Mexico Might Allow Outright and Direct Foreign Ownership of Coastal Property without the Bank Trust

mexicolandcatalog-cabo001By Brian Flock

The decree would allow foreigners direct ownership of “residential use” property in the so-called prohibited zone.

Amendment could simplify and accelerate investment in tourist communities and beach areas.

A new constitutional amendment, proposed by Mexican Senator Mario López Valdez of the Institutional Revolutionary Party (PRI) on March 5, 2009, sets the stage for what could become one of the most dramatic changes in Mexico’s regulations on foreign real estate ownership and investment since the 1971 recognition of the “bank trust,” or fideicomiso.

The fideicomiso being a mechanism for foreigners to control coastal property, as the document gives the trust deed moral Mexican citizenship by law, and as such trust owners may hold the property to the sole benefit of the foreign beneficiary. Prior to 1971, foreigners were relegated to controlling real property through either leases or time-share clubs.

Mexico boasts nearly 7,000 miles of coastline, ranking it the 12th longest coastline in the world. The country’s 1917 Magna Carta reads, in Article 27, Section 1 (in part), “Under no circumstances will foreigners be able to acquire direct ownership of land and waters within a zone of one hundred kilometers [62 miles] along the borders, and fifty (kilometers) [31 miles] along the shores.”¹ (This language was adopted by Mexico in the Constitution of 1917, after hundreds of years of invasions by Spanish, French and even United States forces.)

However, the current global economy and the importance of international tourism make such restrictions anachronistic and inhibitors to investment. The current Constitution has been viewed by many in the business sector as impeding the proper functioning of the tourist sector.

According to Senator López, even the time-tested bank trust (aka fideicomiso in Spanish) has made it unnecessarily complicated for foreign visitors to enjoy their properties. The myriad of paperwork requirements and fees have been an impediment to investment, and have sometimes further propagated long-standing myths about Mexico property ownership. For example, many foreigners still mistakenly confuse the bank trust with a lease of a fixed duration which it is not.

It may not be coincidental that Senator López’s own state of Sinaloa is slated to be the benefactor of the upcoming

Pacific Coast Integrally Planned Center an expanse of tourist development 80 miles south of Mazatlán that will be twice the size of Cancun and officially funded by the National Trust Fund for Tourism Development (FONATUR). Development has been planned to begin this year and last until at least 2025. FONATUR committed $5 billion pesos to the venture, with another US$6.638 billion expected through private national and international investments.

Senator López Valdez’s new constitutional amendment is trumpeted by proponents to be a major incentive for foreign investment in all of Mexico’s coastal regions with ample benefits for the general population.

He introduces his initiative by stating that the country had over 4,300,000 vacation properties (including timeshare units) in 2007 within the coastal regions, with nearly 70% of those belonging to foreigners. Additionally, 48% of Mexico’s financial investment came from foreigners, with nearly half of that being from the United States of America.

The initiative ensures that foreign ownership would be for habitation purposes only and, as such, will not threaten Mexico’s sovereignty, a major point of contention with more nationalistic voices.

mexicolandcatalog-lascuevitas001The development of tourism is a national priority for Mexico, given its importance as a development factor and growth engine. Tourism is credited with elevating the country’s productivity, employment opportunities, and generally lifting areas of the country with fewer economic development options, thereby increasing the quality of life of the people.

The nation’s development plan of 2007 to 2012 has as one of its principal objectives to convert Mexico into a leader of the tourist sector, with the goal of raising tourism 35% by 2012 and an objective of gaining US$20 billion in tourist investment.

The creation of additional legal certainties for new investments is expected to be an important catalyst. The results should be a greater inflow of foreign capital, the creation of jobs, and it will contribute to Mexico’s leadership in tourism.

The constitutional amendment initiative has now been turned over to a Committee of the Senate for analysis and official opinion, a positive step versus immediate rejection.

Yet the future of the initiative is by no means guaranteed. Mexico’s current congressional session, with the largest block of seats [207 of 500] in the Chamber of Deputies held by the government’s National Action Party (PAN), ends on April 30th, and the resulting lame duck deputies will be replaced as of September 1st, after July 5th elections.

Thus it is likely that the future of this Senate initiative will become clearer against the backdrop of September’s new congressional session.
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Comparison of the proposed decree, and that included in the current Mexican Constitution (translations):

New, proposed Article 27, Section 1
(in part)
Foreigners will not be able to acquire direct ownership (of) land and waters within a zone of one hundred kilometers [62 miles] along the borders and fifty (kilometers) [31 miles] along the shores, except in the case of individuals who may acquire property for their own residential use, (and) not for commercial purposes

Present Article 27, Section 1
(in part)

Under no circumstances will foreigners be able to acquire direct ownership (of) land and waters within a zone of one hundred kilometers [62 miles] along the borders and fifty (kilometers) [31 miles] along the shores.