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What is the general climate of real estate investment in your jurisdiction?
Despite the volatility of the macroeconomic environment regarding international commerce and monetary indicators and the fact that Mexico’s economic growth did not reach the expected levels due to several factors (eg, insecurity, corruption and low oil prices), Mexico’s real estate climate is perceived as a favourable one and international investment has continued to be seen in real estate developments.
Who are the most common investors in real estate?
Mexican pension funds (AFORES), real estate investment trusts (FIBRAS), real estate developers and local and international real estate private equity funds.
Are there any restrictions on foreign investment in real estate?
There is no restriction on foreigners investing in Mexican real estate if the real estate is held through a Mexican entity or trust.
Foreigners may directly invest in real estate before obtaining the corresponding permit from the Ministry of Foreign Affairs or a record from the ministry that the corresponding notice was provided before its acquisition, as provided by the Foreign Investment Law.
Further, foreign ownership of real estate is limited to land outside the designated restricted zone – that is, any area within 100 kilometres of any neighbouring border or 50 kilometres of any coast. However, the Foreign Investment Law provides that foreigners may acquire interests in real estate located in the restricted zone through a trust, provided that:
- a permit is obtained from the Ministry of Foreign Affairs; and
- the trust has a maximum duration of 50 years, which may be renewed for another 50 years.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
The feature that singles out Mexico in comparison to other jurisdictions is the common use of trust agreements for the development of real estate projects. Trust agreements may act as transparent tax entities or tax contributors.
Particular advantages and disadvantages of a given structure depend mainly on:
- the type of real estate being developed;
- whether the resulting project is destined for the sale or lease of real estate;
- access to bank financing; and
- the particular tax regime of the investors (whether they are Mexican individuals or entities or foreign individuals or entities).
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