While it still can be an adventure, experts say that the process of buying property in Mexico has changed dramatically in recent years.
By Kevin Brass Published: March 15, 2007
Sarah Booth acknowledges that she was scared the first time she bought property in Mexico.
She had heard the stories of frauds and shady transactions, and her Spanish was limited to asking for restaurant checks. But two years ago she fell in love with a 45-square-meter, or 500- square-foot, condominium a block from the beach in Puerto Vallarta, which she bought for $115,000.
While it still can be an adventure, experts say that the process of buying property in Mexico has changed dramatically in recent years. Title insurance and the wide availability of mortgages have added a new level of security to transactions and encouraged an increase in the number of foreign buyers.
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Stewart Title, which began offering title insurance in Mexico in 1993, has seen its Mexico business triple in the past three years, said Mitch Creekmore, senior vice president for business development at Stewart International and co- author with Tom Kelly of “Cashing In on a Second Home in Mexico.”
But buying in Mexico still can be a complicated, frustrating process for the uninitiated, experts warn. Until recently, escrow accounts were rare, and agents still are not licensed, adding a level of uncertainty for first-time buyers.
“You have to do your own due diligence,” Creekmore said.
Booth discovered one of the complications when she tried to resell a 35- square-meter condo in Puerto Vallarta. The transaction was delayed for 10 months while she waited for local government officials to produce a copy of her deed.
“It can be frustrating,” Booth said. “You have to have patience.”
And beyond patience, it is important to recognize the potential obstacles in Mexico property deals, longtime participants in the real estate business say.
There are restrictions on foreign ownership of land within 50 kilometers, or 31 miles, of the coast and 100 kilometers of all borders, including all of Baja California. In most cases, any residential buyer who is not a Mexican citizen must place the property in a Mexican bank trust, or fideicomiso, which is controlled by the buyer and easily renewed after 50 years.
The national real estate association, Asociación Mexicana de Profesionales Inmobiliarios, recently signed an agreement with the National Association of Realtors in the United States that allows its members to use the Realtor designation. But there still is little oversight of operating practices.
“You have to have a reputable broker, period,” said J.P. Money, who runs www.mls4rivieramaya.com, a property listing service for the Riviera Maya. “Ask for references and ask people who have bought from them before.”
Capital gains tax can take a large bite out of rosy profit estimates. This year the tax rate is 28 percent, although there are ways to structure a transaction to avoid paying, especially if the house is a primary residence.
Although the practice is technically illegal, it is not unusual for a seller to record a much lower purchase price to avoid taxes — and then an unsuspecting buyer, trying to resell the property, is called upon to pay tax on the recorded increase in value.
“That is very, very common in most of Mexico,” said Linda Neil, founder of Settlement, a transaction consultancy based in La Paz, Mexico. “Buyers need to be sure the full price is recorded on the deed.”
Some buyers are shocked to find that closing costs can be as much as 10 percent of a property’s value, especially along the coast. Undisclosed fees for condominium associations and maintenance also may add to a transaction’s overall expense.
Tracking a property’s title can be difficult. Large tracts often are controlled by ejidos — collectives of landowners — and in some cases sellers do not have full title to the land.
“Probably the biggest land mine is distinguishing the difference between private property and ejido land,” Neil said. “If title insurance won’t cover the title, that’s a big red flag.”