Country Guides / Mexico

Mexico - quickly gaining popularity as an investment destination, especially with the ever weakening dollar.

Between 1994 and the beginning of 2007 Mexico benefited from accumulated Direct Foreign Investment (DFI) US$210.4 billions, receiving an annual average of US$16.2 billion, almost 56% originating from the United States.

Part of the DFI has been linked to privatization of previously State reserved activities, such as the decentralization of the airports, railways, ports and other industries and infrastructure programmes putting the country amongst the 15 biggest countries in the world receiving FDI, and third among the emerging countries.

Tourism accounts for more than 8% of the GDP and creates over 9% of jobs, making it the third most important factor in the economy after oil and manufacturing. It is the seventh most popular destination in the world in terms of foreign visitors. The growth in tourism is also responsible for regional development and the current interest from overseas investors.

The Yucatan Peninsula is a popular holiday destination due to its beautiful beaches, idyllic year round tropical climate with average temperature in winter between 25-30 degree, in summer 30 to 35 degrees and also the unique ancient relics of the Mayan civilization.

It is also a major draw for North American second home buyers, known as the ‘Snow Birds’ taking advantage of the combination of a warmer climate, low entry prices and laid back atmosphere away from the hustle and bustle of the US coastal suburbs, only a few hours flying time from Houston and four hours from LA. Merida, the main airport services major international airlines.

REASONS TO INVEST IN MEXICO

Overseas Investment

In the last 3 years Mexico has seen a 60% increase in holiday home investments, US buyers make up the lions share of the market, with growing interest from both Canadian and European investors. Many US citizens retire to Mexico attracted by cheaper cost of living and housing prices.

The Mexican government actively encourages overseas investment, allowing overseas investors to purchase property through bank trusts called the ‘fideicomiso system’, (foreign owned companies can buy property without a fideiscomiso but it would have to be commercial and would attract higher taxes) recognising tourism as a major income generator, with foreign investors boosting the demand and development of luxury resorts, private property and hotels along the long stretches of coast.

Favourable exchange rates and the proven popularity of Cancun have boosted the regions popularity amongst Europeans. Although, it is not a feasible weekend destination, it is an attractive investment or holiday destination, with superb rental potential and capital appreciation.

Housing deficit

Currently it is estimated that there is a shortage of 4.2 million homes. Apart from foreign investment, the government is endeavouring to provide inexpensive housing for the local population, which has resulted in a push to make mortgages more affordable. A government backed financial institution INFONAVIT, provided up to 750,000 mortgages in 2006.

Development today has moved away from the previous simple properties, towards high US specification luxury residencies expected by international investors.

Buying costs up to 11.69%

• Acquisition tax 0.18% - 4.56%
• Public Notary 0.08% - 3.6%
• Registration fee 0.02% - 1.82%
• Other fees 0.50% - 1.00%
• Title insurance 0.50% - 0.70%

Rental yields for villas predicted from 7.80% per annum

• 100sqm - 7.80%
• 150sqm - 11.16%
• 200sqm - 34.29%
• 300sqm - 40.00%
• 400sqm - 48.00%

Rental income tax

Gross rental income from rental property is subject to 21% to 25% withholding tax. This is payable to the ‘Servicio de Administracion Tributaria’ (SAT) and can be paid through the internet or a bank.

Inheritance tax

0% flat rate inheritance tax on resident foreigners inheriting property and gifts 20% flat rate inheritance tax on non residents inheriting property.

Capital gains tax

In general capital gains tax rates are the same as income tax bracket. 25% of the gross amount of the capital gain based on ‘declared value’ or highest marginal income tax rate in Mexico, whichever is lower.

Property Tax (impuesto predial)

Based on the (assessed) value of the property. Ranging from 0.275% to 1.350%, depending on the property location as each state has a different tax rate. It is payable to the state government annually.

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Yucatan Greens, Mexico

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