What You Need to Know Before Investing in Mexican Real Estate
At this point in time, in this ever surprising 2020, one can probably get weary when hearing or reading references to the “new normal” or “before and after COVID.” However, amid the debate on whether we should return to normal life already or take a more gradual and cautious approach, one thing has become certain as restrictions have been set on our ordinary life: People are rethinking the ways to measure and improve quality of life. On that same train of thought, the recipe for productivity was evaluated with a new perspective. Initially planned as COVID prevention measures, large companies are increasingly implementing remote work policies and reducing office footprint.
In this regard, we have seen reports referring to the risk of a possible exodus from large urban areas to places that allow for a better work-life balance and are more attractive from a financial standpoint. These circumstances are also resulting in families or investors considering the purchase of a second home (or new home, for that matter). Worth contributor and founder and CEO of The Agency Mauricio Umansky referred to this trend in a recent piece that mentioned both high-end vacation rentals and second homes.
While there is no denying that the overall real estate industry has been gravely affected by the pandemic, it is fair to say that—as in every crisis—opportunities have arisen. If you run into one of those opportunities, and it happens to be in Mexico, here are a few tips to consider from my experience representing foreign investors and buyers in Mexican real estate.
Due Diligence Is Key
As with any investment, this stage is fundamental to mitigate any risks, and in this case, those associated with land ownership in Mexico. Omitting this can result in potential claims by third parties alleging rights over the property, something not uncommon in Mexico. In addition, over half of the land in Mexico is subject to an agrarian regulation regime known as ejidos. If your target property is or was located on or near ejido land (as it is often the case in many coastal areas), the importance of due diligence is even greater. In any case, even if the land is subject to private property, it is crucial to do a proper title search to identify chain of title, liens or encumbrances, and confirm good standing of the property with respect to permitting and local applicable taxes. Plus, anyone looking to obtain title insurance will be required to do this exercise and likely will need to get a legal opinion based on the findings.
Confirm the Feasibility of Your Investment
Make sure that your money is spent on an asset that actually exists or that will materialize. I have heard and seen horror stories (such as this one) from buyers or investors that lost all or part of their investment due to situations that could have been prevented with proper guidance and caution. Third-party claims over the sought property can arise if chain of title is not clear, or even exists at the time of sale but remains unspotted (see above). There have been transactions in pre-sale stages where the owner or developer does not secure sufficient funding to conclude the project where the property is located, and the buyer ends up not getting the actual property expected or getting just a portion of what was promised. Unfortunately, we have also seen straightforward scams or frauds by local advisors, brokers and attorneys.
Get Help From Advisors Who Understand You and Gain Your Trust
The process of buying or investing in Mexican real estate can be pretty straightforward. However, the terminology and legal concepts can be confusing and difficult to understand for a non-Mexican person. For example, there is a constitutional restriction on foreign ownership of beachfront land, so the most frequently used structure to buy is a bank trust. You need someone to help you understand what your ownership rights are in lieu of a traditional purchase and sale agreement and the role that a Mexican notary public plays in the transaction (very different from a U.S. notary public). You will also need honest advice regarding applicable taxes such as those imposed on real estate transfers or property ownership, as well as fees charged by contractors, the bank itself (if using a trust) and even the notary public. Things can get lost in translation and therefore result in not-so-pleasant surprises, to say the least.
As mentioned above, every crisis brings its opportunities and there may be some in Mexican real estate right now. There is indeed a mix of negative and positive signs in the economy, but there are also ways you can seek a better quality of life during this unusual time. For some, this can be achieved through a luxury house in Cabo or a spectacular condo in Tulum, or even deciding to invest in and develop land perfect for a branded golf course and hotel in the Riviera Nayarit. In many of these cases, such opportunities come with reasonable access to medical care, lower cost of living and proximity to beautiful natural areas. Some high-end developments in places like the Baja Peninsula even include new marinas or a Fixed Base Operator (FBO) for private flights.
An example of both the trends and opportunities discussed in this piece is Four Seasons Resort & Residences at Costa Palmas (Los Cabos), where a couple of clients I represent are considering buying. In a recent conversation with the project’s director of sales operations, Stephanie Cote mentioned that homeowners and real estate buyers continue to visit Costa Palmas and feel safe doing so with the new health and safety programs that are in place, such as the Lead with Care program and Patronus Medical guidelines at the Four Seasons Resort and the Costa Palmas Beach and Golf Club. The natural attributes of the East Cape also make this an ideal destination for ownership. You are away from the large crowds of Cabo, access to 3 kilometers of calm and swimmable waters with the Sea of Cortez onsite and only 45 minutes from the San Jose International Airport and FBO, making it accessible and easy for a quick getaway to Baja. These combined factors create a great opportunity for homeownership at Costa Palmas, and the number of prospects and recent deals we’ve seen prove that.
If you’re interested in learning more or have any comments or questions, feel free to email me at firstname.lastname@example.org.
Luis Armendariz is a Mexican attorney that represents private clients, family offices and companies investing in Mexico in various industries such as real estate. For more information please visit his profile on LinkedIn or CAAM Legal.