Introduction

Investing in real estate in Mexico represents a significant opportunity for those looking to do business.

There are multiple reasons for this. Chief among them is the strong growth in both the tourism and industrial sectors due to the so-called Nearshoring trend.

This effect is also impacting the real estate sector. The increase in demand for new properties to receive the ever-growing number of tourists and the many companies setting up operations in Mexico for manufacturing, processing, storage, and distribution of goods is undeniable and yet to be fully met.

Additionally, the proximity to the United States attracts clientele with high purchasing power, the stability of internal politics ensures investment security, and the neutrality of foreign policy, in the current complex context, makes Mexico one of the few countries shielded from dangerous international geopolitical dynamics.

In such a context, more and more foreign investors are deciding to bet on Mexico, and many choose to do so in the real estate sector.

But how can a foreigner invest in real estate in Mexico? Are there any specific limits or methods to be followed?

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Freedom to invest but with different methods

Firstly, it is important to state that Mexican law does not impose limits on the possibility of making real estate investments in Mexico, even directly, by foreign individuals or companies.

However, it establishes some important distinctions that, while not affecting the possibility to make the investment, do condition the methods.

I will start by indicating what these distinctions are, and then point out the methods for making the investment.

Restricted Zone

The first distinction is about to the difference between a real estate investment made within the so-called Restricted Zone or outside it.

The so-called Restricted Zone is a piece of land that delimits the entire Mexican territory. Specifically, it includes the northern and southern borders, the eastern coast facing the Atlantic, and the western coast facing the Pacific. The northern and southern borders have a width of 100 km, while the coastal zones, both east and west, have a width of 50 km.

Direct or indirect investment

The second distinction concerns whether the foreigner, whether an individual or a foreign company, wishes to make the investment directly or indirectly, as a shareholder of a Mexican company.

Purpose of the investment

The third and final distinction provided by Mexican law relates to the purpose of the investment; specifically, between a real estate investment for residential purposes or non-residential purposes. Between purchasing a property (or land) as a residence or for other purposes, such as hospitality, building a hotel, an industrial park, a shopping center, etc.

Investment Methods

Again, regardless of the distinctions mentioned above, it is possible for a non-Mexican to invest in real estate in Mexico, but the methods may differ:

• If a foreign individual or foreign company wishes to make a direct (not as a shareholder of a Mexican company) real estate investment in Mexico within the Restricted Zone, they can only do so through the Fideicomiso. This applies regardless of the purpose of the investment, whether residential or non-residential.

• If the foreigner (individual or foreign company) decides to make the investment within the Restricted Zone using a Mexican company in which he is a shareholder, the above-mentioned distinction between residential and non-residential purposes of the investment is relevant. In the first case, the Mexican company in which the foreigner is a shareholder can only make the investment through the Fideicomiso; in the second case (non-residential purposes), the Mexican company can directly purchase the property.

Investment within the Restricted Zone

Essentially, within the Restricted Zone:

-. The foreigner (individual or foreign company) that is NOT a shareholder of a Mexican company:

• Can only make the investment using the Fideicomiso, regardless of the purposes (residential or not).

-. The foreigner (individual or foreign company) that is a shareholder of a Mexican company:

• Can directly purchase the property with the Mexican company if the real estate investment is for non-residential purposes;

• Can only purchase the property using the Fideicomiso if the real estate investment is for residential purposes.

Investment outside the Restricted Zone

What if a foreigner (individual or foreign company) wants to directly purchase a property outside the Restricted Zone?

In this case, Mexican law does not impose the use of the Fideicomiso, allowing the investor to decide which method to use: directly, or through a foreign or Mexican company, or using a Fideicomiso.

Overview of the Fideicomiso

But what is the Fideicomiso? To explain and fully understand it would require a dedicated content, however, here are some basic points.

It is an agreement with specific characteristics. To understand it, it is useful to think about the trust. Both are pretty alikes. Like the settlor of a trust, in the Fideicomiso there is a subject, called the fideicomitente, who entrusts of one or more assets to allocate them to certain purposes. These assets are entrusted to another subject (in Mexico, almost exclusively banks can act in this role) called the fiduciario (which can be compared to the trustee). Finally, there is a third subject called the fideicomisario, who can be compared to the beneficiary of a trust.

It is a very flexible type of agreement and, for this reason, widely used in Mexico for various purposes. Among them, relevant to this content, is to allow foreign individuals or entities to make real estate investments in Mexico within the Restricted Zone. In this specific type of real estate Fideicomiso, the foreigner can become a fideicomisario, the beneficiary of the property. He can use it at his discretion and get the respective profits without becoming the full owner. Ownership is reserved for the fiduciary bank, which will manage it according to the contractual conditions agreed upon with the beneficiary. Therefore, although the beneficiary is not formally the owner of the property, he can exercise the rights as if he was.

If you are about to make a real estate investment in Mexico and need legal assistance, contact me by clicking here.