Mexico and Direct Foreign Ownership of Coastal Property

Monday, April 12, 2010

Mexico and Direct Foreign Ownership of Coastal Property

By Barnard R. Thompson

Just a little more than a year ago Mario López Valdez, a Mexican senator who represented the state of Sinaloa, proposed an amendment to Article 27, fraction 1 of the Political Constitution of the United Mexican States, an initiative that sought to ultimately allow full-fledged ownership by foreign nationals of land in Mexico's so-called "restricted zone." That would include coastline properties within the 50 kilometer [31 miles] strip inland, and 100 kilometer [62 miles] inward land from its northern and southern international borders.[1]

Beyond those restricted areas, Mexican law already permits foreigners to own property outright as long as certain conditions, that do not trouble many people, are met.

The bill submitted by López, while being a beginning was in fact too narrow in scope, and next it went to the senate's Constitutional Issues, and Legislative Studies, committees, where thereafter it seemed to wither on the vine. And it appeared dead when Senator López (who is popularly known by the acronym "Malova") stepped down from his seat last month, to run for the governorship of Sinaloa.

Sidebar to the land ownership question, Malova asked for the requisite leave of absence from the Senate in order to run for governor. However not as the candidate of his party, the Institutional Revolutionary Party (PRI) [2], for he resigned from the PRI and was promptly drafted to be the National Action Party's (PAN) candidate, in a deal obviously struck beforehand with party bosses. Yet at this writing many of the PAN faithful in the state are rallying against the party naming "a PRI candidate," and a voto nulo campaign (a call to mark ballots in a blank square and thus they become nulo — null and void) has been developing ever since Malova began his pre-candidate campaign on March 27. PAN members in Sinaloa will elect their gubernatorial candidate on April 18, and the state elections will take place on July 4.

However, getting back to property ownership matters, a new and far more comprehensive initiative was introduced in the senate on March 9, 2010, cosponsored this time by eight senators (six from the PAN; one PRI; and one Convergence). Three of the Panistas are from Baja California, with the other three representing Sonora, Sinaloa, and Veracruz; the Priista is from Nuevo León; and the Convergencia member hails from Oaxaca.

And this bill, that seeks to end the constitutional prohibition on direct foreign ownership of property within the restricted zones, cuts straight to the chase, saying in its preamble: "The proposal is to eliminate the restricted zone and make it possible for foreigners and foreign companies to acquire direct control over lands and waters without more restrictions than those indicated in the legislation that may become applicable, and in compliance with the terms of the respective contracts. …"

Fundamental to any change is the need to first amend the Mexican Constitution, specifically the aforementioned Article 27, along with several other laws and regulations. And such actions always bring about arguments regarding sovereignty, foreign intervention and national security.

Speaking on behalf of the eight who introduced this latest initiative, Senator Javier Castelo Parada (PAN, Sonora) said that to abolish the prohibition on foreigners owning land in the restricted zone would "in no way harm sovereignty and national territory, [or] legal properties it may protect, and [its] justification is no longer valid."

Article 27 of the Mexican Constitution, which deals with ownership of lands and waters inside Mexico's borders, states in the relevant first paragraph of fraction 1: "Only Mexicans by birth or naturalization and Mexican companies have the right to acquire ownership of lands, waters, and their appurtenances, or to obtain concessions for the exploitation of mines or waters. The State may grant the same right to foreigners, provided they agree before the Ministry of Foreign Relations to be considered as nationals with respect to said properties, and not to invoke for that reason the protection of their governments in matters relating to the former; under penalty, in case of noncompliance with the contract, of losing to the Nation the properties that they might have acquired in virtue of the same. Under no circumstances will foreigners be able to acquire direct ownership of lands or waters within a zone of one hundred kilometers the length of the borders and fifty kilometers on the coasts."

The latest draft initiative, to amend Article 27 of the Mexican Constitution, changes fraction 1 (first paragraph) to read as follows: "Any person has the right to acquire ownership of lands, waters and their appurtenances, or to obtain concessions for the exploitation of mines or waters, in the terms of applicable secondary legislation."

The introductory portion of the bill goes into historical details, noting that restricted zone stipulations were included in the 1917 Mexican Constitution based on worries of new colonialization attempts by foreigners, and due to military concerns regarding strategic defense. These and other factors related to sovereignty and national security are said to be obsolete and unnecessary today.

It also discusses the fideicomiso, Mexico's bank trust instrument that in one form or another has been in place since 1937. After real estate is put in a fideicomiso, today the trust holders can use the property as if it were their own.

In 1971, during the first year of the presidency of Luis Echeverría Álvarez, fideicomisos went through a major change that authorized the Foreign Ministry to grant banks and credit institutions authority to acquire trust real estate in the border or coastal zones for industrial and tourism use. And they were authorized to grant permits to foreigners for the exploitation and use of those properties through the issuance of a 30-year trust.

Since then, and for the most part to encourage foreign investment, the fideicomiso rules and regulations have been extended to allow beneficiaries a 50-year trust, which can be renewed by the interested party.

Furthermore, modern day fideicomisos, for homes, tourism developments, maquiladoras, industrial parks and other uses, have proven to be not only popular but too profitable, and the trust holders have demonstrated they are good "citizens." This to the degree to debunk negative claims and concerns regarding sovereignty, foreign intervention and such, insofar as restricted zone properties have virtually been in the hands of foreigners for years.

Regarding property ownership in the restricted zone, amendments will also have to be made in other laws, codes and decrees, such as the Foreign Investment Law of 1993 (and its Regulation) that, in part, parrots the Constitution in Articles 10 and 10A. These reforms are addressed in the draft initiative.

Also considered is the need to eliminate the "Calvo Clause," with respect to property ownership in the current restricted zones, in those documents and contracts where it may appear. The Calvo Clause is a provision under which foreign investors waive their rights to be protected by their national laws and accept the jurisdiction of the courts of the host country. In the case of Mexico, when the Calvo Clause is in force foreigners agree to consider themselves Mexican nationals with respect to their rights and obligations in Mexico, and they consent not to call upon their home governments to intervene on their behalf.

One legal chapter that quite probably will not be changed is Title Four, Article 119, of the General National Properties Law that governs Mexico's Federal Maritime Land Zone. While this is not of great consequence, it is important to know that shoreline and beach property up to 20 meters inland from the mean high tide line is federal property. And while concessions can be obtained for use of the land adjacent to property owned (or held through afideicomiso) by an individual or company, this 20-meter Federal Maritime Land Zone is public domain.

Finally, as to restricted zone trusts currently held by foreign investors, and Mexican companies with an admission of foreigners clause in their trust agreements, a closing provisional clause in the bill notes that they will be able to acquire ownership of their properties when this decree goes into effect, in accordance with the terms of the new and applicable legislation.

All of these issues are discussed and contemplated in the draft legislation now before the two committees of the Mexican Senate, and the broadened sponsorship of the bill suggests that this time the legislation might move forward. Still, in Mexico almost everything takes longer than one was told to expect.

As for Senator Castelo, he said that approval of this initiative to allow foreigners ownership of land in today's "restricted zone" would bring in investment that creates much needed jobs, plus it would promote Mexico's competitiveness. These positives plus shots in the arm for tourism, economic development, and maybe even optimistic publicity.

---

[1] "Mexico Might Allow Foreign Ownership of Coastal Property," by Brian Flock, MexiData.info, March 9, 2009

[2] "Wrongdoing Claims Surface Quickly in Mexican Campaign," by Barnard R. Thompson, MexiData.info, January 25, 2010

——————————

Barnard Thompson, editor of MexiData.info, has spent 50 years in Mexico and Latin America, providing multinational clients with actionable intelligence; country and political risk reporting and analysis; and business, lobbying, and problem resolution services.

Let´s find out more about REAL ESTATE IN MEXICO

Real estate is a legal term (in some jurisdictions, such as the United Kingdom, Canada, Australia, USA and The Bahamas) that encompasses land along with improvements to the land, such as buildings, fences, wells and other site improvements that are fixed in location—immovable.^[1]Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction and include things such as commercial and residential real property transactions. Real estate is often considered synonymous with real property (sometimes called realty), in contrast with personal property (sometimes called chattel or personalty under chattel law or personal property law).

However, in some situations the term "real estate" refers to the land and fixtures together, as distinguished from "real property", referring to ownership of land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. Real property is typically considered to be Immovable property^[2] The terms real estate and real property are used primarily in common law, while civil law jurisdictions refer instead to immovable property.

Etymology

In law, the word real means relating to a thing (res/rei, thing, from O.Fr. reel, from L.L. realis "actual," from Latin. res, "matter, thing"^[3]), as distinguished from a person. Thus the law broadly distinguishes between "real" property (land and anything affixed to it) and "personal" property (everything else, e.g., clothing, furniture, money). The conceptual difference was between immovable property, which would transfer title along with the land, and movable property, which a person would retain title to. The oldest use of the term "Real Estate" that has been preserved in historical records was in 1666.^[3] This use of "real" also reflects the ancient and feudal preference for land, and the ownership (and owners) thereof.

Some people have claimed that the word real in this sense is descended (like French royal and Spanish real) from the Latin word for 'king'. In thefeudal system (which has left many traces in the common law) the king was the owner of all land, and everyone who occupied land paid him rent directly or indirectly (through lords who in turn paid the king), in cash, goods or services (including military service). Property tax, paid to the state, can be seen as a relic of that system, as is the term fee simple. However, this derivation of real is a misconception.^[4]

Real estate in Mexico and Central America

Some similarities include a variety of legal formalities (with professionals such as real estate agents generally employed to assist the buyer); taxes need to be paid (but typically less than those in U.S.); legal paperwork will ensure title; and a neutral party such as a title company will handle documentation and monies in order to make the smooth exchange between the parties. Increasingly, U.S. title companies are doing work for U.S. buyers in Mexico and Central America.The real estate businesses in Mexico and Central America are different from the way that they are conducted in the United States.

Prices are often much cheaper than most areas of the U.S., but in many locations, prices of houses and lots are as expensive as the U.S., one example being Mexico City. U.S. banks have begun to give home loans for properties in Mexico, but, so far, not for other Latin American countries.

One important difference from the United States is that each country has rules regarding where foreigners can buy. For example, in Mexico, foreigners cannot buy land or homes within 50 km of the coast or 100 km from a border unless they hold title in a Mexican Corporation or a Fideicomiso (a Mexican trust).^[6] In Honduras, however, they may buy beach front property directly in their name. There are different rules regarding certain types of property: ejidal land – communally held farm property – can only be sold after a lengthy entitlement process, but that does not prevent them from being offered for sale.

In Costa Rica, real estate agents do not need a license to operate, but the transfer of property requires a lawyer.

Business sector

Appraisal: Professional valuation servicesWith the development of private property ownership, real estate has become a major area of business, commonly referred to as commercial real estate. Purchasing real estate requires a significant investment, and each parcel of land has unique characteristics, so the real estate industry has evolved into several distinct fields. Specialists are often called on to valuate real estate and facilitate transactions. Some kinds of real estate businesses include:

• Brokerages: A fee charged by the mediator who facilitates a real estate transaction between the two parties.
• Development: Improving land for use by adding or replacing buildings
• Net lease^[7]
• Property management: Managing a property for its owner(s)
• Real estate marketing: Managing the sales side of the property business
• Real estate investing: Managing the investment of real estate
• Relocation services: Relocating people or business to a different country
• Corporate Real Estate: Managing the real estate held by a corporation to support its core business—unlike managing the real estate held by an investor to generate income

Within each field, a business may specialize in a particular type of real estate, such as residential, commercial, or industrial property. In addition, almost all construction business effectively has a connection to real estate.

Professional university-level education in real estate is primarily focused at the graduate level. Focus in towards the commercial real estate sector, primarily real estate development or investment rather than residential real estate sales conducted by a REALTOR.

See also graduate real estate education for a discussion and list of university-level real estate programs.

"Internet real estate" is a term coined by the internet investment community relating to ownership of domain names and the similarities between high quality internet domain names and real-world, prime real estate.

Residential real estate

The legal arrangement for the right to occupy a dwelling is known as the housing tenure. Types of housing tenure include owner occupancy, Tenancy, housing cooperative,condominiums (individually parceled properties in a single building), public housing, squatting, and cohousing. The occupants of a residence constitute a household.

Residences can be classified by, if, and how they are connected to neighboring residences and land. Different types of housing tenure can be used for the same physical type. For example, connected residents might be owned by a single entity and leased out, or owned separately with an agreement covering the relationship between units and common areas and concerns.

'Single-family detached home'

Major physical categories in North America and Europe include:

• Attached / multi-unit dwellings
  • Apartment - An individual unit in a multi-unit building. The boundaries of the apartment are generally defined by a perimeter of locked or lockable doors. Often seen in multi-story apartment buildings.
  • Multi-family house - Often seen in multi-story detached buildings, where each floor is a separate apartment or unit.
  • Terraced house (a.k.a. townhouse or rowhouse) - A number of single or multi-unit buildings in a continuous row with shared walls and no intervening space.
  • Condominium - Building or complex, similar to apartments, owned by individuals. Common grounds are owned and shared jointly. There are townhouse or rowhouse style condominiums as well.
  • Cooperative (a.k.a. "co-op) - A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
• Semi-detached dwellings
  • Duplex - Two units with one shared wall.
• Single-family detached home
• Portable dwellings
  • Mobile homes - Potentially a full-time residence which can be (might not in practice be) movable on wheels.
  • Houseboats - A floating home
  • Tents - Usually very temporary, with roof and walls consisting only of fabric-like material.

The size of an apartment or house can be described in square feet or meters. In the United States, this includes the area of "living space", excluding the garage and other non-living spaces. The "square meters" figure of a house in Europe may report the total area of the walls enclosing the home, thus including any attached garage and non-living spaces, which makes it important to inquire what kind of surface definition has been used.

It can be described more roughly by the number of rooms. A studio apartment has a single bedroom with no living room (possibly a separate kitchen). A one-bedroom apartment has a living or dining room separate from the bedroom. Two bedroom, three bedroom, and larger units are common. (A bedroom is defined as a room with a closet for clothes storage.)

See List of house types for a complete listing of housing types and layouts, real estate trends for shifts in the market and house or home for more general information.

[edit]

Mortgages in real estate

In recent years, many economists have recognized that the lack of effective real estate laws can be a significant barrier to investment in many developing countries. In most societies, rich and poor, a significant fraction of the total wealth is in the form of land and buildings.

In most advanced economies, the main source of capital used by individuals and small companies to purchase and improve land and buildings is mortgage loans (or other instruments). These are loans for which the real property itself constitutes collateral. Banks are willing to make such loans at favorable rates in large part because, if the borrower does not make payments, the lender can foreclose by filing a court action which allows them to take back the property and sell it to get their money back. For investors, profitability can be enhanced by using an off plan or pre-construction strategy to purchase at a lower price which is often the case in the pre-construction phase of development.^{[citation needed]}

But in many developing countries there is no effective means by which a lender could foreclose, so the mortgage loan industry, as such, either does not exist at all or is only available to members of privileged social classes.

Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and theencumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.

A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

In many countries, though not all (Iran and Bali, Indonesia are two exceptions^[1]), it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownershipis highest, strong domestic markets have developed.

From Wikipedia, the free encyclopedia