probate process run its course, or included in your probate process at home and then have a judge in Mexico recognize that the foreign court’s decision.
- Having your property in trust adds a small amount of legal certainty that you wouldn’t get by yourself – You might not live in your home in Mexico. You might not even go there regularly. If anything happens legally that you should know about, you might not receive the notice or get any warning until the process is already in full swing. Having your property held in a bank trust makes the bank somewhat responsible to protect your investment, at least to the point of them notifying you if anything is wrong.
That all said, I think that this IS a big step in opening up Mexico to future foreign investment. Many foreigners feel more comfortable being able to directly own their investment properties, which is understandable. I hope to see in the years to come further advances in the ease-of-operation for foreign investment, including easing the foreign investment restrictions in businesses (lawyers offices must be 51% Mexican owned). Until then, we will have to continue to find ways to work around these restrictions, but for now I think Mexico is making a huge step in the right direction.
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