Mexican Legistature Plans a Vote this Week on the Fideicomiso Issue

APRIL 21, 2013   Por Esto (not our favorite news source) offers some interesting updates on the Mexican Legislature’s actions on Fideicomisos: http://www.poresto.net/ver_nota.php?zona=qroo&idSeccion=15&idTitulo=237601 version off an El Universal report.

Google Translate Version:
Beaches to the highest bidder

Foreigners can buy land on the beach, of an amendment to Article 27 of the Constitution to be voted on Tuesday in San Lazaro / Since its enactment in 1917, the Constitution prohibits foreigners to purchase property in a stretch of 50 kilometers on the coast

MEXICO CITY, April 20 (UNIVERSAL). – In a direct way, foreigners may own land on beaches housing exclusively for non-commercial purposes from a reform of Article 27 of the Constitution to be voted in San Lazaro this Tuesdays.
Since its enactment in 1917, the Constitution prohibits foreigners to purchase property in a stretch of 50 kilometers on the coast, and yet they have the soil domain through trusts.
The chairman of the Commission on Constitutional Chamber of Deputies, Julio Cesar Moreno, said that this change will end a practice of simulation.
Once you approve the reform will be fulfilled a brand of change to Article 27 of the Constitution, within 20 days from the filing of the initiative.
The change initiative is the Institutional Revolutionary Party (PRI) and the National Action Party (PAN), by Gloria Elizabeth Sanchez Nunez, Manlio Fabio Beltrones and Raul Paz Alonso, who argue that in practice foreigners are owners of land on the beach but not his name, but prestanombres or trusts.
The opinion notes that “foreigners do not affect in any way the sovereignty, territory and the legal rights that protect the state.”
The opinion recognizes, with the proponents, the aim of the initiative is to “eliminate the middleman: the houses realtors or builders listed as owners of the land, but sold the building to foreigners”.
This will “neutralize foreign restriction of not being able to own land, since legally abroad only owns the building” when in practice, it is also mourning the land.

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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read on, MacDuff.

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38 Responses to Mexican Legistature Plans a Vote this Week on the Fideicomiso Issue

  1. Jacobo says:

    Here is a better link with more detail: http://www.sonorahoy.com/vernoticias.php?artids=153518&categoria=119

    Highlights: it passed a committee vote of 26 to 1.
    Property can be used only for residential but are working on additional process to convert to commercial.
    It covers the border as well, but 100k instead of 50k.
    Four points:
    Ellos son: que el uso de las tierras sea destinado para vivienda única y exclusivamente; que no tenga uso comercial o industrial o agrícola o cualquier otro que implique explotación económica directa o indirecta que derive en un uso distinto a la vivienda.

    Otro aspecto es que el extranjero deberá convenir con la Secretaría de Relaciones Exteriores en los términos de la fracción primera del párrafo noveno del Artículo 27 constitucional.

    Have to pass through Foreign Affairs approval, same as now for fideicomiso.

    Hard to believe but it looks like this just might become law.

  2. kaytordg@gmail.com says:

    Good news for sure – ..our mexican neighbours shared this legislative information with us last week. We are hoping it means no more fideicomiso for the only one who benefits is the bank who holds ours in trust. We are not holding our breath for a refund for this years paid in March but certainly hope it will be the last one we pay.

    • yucalandia says:

      Hi Kay,
      Fortunately, this report has a bit more information, listing the actual politicians who are lining up behind this bill, to support its passage.
      steve

  3. Gail says:

    What happens to residential properties owned by foreigners in a corporation? Will they be included in the changes? Is there an expectation that eliminating the fidiecomiso requirement could result in a jump in the value of properties currently in the restricted zone as buyers put off by the current trust arrangement flood into the market? Especially for gulf front properties, which in the Merida area are vastly under priced right now compared to other locales in Mexico and throughout the Caribbean.
    Thoughts?

    • yucalandia says:

      If they pass a bill, it simply allows foreigners to own property directly, within the 50 km zone, without the shell of a Fidiecomiso or corporation – which affects the new purchases of property after the law’s passage. Property owned by corporations would still be owned by the corporation – unaffected by the law.

      There might be a loophole in property law, but I understand that if you want to own the property directly, you would have to buy the property from the corporation. (and dissolve the corporation?) This means paying a Notario, paying the 2% Acquisition tax (if you want to depreciate the property to reduce gains taxes on any future sale), and paying any gains taxes the Notario believes you owe for increases in the property valuation. ???
      steve

      • Gail says:

        Thanks Steve. Any thoughts on how this change, if it passes in the legislature, could affect land values?

      • yucalandia says:

        Guessing…

        People who really wanted property here (motivated buyers), figured out how to buy it – like you – with a corporation or Fideicomiso. This means that motivated buyers simply can buy more easily.

        People who were hesitant to buy, daunted by the annual fideicomiso payments, would now buy => more demand => higher prices.

        People who were confused or fearful (due to the unknowns of starting and running a corp or whether fideicomisos might have problems) could be reassured by owning directly => more demand => higher prices.

        Still, all of these analyses depend on what % of the buyers are gringos vs. the overall whole. If the % of gringos buying is small, like in Merida, then even a 20% increase in gringos buying land is still a drop-in-the-bucket compared to the Mexican buyers – which means no increase in typical Merida home sales.

        Next, ignore the 90% of typical Merida, and instead consider the 10% of Merida that is Centro. Meridadanos and Mexican buyers moving to Merida from other states have almost no interest in living in Centro. This means that gringo appetites can be a driving force in gringo gulch, or in gringo enclaves. In these narrow markets, where most of the purchasing pressure comes from gringos, then yes, prices would likely go up.

        This effect is diluted out in beach areas where there are mainly Mexican owners and buyers. e.g. My Mexican neighbors and Mexican family members have NO desire to sell, keeping beach properties in the family for several generations so, they aren’t selling. The numbers of Mexican buyers should not change due to the change in the law, so, their numbers stay constant => no pressure on prices.

        If however, you have beach property that gringos want, and if desirable beach property is in short supply, then even modest growth in gringo interest due to legal changes can drive price increases.

        Still, since the Baby Boomers are just now becoming eligible for retirement in 2014 and 2015, the wave of upcoming Boomers coming to gringo-havens will likely far outweigh any effects from a property law change. Consider that there will be at least 5,000 new gringos coming-to/visiting Yucatan every year (and as many as 20,000 – 30,00) due to the Baby Boomers retiring… That likely means 10X more gringos living here in Yucatan, 10 years from now. (Hint: we will no longer be the “cute” minority.)

        There’s your big driver for large increases in property prices. Compare it to the increase in costs of (limited-scarce) good mountain property in Colorado from the mid 1980’s to now, or the explosion of growth of Florida properties in the 1970’s – 1990’s….

        This means that if you own property in the boonies outside of Motul or Peto, then you likely see no effects from either the Baby Boom or fideicomiso changes. If you own property in the “cool” hoods of Santa Ana or Santiago, or in gringo-havens like Chelem/Chuburna, then you will likely see huge increases in property prices (due to the explosion of 40 million retiring Baby Boomers – out of the 100 million eligible to retire by 2030…)
        steve

      • yucalandia says:

        Have you read our article on Yucatan Living on the wave of Boomers coming to Yucatan – featuring the first-recorded scientifically-driven speculator: Thales?

        http://www.yucatanliving.com/real-estate-yucatan/merida-real-estate-predictions.htm
        steve

    • Jacobo says:

      It is my understanding, following Mexican corporate law, that if a property is owned by a corporation, “persona moral”, then it is by definition commercial. Since the law has not been passed, it is all conjecture at this point. However, in the reported legislative discussions of the proposed law, commercial ownership in the restricted zone is explicitly ruled out for foreigners.

  4. Gail says:

    Obviously we won’t know exactly how the legislation reads until it is finally passed since it can be amended at any stage.
    However, you say that under the proposal as it now reads, “commercial ownership in the restricted zone is explicitly ruled out for foreigners.”
    That leads to a couple of questions:
    1: Where does that leave people who currently own their residential properties in corporations because they are either rental homes or the square footage of the land exceeds 2,000-sq-metres?
    2: Will properties currently held in fidiecomisos by foreigners be grandfathered in to the legislation as proposed, or will it only include new purchases?
    3: If properties are grandfathered in, what steps will owners have to take to allow them to be held fee-simple and outside the trust mechanism? Any suggestions as to cost?
    Thanks,
    Gail

  5. Gail says:

    Steve:
    Referencing your article on real estate costs and future needs and wants of the baby boom bunch . . . good article and follow-up comments. Many thanks.
    Taking into account all the factors so ably outlined by Dr. Steve and those who made comments, it strikes me that this foreign ownership rule change could prove to be a real opportunity for those who currently own oceanfront property along the Yucatan’s Gulf region near Merida.
    Right now, oceanfront property in that area is relatively inexpensive compared to similar properties in other tropical locales, particularly factoring in the area’s proximity and ease of access from Canada and the US, the safety issue, the great and inexpensive health care available in Merida, Merida itself, with all its amentities and so on and so forth.
    There could be many reasons for that — the Gulf’s just not as pretty as the Caribbean and the area is yet to really hit the beach lovers radar because there is no thriving beach-related tourism infrastructure such as all inclusive hotels, which tend to attarct buyers and drive up the prices.
    But it could also partly be that many buyers are turned off because they can’t own their tropical paradise outright, fee-simple.
    Trust me (no pun intended), that is a real deal breaker for those looking for their very own tropical hangout. We know that because many have told us just that.
    So as the number of retirees grow who want affordable tropical oceanfront for either fulltime or parttime living, a disproportionate higher number may be attracted by a combination of the relatively low prices, the area’s amenities and attractions and the new rules that allow foreigners to own land outright.
    I assume that may also mean that properties on Mexico’s east and west coasts will also enjoy a price rise linked to the scrapping of land trusts, but the land costs in our area has the biggest distance to make up, so the gains on the Yucatan’s Gulf will likely be the greatest.
    So it might be a great time to own oceanfront on the Gulf, since I predict that with everything factored in – fee-simple ownership, relatively low buy-in costs compared to other tropical oceanfront locales, safety, health care and all the attractions Merida and the area has to offer – there could be a mini-boom coming soon to this neighbourhood.

  6. Gail says:

    Another question . . . it appears that the proposed changes have passed the committee stage according to the Por Esto article, and will head to a full legislative vote tomorrow (Tues. April 23, 2013). It also appears there is a 20 day period for what? Public comments and imput? And then what happens? Does it go back to the legislature for another vote and then it is law?
    Then what? What is the potential timeline on its passage and implementation?
    Sorry about all the questions, but this could potentially affect our lives and the value of our properties to a huge degree.

  7. Sarah says:

    Watch the banks charge us a hefty fee to close out our fideicomisos.

  8. Gail says:

    Sarah: I think that’s a dead cert. But all things considered, I’m happy to do it. And I guess owners could always leave the peoperty in the fidiecomiso instrument and continue paying the yearly fee. Wonder if the legislation will address this issue of these bank costs?

  9. Jacobo says:

    Another article today, this one in La Jornada. Looks like this thing is on a fast track, by Mexican standards. http://www.jornada.unam.mx/2013/04/24/politica/020n1pol

  10. Allan M says:

    Good to see this finally happening, I own a property in Puerto Vallarta. However I am thinking of buying a small property in Guadalajara, is anybody aware of any restrictions/extra fees to pay for a foreigner owning more than one property in Mexico?

  11. Danny Campbell says:

    I own a condo in Cabo. I have been putting off the fideicomisso and now wonder since I have owned the condo for over 4 years with no fido. What is my status if the law passes.

    • yucalandia says:

      Hi Danny,
      I have no clue. Really, since it takes Senate approval (not coming soon), and then takes approval by two thirds of the States, the Fideicomiso ending bill may never be approved… and if approved, it would seem to take another 2 to 5 years, due to election cycles???

      It’s a wonder that the Notary who handled the sale, did not spot this… You could send Intercasa (Spencer a good lawyer) on Chapala.com a PM or start a thread there, or go to chapalalaw.com… This is a matter for a lawyer.
      steve

      • Danny Campbell says:

        ok thanks. It was bought pre construction with cash so no lawer. Looks like I should get the ball rolling on the Fido Thanks
        Danny

  12. Kate Vallarta says:

    What are the projected fees to disolve a fidecomiso? Surely there will be notario fees and transfer fees. I heard they could be quite pricey in Vallarta.

    • yucalandia says:

      Hi Kate,
      There are NO currently defined projected fees for dissolving a fideicomiso, because there is no legislation approved yet. Further: The Legislation is actually on ELIMINATING THE NEED for foreigners to get new Fideicomisos – the legislation does NOT address closing existing Fideicomisos….

      Guessing logically: If the Notario has to do about the same amount of work to close a fideicomiso as they do to create one, then the 2 fees may be equal.

      A different logical guess: If you use the same Notario, and that Notario still has their records from the original title searches and other activities needed to create the Fideicomiso, then cancelling it may be cheaper, since the basic title searches, etc have already been completed.

      This is all just guesswork right now. Is it worth having a bunch of gringos speculating about something – or better to ask your Notario and get their actual personal opinion on what they would charge?

      Instead: Your Notario certainly knows a current estimate for him to cancel your Fideicomiso and sell the property to a Mexican citizen – so, that would be a good starting point for estimating the fees for your proposed property ownership transfer.

      Me? Rather than Notario fees, I would personally be more concerned about how to minimize any gains taxes that would be owed on the property, when you transfer it from the “trust” (fideicomiso) ownership over it to the private individual owning it. In effect the trust is selling the property to a new owner – making the transfer liable for gains taxes (if the property has appreciated in value).

      Read the article on Capital Gains on Real Estate sales in Mexico to get a beginning understanding of the tax principles: https://yucalandia.com/living-in-yucatan-mexico/capital-gains-taxes-on-mexican-properties/
      steve

      • Danny says:

        What if I own a property in Cabo but have not done the fideicomiso yet. Do I just do nothing? There is no lein if that matters in your answer.

      • yucalandia says:

        Danny,
        I think you need to talk to a good Notario, soon.

        Unless you are a Mexican citizen, you cannot own property within 50 km of the coast.
        You may not legally own anything…

        You may not have a legal title to the property. …
        ???
        steve

  13. Rick Hernandez says:

    Has there been any updates on the status of the Fideicomiso going away? Rick

    • yucalandia says:

      None yet. Education reforms and the teacher’s strikes and blockades of roadways (including the Merida-Campeche hwy), seems to be consuming their attention.

      • Gail says:

        Jacobo said on April 22: “commercial ownership in the restricted zone is explicitly ruled out for foreigners.”
        Holy Moly!! Really?
        I’m assuming Jacobo is referring to proposed changes currently making their way through government regarding foreign ownership in the restricted zone and fidiecomisos.
        I’m also going to assume that means these restrictions are not currently in place (if they are, that is a whole other can of worms).
        But should these legislative changes include a clause ruling out the ownership of properties designated commercial by foreigners, that would cause HUGE problems for those who currently own vacation properties that they occasionally rent out to help cover off expenses, in corporations rather than fidiecomisos. Or foreigners that own B&Bs and small inns along the coast or in Merida that are also owned in corporations.
        I know that at this point, everything is up in the air because the legislation is still wending its way through he system and may, in fact, never become law.
        Nevertheless, does anyone have any insight or comment on the proposed legislation as written and where this may all end up for those holding their homes in corporations. Never mind any foreigner owning a business in the retricted zone.

      • yucalandia says:

        Hi Gail,
        I think there is a point that is missing in your analysis: Corporations formed (incorporated) in Mexico, registered in Mexico, and paying taxes in Mexico are Mexican Corporations (they are not foreign corporations). The same thing goes for fideicomisos that are structured to allow the trust to rent the property. Fideicomisos that are formed in Mexico following Mexican Law, are Mexican trusts – not a foreign entity. As such, neither Mexican corporations nor fideicomisos (that hold/own land in the border and coastal zones) qualify as “foreign owners” or “foreign commercial owners”.

        This means that the current fideicomisos and corporations structured to allow renting of the property can continue to operate, legally, under the proposed “new” law that eliminates the need for future fideicomisos.
        Happy Trails,
        steve

      • Gail says:

        Thanks Steve. Makes sense. Then what was Jacoba referring to in his post?

      • yucalandia says:

        Jacobo makes the same error – transposing “foreigners who have Mexican Corporations” mistakenly as “foreign corporations” or foreign commercial operations. For better or worse, both US and Mexican courts see corporations and trusts as “individuals” – separate legal entities from their owners.
        steve

  14. Rick Hernandez says:

    Thanks for the replies. I have a pre-construction condo in Tulum that should be completed sometime in the Spring. If I plan on renting it during high season than I need to move ahead with the trust? Is this correct….because I am using it for commercial activity. I know this has been talked about but I want to make sure I am getting it. Thank you for the reply.

  15. Rick Hernandez says:

    Hello, I have been trying to find the answer for this for awhile. Once the trust is established can changes be made to it such as beneficiary changes or is this very costly

  16. bernard says:

    Any updates on this? Guessing it did not pass?

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