The ABC of Real Estate Foreign Investment in Mexico– Part II
by- Lic. Mauricio Tortolero.
In order that non-Mexican nationals, either individuals or entities, invest in real estate in Mexico, it is important to understand the nature of real estate and the laws that regulate same.
In the first part of “The ABC of Real Estate Foreign Investment in Mexico”, we discussed the most common forms in which real property is owned or held in Mexico.
In this second part of “The ABC of Real Estate Foreign Investment in Mexico”, we will discuss in general detail: (i) who may acquire real property in Mexico, and (ii) the restrictions for acquiring same by Mexican entities allowing foreign investment, foreign individuals and foreign entities.
A. Who may acquire real property in Mexico?
Under article 27 of the Federal Constitution, Mexican individuals and Mexican entities allowing foreign investment may acquire real estate in Mexico, as well as foreign individuals and foreign entities.
With the exception of Mexican individuals, in order that Mexican entities allowing foreign investment, as well as foreign individuals and foreign entities, may acquire real estate in Mexico, it is necessary that they agree to be considered as Mexican nationals regarding such real estate, and not to invoke the protection of their governments with respect to such property, under the penalty, in the event of violation of this agreement, of forfeiting their interest in the real property in favor of the Mexican Nation. This agreement is commonly known as the Calvo Clause (the “Calvo Clause”).
For purposes of analyzing the different options available to Mexican entities allowing foreign investment, as well as to foreign individuals and foreign entities, in order that they may acquire real estate in Mexico, it is important to point out that within the Mexican territory there is an area of land classified as restricted zone (the “Restricted Zone”). The Restricted Zone is formed by the land comprised within 100 kilometers of the border and 50 kilometers of the coastline. The rest of the Mexican territory is formed by land classified as non‑restricted zone (the “Non‑restricted Zone”).
The Restricted Zone encompasses some 40% of Mexico’s land area. Large metropolitan areas as Mexico City, Monterrey, and Guadalajara are not located within the Restricted Zone. However, Tijuana is located therein.
There is a restriction applicable to Mexican individuals and Mexican entities allowing foreign investment, as well as foreign individuals and foreign entities, regarding sub-soil rights of real estate in Mexico.
B. Restrictions for acquiring real estate by Mexican entities allowing foreign investment, foreign individuals and foreign entities.
I. Restricted Zone.
The way to acquire real estate within the Restricted Zone is determined by the use to be given to such real estate, i.e., residential or non‑residential.
It is understood that a real estate is used for residential purposes when it is used as a household by the owner; all other uses are deemed as non‑residential. The following real estate, inter alia, are deemed to be used for non‑residential purposes: (i) timeshares; (ii) those used for industrial, commercial or tourist activities and household purposes; (iii) those acquired by Mexican Banks when enforcing guarantees given to them to secure their loans; (iv) real property acquired by companies engaged in real estate developments (inmobiliarias) up to their commercialization or sale to third parties, and (v) in general, real estate used for commercial, industrial, agricultural, cattle, fishing, farming and services activities. If in doubt as to whether a real estate is considered used for residential purposes the Foreign Affairs Ministry (“FAM”) shall resolve the issue.
In the Restricted Zone Mexican entities allowing foreign investment may acquire: (i) direct title to real estate to be used for non‑residential activities, and (ii) beneficial interest in a Mexican trust of real estate for residential purposes.
With regard to foreign individuals and foreign entities, such may only acquire rights to use and enjoy real estate in the Restricted Zone through a Mexican trust, whether the property is used for residential or non‑residential purposes.
II. Non‑Restricted Zone.
In the Non-Restricted Zone Mexican entities allowing foreign investment may acquire direct title to real estate to be used for residential or non‑residential activities.
With regard to foreigners (individuals and entities), such may acquire direct title to real estate in the Non-Restricted Zone by agreeing with the FAM to submit to the Calvo Clause and prior authorization of the FAM. For such large metropolitan areas as Mexico City, Guadalajara, and Monterrey, which are not within the Restricted Zone, trust arrangements may be used, but need not be used, for real estate acquisitions.
When the real estate to be acquired is located within a Municipality completely outside of the Restricted Zone, if the FAM does not publish its denial within the term provided by law, it will be presumed that the petition was granted. When the real estate to be acquired is located within a Municipality partially within the Restricted Zone, the FAM will resolve the petition within the term provided by law, however, in this latter case, there is no presumption that the permit was granted.
Among the requirements to secure the abovementioned authorization from the FAM, it is necessary to evidence the legal capacity of the foreigner. Foreign individuals, in such event, must evidence their legal residency (legal estancia) in Mexico and that their immigration status allows them to acquire real estate in Mexico. Foreign entities must either be authorized to perform commercial activities in Mexico, or file their incorporation documents and by‑laws, legalized by the Mexican Consul or, legalized in accordance with the Convention Abolishing the Requirement of Legalization for Foreign Public Documents if their county of residence is a member of such convention.
III. Limitations on Sub‑Soil Rights.
Pursuant to Article 27 of the Mexican Constitution, the State has direct dominion with respect to minerals, water, oil and hydrocarbon fuels that exist below the land’s surface. The exploitation and extraction of oil and hydrocarbon fuels may be carried out by private parties through the execution of agreements with the Federal Government or assignations of exploitation directly awarded to such entities.
In the third part of “The ABC of Real Estate Foreign Investment in Mexico”, we will discuss the general aspects that must be considered regarding conveyance and title transfer of real property in Mexico.
In the event that you would like to receive further information relating to Real Estate Foreign Investment in Mexico, please contact one of the following attorneys:
Leobardo Tenorio-Malof | email@example.com
Héctor Torres-López | firstname.lastname@example.org
Alejandro Pedrín | email@example.com
Mauricio Tortolero | firstname.lastname@example.org
Daniel Gancz-Kahan | email@example.com