Valuation of Property in Mexico
Valuing a Property for Tax: If you own a house in the USA, Canada or Europe, you are required to pay tax to the government, usually based on a rate-able value of the property.
In Mexico, the Rate-able value is known at the Catastro, and is set by an officer of county; no onsite inspection is required. The Catastro value will vary depending on the area in which you intend to buy, and can be a fraction of the commercial value of the property.
This Catastro is used by the Notary Public to assess the value of the annual equivalent of the “Council Tax”, known in Mexico as the Predial. The Predial is payable annually, on January 1st or soon after. You don’t get a bill; you just know you have to pay it in January, and you show up to do so each year. You will find the Predial is very low (and could border on insignificant) when compared to say, property taxes (even at the lowest rates) in Europe or the annual rental value of the property. This is one of the reasons why cost of property ownership is low in Mexico.
Although the Catastro is an essential number for working out tax liabilities, in practice it serves of no use in assessing the commercial value of a property.
Commercial Valuation: House prices tend to be regional, and if you live in the UK especially, you are probably used to valuations of a property based on the number of bedrooms and whether the property is terraced, semi or detached, etc – not the square footage being bought.
In Mexico, values are not determined or measured on number of bedrooms; as a measure of value people instead look at a price per square metre of land and then per square metre of construction on that land as they do in the USA, Canada and Continental Europe. For example, you could have a 300 square metre plot with 500 square metres of construction. The garden is likely to be small, or even, just a patio, in this scenario. “Construction” is based on outer measurements, wall-to-wall and includes garage, covered patios and out-houses or other buildings, not just the main living areas.
Some Common Valuation Models:Here are some of the more common ways in which properties can be valued:
Investment Value: This is deduced by determining how much the property would fetch monthly from a rental (based on similar rentals in the neighbourhood / area) and multiplying by a factor. This factor is usually calculated by taking into account the cost of maintenance and applicable property taxes. If you wanted to see a return in 6 years (which is about average) then your formula would be: (Monthly Rental x 12 + Annual Maintenance (Including Service Fees) & Taxes) multiplied by Years (6).
Similar Recent Sales: If you are buying in a neighbourhood where houses / land plots are similar, then you may be able to get an indicative commercial value from prices paid for similar size and type properties in the area during the last 12 months. An estate agent would be able to guide you in this respect.
Replacement Value: Another way of determining the commercial value of a property is to take the commercial value of the plot (land), and add to it the cost of construction, should you build it today (this is usually expressed in cost per square metre of construction) and depreciate this value according to the age of the house. You would then add on the value of any special features.
Features that can Add Value: Values of property can escalate when the following features exist on or near the property (remember that features attached to the property are subject to depreciation factor, mentioned above):
Property is well served by local infrastructure (e.g. good roads, airport)
The property is near a body of water; river, lake ocean (but watch out for rising water levels!)
The property has good panoramic views of the area
Property is in good condition and requires little or no immediate maintenance
Property has a swimming pool / whirlpool
Good landscaping, driveways, garage, water pressure system, parabolic satellite system
Any furniture: Homes in Mexico are often sold fully furnished, but not always; check.
Local security – for example in gated areas – where all residents in the community pay a small annual fee to a security management company for 24×7 vigilance
Any features which make the property unique and added to the cost of construction and / or take up additional land; e.g. a large ornamental fountain.
Negotiating / Bartering: Try to find out (from the Agent if you are using one) what the history of the property is: who owns it, for how long and why are they selling? Are they in a hurry? Do they need cash fast? How far would they be willing to negotiate or barter – especially if you can close quickly. How much discount you can negotiate will depend on each individual situation. However, you should not offer the asking price and be prepared to walk away (and show that you will) – at the risk of losing the house – if you cannot get a deal that you think represents value. Even in Mexico, some people are sitting on property they paid too much for: make a cold, accurate assessment, and if necessary, politely say “no, gracias”.
Ultimately, the value of real estate / property, like the value of anything, is what someone is willing to pay for it. If you fall in love with a particular plot or house, you may be willing to pay extra for it. If you can, keep emotion out of the equation, and if you can’t, certainly make sure that you don’t show any emotion as it will be immediately sensed and will erode your negotiating position.