Investing in Mexican PropertyMexico represents both a great long term investment opportunity to real estate buyer seeking underlying price growth and a good short-term opportunity for the property investor keen on drawing down a solid income from rental rates.
The opportunity for sustainable and strong long-term price growth is built around the fact that the Mexican government is working consistently to strengthen and broaden their economy and also because the interest in property for sale in Mexico from overseas buyers is intensifying annually.
Those mainly interested in drawing shorter-term income in the form of rent should target the holiday and tourism market where there is year-round interest in well serviced and facilitated accommodation and where the weekly rental rates can be impressive.
The majority of those looking for real estate investment opportunities in Mexico are already aware that their target resale or rental market is retiree or tourism based. The retiree market is growing as baby boomers head towards retirement and interest in property for sale in Mexico is no longer restricted to North American citizens because European retirees are also aware that they are able to have an affordable retirement in the sun simply by relocating to Mexico.
In terms of the tourism market, Mexico receives around 22.3 million international visitors a year and of those an estimated 300,000 to 500,000 Americans and Canadians take extended holidays more than four months in Mexico every year and this figure is not only rising but substantially supplemented by long staying visitors from Europe and the UK. A large percentage of all visitors seek accommodation to let out on a weekly basis and this form of short term letting reaps the highest rental yields.
Real estate in Mexico is significantly cheaper than property in either the United States, the United Kingdom or in mainland Europe but as demand increases so prices inflate. Those buying now are buying into a predicted strong period of growth. The government of Mexico highlight five main reasons why an investor should consider Mexico and if you’re interested in real estate for sale in Mexico for investment purposes you should also bear these five points in mind: -
1) Mexico is located right next to the United States; it has excellent transport links to South and North America, Asia and Europe making it an accessible country for tourists and retirees and a country that can forge stronger economic ties with all of these aforementioned geographic regions over time.
2) Mexico has already signed free trade agreements with more countries in the world than any other nation to make the country massively competitive and attractive; this is already resulting in free flowing inward foreign direct investment which makes the country’s economy even stronger.
3) The Mexican government is devoted to a program of economic growth through sustainable development and improvement which is already making Mexico a more attractive country in which to live and invest.
4) Mexico has already attracted in excess of 16,000 foreign companies to its shores and this has created jobs and increased the wealth of thousands of local Mexicans which in turn has resulted in increased domestic purchasing power. There is now a strong local rental market in many of Mexico’s major cities which a real estate investor could consider targeting for long term rental income.
5) The tourism sector already generates around eight percent of Mexico’s GDP, it provides nine percent of all jobs in Mexico, it generated in excess of USD 8.9 billion annually and is Mexico’s third biggest currency generating activity and is therefore of massive and fundamental importance to the economy of Mexico. As a result the Mexican government is not only keen to further promote it, they are keen to receive foreign investment into the tourism sector as well.
Property investors considering Mexico should take great comfort from each and every one of these facts as they highlight the fact that Mexico is one of the safest ‘emerging’ countries with a forward thinking government committed to economic growth and that the real estate market in Mexico is growing built on solid foundations, is affordable and is growing in appeal with housing units in cities and major resorts massively in demand both locally and from overseas buyers creating a perfect environment for price growth and rental yields.
Where to buyReal estate prices and opportunities vary massively across the country and it's also always necessary to invest some time researching the market to get a sense of realistic asking prices and likely rental yields achievable from your property either from the local market or from the more lucrative tourist market. Investors pay a premium for prime real-estate in Mexico City but they also reap better financial rewards in the form of the annual rental yield. Those who look to the more established resorts of Cancun and Acapulco for example will also have to pay a premium for prime residential real estate or plots of land, but the desire for properties to buy and rent in and around these locations means that any investment made will reap returns both in the form of rental income and underlying property price growth.
Not all areas of the country are a good bet for real estate investors by any means! Some areas are inhospitable due to climate and geography, some are simply unpopular with tourists or those seeking a place to retire to or holiday in Mexico. In general terms cities and coastal regions make the best investment hotspots in Mexico but watch out for this ever changing, fast developing country because it can bring welcome surprises for individuals who would like to invest. Furthermore, the attraction and appeal of Mexico is great and the cost of living comparatively low; add to this the fact that while property prices have risen consistently they have not risen anywhere near as fast as those in the US and Europe and you can already get a feel for how very likely it is that both the tourism numbers and the numbers of overseas buyers making real estate purchases in Mexico will rise substantially as infrastructure and communications improve and the government continue to exact significant and successful economic advancements.
What to Watch Out For When Buying Property in MexicoThe first thing you as an investor have to know is that there are restrictions on foreign buyers in Mexico. You cannot own property within 50km of the coast or 100km of the nation’s borders for instance, and many overseas buyers have to purchase via a bank trust to get around a number of the more limiting restrictions. In itself this issue is not terribly hard to find around but it is worth bearing in mind that there will be additional expenses involved in the purchase process other than the usual taxes and fees.
Buyers should allow for at least 10% on top of the purchase price when buying property in Mexico to ensure they've enough to cover all additional expenses. Prices for real estate in Mexico are usually displayed in US dollars as the American buying market is the largest, and for the moment at least this means British and Europeans are getting far more for their money in Mexico.
This may be why more people are considering investing in Mexican property with a view to buying off plan and flipping or buying, remodeling and reselling. Please remember that capital gains tax can take a hefty chunk of any gains made though, and advice should be sought before reselling assets to legitimately avoid CGT as far as possible.
There are another few hurdles with regards to reselling that investors need to be aware of. Firstly it can take a long time to get title deeds through and until the new buyer has them in their name it can mean they can't resell. Additionally, those buying a resale property need to check the value the property was last sold for…just like in Spain it was and sometimes still is common practice to declare a ridiculously low amount as the sale price so that capital gains tax can be avoided by the previous vendor which can come back and bite the new buyer on the backside when they come to sell and declare the value they are selling it for. The discrepancy in prices at this point can leave you with a huge CGT bill!
Buy Land in MexicoOther things to watch out for when buying property in Mexico include the fact that some land is owned by co-operatives which can make getting everyone’s permission to sell impossible, even though the National Association of Realtors has signed a memorandum of understanding and agreement with the Asociación Mexicana de Profesionales Inmobiliarios little inspection and ongoing regulation of Mexican agents is currently possible, and finally….buyers need to be so careful and ensure that the land or real estate they are buying is actually private property that the vendor has the right to put on the market.
Needless to say engaging the services of a competent, experienced, professional and preferably recommended local solicitor is essential and it is suggested to apply for title insurance and if the insurance company won’t touch your chosen property let this be sufficient warning to you to walk away from the deal.