The Guadalajara Reporter

Lower house votes to ease restrictions on foreign ownership of land at coast, borders

The Chamber of Deputies, Mexico’s lower house, approved a constitutional amendment Tuesday that will permit foreigners to have direct title to their properties located within the “Restricted Zone” – 100 kilometers within the nation’s borders and 50 kilometers of its coastline.  The legislation passed by 356 votes to 119, with only left-of-center legislators voting against the reform.  It still requires approval by the Senate and at least half of Mexico’s 32 state legislatures, before it can be signed into law by the president – a process that could be lengthy.

Opinions are divided on whether loosening the ownership regulations will significantly increase foreign investment in Mexico.

Legislators who gave a thumbs down to the bill argued that relaxing the law could lead to the “foreign colonization” of the country and rampant real estate speculation.Realtors on the ground in coastal resorts believe predictions of a potential four-fold increase in real estate sales are way off the mark.

“I don’t think (lifting the restriction) is going to have the major impact that some people are saying. I’d love to be wrong but I don’t think I am,” said Wayne Franklin, director general of Tropicasa Realty in Puerto Vallarta, and a former president of the Vallarta  Board of Realtors.  “It may open the eyes of a few people who don’t understand the trust (fideicomisio) system and may not have purchased as a result of that.  But in 15 years I have never lost a deal because of that. It is a question in people’s minds but not a deterrent for purchasing.”

Foreigners are entitled to purchase property in Restricted Areas and are considered the rightful owners,  However, Article 27 of the Mexican Constitution states that they are not the legal title holders of the land, which remains in government hands. While they are free to sell or modify their properties or land as they wish, the titles are held by a third party, usually a bank trust. The bank charges an annual fee and has legally responsibility to represent the buyer’s interest in the property.

Legislators from the ruling Institutional Revolutionary Party (PRI) said allowing foreigners to own property outright would encourage tourism development and create jobs.

Franklin said many foreigners may decide to keep their properties in a bank trust despite the law change because they like the benefits. 

Trusts allow property owners to add beneficiaries to avoid Mexican probate in the case of death.

“That’s no small thing,” Franklin said.  “We are looking mainly at a mid-range to elder clientele and when they do pass on the banks simply needs to recognize the substitute beneficiary rather than having to go through the probate process, which is no more fun in Mexico than anywhere else.”

In addition, the cost of withdrawing from a trust could be as high as 2,000 dollars, Franklin estimated.  Another point in their favor is that trust fees are far more standardized today than in the past, he noted.

The measure to restrict foreign ownership near borders and the coast was outlined in the Constitution of 1917,  following Mexico’s bloody seven-year revolution and civil war. The threat of foreign invasion was considered a real possibility at that time.

Allowing owners of property in the Restricted Zones to have full legal title corrects a long standing anomaly in investment law and brings Mexico into the modern financial era, many economic experts say.

Franklin stressed that while lifting the regulation will undoubtedly improve Mexico’s image abroad, it doesn’t change the economic reality.  “If all of a sudden they eliminated capital gains tax or cut closing costs in half, then you would have your four times multiples of people coming in to buy. But you still have to have the cash to purchase the property.”

Nonetheless, Franklin said the real estate market in the Puerto Vallarta has “improved dramatically this year.

“There are more people coming into town. A lot more people have been buying this year.”

Franklin said Canadians and Mexicans are buying strongly, and that Americans are “still catching their breath” but starting to open their eyes and realize that “Mexico isn’t Afghanistan.”

He also noted that unlike in many parts of the United States, property values in Vallarta have remained relatively stable, partly because “people don’t have that mortgage payment eating at them every month so there is less sense of urgency to sell.”  He said the low costs of maintaining a property in Mexico is another reason why many people do not need to sell below market value.