Cancun entices tourists and investors alike due to its gorgeous coastline, rich culture, and warm climate all year round. With everything appealing to a foreigner in this city, purchasing Real Estate in Cancun either as a second home, investment property, or for retirement is one of the most preferred options. However, purchasing property by foreigners in Mexico, Cancun in particular, has its limitations. Therefore it is very important to know the restrictions concerning foreign ownership for anyone who wishes to invest in real estate in Cancun.
The Restricted Zone and Foreign Ownership
The Constitution of Mexico in 1917 established a ‘restricted zone’ that constitutes land within 100 kilometers of the national borders and within 50 kilometers of the coast. In terms of Article 27 of the Constitution, it is against the law for aliens to own land within these restricted zones, Cancun included. This law was meant to safeguard the borders and coast of Mexico from external management and remains unchanged to this day.
Nonetheless, the government of Mexico has implemented some measures that permit international investors to enter into restricted areas such as Cancun, through some legally recognized frameworks. Such measures, especially the framework of a fideicomiso and the incorporation of a Mexican corporation have emerged as pragmatic and effective means which allow foreign nationals to acquire real estate properties in zones of restriction lawfully and without risk.
Property Ownership Outside the Restricted Zone
For non-residents wishing to purchase real estate away from the offensive zone, it is a different ball game altogether, with investment in real estate. Foreigners are allowed to own property directly within Mexican territory beyond the 50 km coastal region and the 100 km border area. This implies that, for example, in the case that a foreigner wishes to invest in real estate that is located further in the country, the owner of the title may be the foreigner himself and a fideicomiso or ring-fencing the asset within a Mexican company will not be necessary.
Nonetheless, foreign real estate investors in Cancun predominantly prefer the coastal properties owing to the city’s luscious beaches and other tourist attractions. The fideicomiso remains the best option for these investors.
The Fideicomiso (Bank Trust)
For many foreign individuals, the primary route to acquiring residential property in Cancun is through a bank trust known as a fideicomiso. A fideicomiso is a 50-year trust composed of a bank that is leasing the property to a foreign citizen. The bank will rent out the property but will still hold legal title to the property. However, while the bank may possess the title, ownership of the property itself belongs to the foreign seller who has the full rights to the property. This means that they can sell, lease, repair, or give the property to their heirs just like if they held the title of the property.
The Mexican Corporation: An Alternative for Commercial Investments
If foreign investors want to invest in commercial real estate or an area comprising several such properties that lie within a restricted zone, forming and registering a Mexican corporation would be a more practical solution than applying for a fideicomiso. A structure like a Mexican corporation that has one or more foreign members may buy property situated in a restricted zone for commercial activities. However, this is generally not endorsed for potential individual residential property purchasers since it incurs further legal and tax requirements.
Considerations for Foreign Buyers
Legal and Financial Guidance
For any foreign buyer who aims to purchase a Mexican property, it is advisable to seek the services of experienced real estate agents from Mexico as well as a real estate transaction attorney. This aids in dealing with local laws, ensures that ownership structures are legal, and also offers information on taxes.
Due Diligence
It is not just prudent but necessary to carry out extensive due diligence. This means checking the ownership documents of the property in question, making sure that there are no liens or debts whatsoever, and verifying the trust or company structure prior to any contract signing.
Tax Obligations
In Mexico, foreign proprietors are liable to pay property taxes. Moreover, foreign owners who rent their property may be compelled to pay a rental income tax in Mexico. Seeking the services of a tax advisor may be beneficial to foreign proprietors so that they are in compliance with the law and are aware of the tax implications of their investments in Mexico.
Succession Planning
Before purchasing real estate, foreign buyers need to account for how they would like to bequeath their property in the event of death. The fideicomiso allows the heirs to take the property, however, it is advisable to have a written succession plan, preferably drafted with the help of an attorney, to ease the transfer to beneficiaries.
Key Takeaway
Mexico’s real estate sector can be easily and safely accessed by foreigners through a trust, otherwise known as a Fideicomiso, and the establishment of a Mexican corporation. While the restricted zone prohibits any ownership of land, the alternatives encourage foreigners to purchase land in Cancun without breaching Mexican law. For most individual buyers, the trust deed is a practical approach since it guarantees safety in law and also provides a long-term investment.
For those looking at business opportunities, a Mexican corporation allows for direct ownership, although with certain additional regulatory measures. It is therefore possible to invest successfully in Cancun real estate with thorough knowledge of these laws, collaboration with local experts, and compliance with Mexican laws.