A Brief History of Mexico Real Estate Financing

October 2007

40 years ago, the concept of running down to Baja to buy a little piece of beachfront property was laughable. Mexican national security measures prevented foreigners from buying beachfront real estate in Mexico (within 50 kilometers of the beach) and 100 kilometers from any border. Furthermore, investors wishing to buy property in the interior of Mexico were obliged to either borrow money from a Mexican bank (which generally had higher interest rates than US bank loans) or to pay cash.

Mexico Mortgage Financing Options Are a Changing

Three relatively recent watershed events changed forever how Mexico real estate transactions were handled:

• The 1973 development of the fideicomiso trust, established to permit foreigners to legally own real estate in Mexico.
• The 1993 passage of NAFTA, prompting a law permitting Mexican corporations to acquire property (and be recognized as Mexican), even with 100% foreign capital.
• The 2005 introduction of US-style mortgages being available for property purchases in Mexico.
  
  

As millions of American and Canadian baby boomers today flock south to explore their financial options, consider the consequences of each of these events and how they combined to make Mexico perhaps the hottest location for real estate investment in the Western Hemisphere.

• The Fideicomiso – Originally developed to encourage foreign investment, this trust can last as long as 50 years. It can be renewed indefinitely, and is guaranteed by the Mexican constitution. Putting ownership of a piece of property into one of these trusts makes it possible for foreigners to legally own, buy, sell and improve Mexican real estate. A Mexican bank acts as trustee in every case, but the bank is legally obligated to follow whatever rules the investor dictates.
• Foreign capitalization – The Mexican economy went into crisis mode in 1994, resulting in a sudden 35% devaluation of the peso and the country’s worst recession since the early 1930s. Changing the property law to permit 100% foreign-funded, foreign ownership of prime property laid the groundwork for change, but still limited investment to those with sufficient financial resources and liquidity.
• American mortgage capabilities - San Diego-based Finance North America filled in the last piece of the puzzle by developing the first US mortgages for used for financing Mexican real estate transactions. Recognizing the tendency of modern consumers to finance everything from cars to college educations, this company structured innovative programs with companies like GMAC and GE Financial.
  
  

What the Future Holds for Mexico Real Estate

The combination of these three factors has changed the financial future for millions of ordinary Mexican, American and Canadian citizens. It coincided with the baby boom generation – a 70 million-strong age cohort – reaching or just passing the peak of their earning years, and provided a tsunami of potential buyers of Mexican real estate.

Finance North America, in particular, deserves credit for this sea of change by inventing a financial product that Mexico so desperately needed to lure investment. In a single stroke, financial “whiz kid” and company president Russell Schreier opened the floodgates of Americans seeking a new home, perhaps with a bit of the wild west thrown in for flavor.

During this time, Mexican families have found themselves with increasingly valuable assets in their once remote communities. Selling the family homestead and moving to the city for a better life has become an option.

After just two years of this financial sea change, the facts are in as millions of dollars flow into Mexico in real estate investments, tourism dollars, and infrastructure improvements. Millions more will re-circulate to San Diego as certain services and products are sought here for export to Mexico.

Perhaps too soon to tell, but certainly on the horizon, is the potential impact all this investment should also have on chronic issues like illegal immigration. As American dollars move south, and the Mexican economy grows, it suddenly seems plausible to envision a day when these problems evaporate.

Thanks to the visions of a handful of creative men and women, the future relationships of Mexicans, Americans and Canadians have suddenly taken on a new sheen. And buying that little place in Baja is suddenly sounding pretty good.

 

 

 

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