Featured Developments:

Featured Developments:

By Javier Troncoso

A. Legal Background

For the last fifteen years buying real estate in Baja California , Mexico , for residential or business purposes, has been an attractive activity to foreigners. The Mexican Constitution establishes a " restricted zone " (100 kilometers wide from the borders and 50 kilometers wide from the coastal shores) in which direct foreign investment is prohibited. The Baja California area is located within the restricted zone.

However, foreign individuals or entities are allowed to acquire land through a trust agreement "fideicomiso" by a trustee, which must be a Mexican bank. The trustee must request a permit from the Ministry of Foreign Affairs authorizing the acquisition.

Notwithstanding the above, Mexican companies with 100% foreign investment are authorized to own real estate without a trust agreement within the restricted zone for non-residential purposes (business purposes) and only require to notify the Ministry of Foreign Affairs of such acquisition.

B. Acquiring Real Estate

Foreign individuals and entities are allowed to acquire land within the Baja California area through a trust agreement or " fideicomiso " with a trustee, which must be a Mexican bank.

Prior to closing an acquisition "fideicomiso" the trustee must request a permit from the Ministry of Foreign Affairs authorizing the acquisition.

While processing a " fideicomiso " trust agreement a title search should be performed and a certificate of no liens should be obtained from the public registry of property as evidence of the property's legal status. Also, a certificate from the local tax authorities should be obtained to verify that the outstanding property taxes have been paid up to the date of the transfer.

The transfer of a property must take place before a Mexican notary public and is evidenced in a public instrument " escritura pública " which contains the " fideicomiso " trust agreement. Thereafter, such public instrument must be registered before the public registry of the property.

Once a property is transferred through a " fideicomiso " trust agreement and is duly registered in the public registry of the property the transaction is secured and the level of risk diminishes substantially. Usually, the buyer bears the notary fee and other costs relating to the transfer such as the trustee's fees, appraiser's fee, recording fee, acquisition tax (approximately 2% of the real estate price) which vary depending on the price of the real estate.

The " fideicomiso " trust agreement has become a standard procedure for the acquisition of real estate within the Baja California area by foreign individuals or entities.

C. Real Estate Developments

Foreigners interested in investing in real estate developments in Mexico usually do business through a Mexican subsidiary in order to own land without a trust agreement and to organize from a corporate and tax point of view. These type of transactions require proper due diligence regardless of the size of the project such as property title search, property title analysis, water and power availability, easements, boundaries (physical survey), construction restrictions, environmental restrictions, zoning permits, feasibility studies, and the like.

Notwithstanding the above, developing a real estate project is subject to federal, state and city regulations. It has been our experience that depending on the real estate project (number of employments created), local authorities will support developers with the issuance of the required permits for the project.

These real estate projects require contracting with third parties, governmental filings and permits, labor relationships, corporate and tax planning, government procurement, and the like.

For the past fourteen years, real estate developments that include hotels, golf courses, marinas and up scale houses have been an attractive activity for foreign investors in southern Baja California .

For more information please contact:

Javier Troncoso
Esq. Bufete Troncoso
Condominios Miramar
Paseo San Jose S/N
Edificio 2-A Los Cabos,
Baja California Sur
Mexico 23400