There are two ways in which foreigners can purchase property on the Mexican coast. One is through the creation of a company established to carry out economic activities in the country. This company must be registered with the Tax Administration Service (Hacienda o SAT) to fulfill its tax obligations and can be used as the acquiring party for a property. I will discuss more details about this process and its implications in another post. The other way to acquire property as a foreigner is through the establishment of a trust or Fideicomiso.
But what is a trust?
Let me explain.
A trust is a legal tool that allows foreigners to acquire real estate property in Mexico. This process is carried out through a permit granted by the Ministry of Foreign Affairs (SRE), with the participation of a bank acting as a custodian or trustee to ensure the proper functioning of the trust.
Why is it necessary to establish a trust for foreigners? The bank trust was established to comply with the regulations of Article 27 of the Mexican Constitution, which limits foreigners from directly acquiring land or bodies of water within 100 kilometers of any national border and 50 kilometers from any coast. These areas are known as restricted zones. To overcome this restriction, the Mexican government introduced the figure of the bank trust in the 1970s as a legal solution to allow foreign investment in real estate within these restricted areas.
It is important to mention that although the fiduciary bank is listed in the Public Deed that is registered in the Public Registry, it does not acquire any rights over the property. The foreign buyer is the only one with the right to use, rent, sell, modify, renovate, inherit, or donate the acquired property. The responsibility of the bank is to administer the trust and ensure its proper functioning.
What is the process to establish the trust?
Once you have reserved the property and have signed or are about to sign a Promissory Agreement of Purchase and Sale with the seller, you need to start the procedures to establish the trust.
As a preliminary step, it is a good idea to ask your qualified real estate agent for recommendations on efficient banks and notaries and to help you request quotes from both entities. If your sales agent does not have sufficient experience with these procedures, consulting a real estate lawyer is a good idea for support.
In a preliminary manner, you can also start gathering the documents that will be requested, such as a valid official identification, proof of address (not older than three months), bank account statement, and identification of the substitute beneficiaries who will acquire your rights in case of death.
Once you are prepared, the bank will ask you to fill out some forms and make the initial payment to establish the Fideicomiso permit or trust, which incurs a variable cost for each bank and property, ranging from $10,000 to $15,000 Mexican pesos. The bank will also handle the application for the permit granted by the Ministry of Foreign Affairs (SRE) for the property acquisition. At this point, you (or your real estate agent) will be asked for all the required information about the property to be acquired, such as agreed prices, payment methods, information about the parties involved, dates, and other details that will later be included in the Public Deed before a Notary. This permit incurs a variable cost of approximately $20,000 Mexican pesos, payable according to the instructions provided by the fiduciary bank agent.
Once all the forms are correct and payments have been made, the Notary will prepare the Deed, using the purchase agreement you have signed with the seller or developer, as well as the information provided by the bank to begin this writing project. Additionally, you will need to make a payment for Notary fees.
Finally, when everything is ready and the date for the signing of the Deed before a Notary Public has been set, you will be asked to make the payment for the first annual fee by the bank that administers your trust, which ranges from $10,000 to $12,000 Mexican pesos per year for an average property in this coastal area.
No later than the day of the signing (but it is also advisable to do it earlier), the payment for the remaining costs such as Notary fees, Acquisition Tax, ISABI (in Playa del Carmen, it is 3% of the property value) through the Notary, and other costs for documentation and appraisals requested by the Notary must be made.
To make an accurate calculation of all your closing costs, you need to have an accepted offer. The amounts mentioned here are estimates as each case is unique and depends on the property being purchased. You can consider a range of approximately 6.5% to 8% of the total property value to include it in your budget.
This post contains information that I share with you based on my many years of experience in the real estate sector, specifically in the sale of local tourist and residential properties in the southern coastal area of Mexico.
If you're interested in learning more about the process and would like me to assist you with property selection, physical or virtual property showing tours, negotiation, making offers, closing procedures, and searching for discounts on these costs, up to the signing of the Deed, feel free to contact me at angela@premiumrealty.com.mx
It will be a pleasure to hear from you.