The End of Fideicomisos (Trusts)?

Since the Mexican Constitution was issued in 1917, it has been forbidden for foreigners to acquire real estate in the restricted zone, which is the stretch of 100 kilometers inland from the country borders and 50 kilometers from the beaches. This is in accordance with the 27th article of the first fraction of the Constitution, which states:

Only Mexicans by birth or by naturalization and Mexican companies have the right to acquire the ownership of land, water and their appurtenances or to obtain the concession to exploited mines or water.

The State can concede the same right to foreigners, provided they agree before the Ministry of Foreign Affairs to consider themselves as nationals in respect to such properties and not to invoke the protection of their governments; with the penalty, in case of noncompliance of the agreement, of losing, the properties acquired  to the benefit of the Nation.

Foreigners may under no circumstances acquire direct ownership of land and water within a one hundred kilometer zone along the frontiers and a fifty kilometer strip along the beach. In the case of land, this can be acquired exclusively for housing and not for any commercial purposes, and the foreigner must agree with the Ministry of Foreign Affairs as described in this fraction.

The State, based on the internal public interest and the principles of reciprocity may, under the criteria of the Ministry of Foreign Affairs, grant authorizations to foreign States to acquire private property or real estate land to be used as the permanent place of residence of the Federal Powers,, as needed for the direct service of their embassies or legations.

However, on April 3rd, this year, a new initiative to modify Article 27 of the Constitution was presented, which will allow foreigners to buy properties in the restricted zone without a trust agreement.  Foreigners who currently have properties with a trust agreement may choose to cancel them and be direct owners.

The purpose of this change is to eliminate the intermediaries and the use of trust agreements in the process, reducing the costs of transactions and providing legal certainty, encouraging foreign investment.

The text of the initiative says that foreigners “in the case of land, this can be acquired for residential use and not for commercial purposes, for which they must agree with the Ministry of Foreign Affairs in the terms described in this fraction”.

The reform specifies that the Mexican government will continue to give foreigners powers of domain over land, water, and their appurtenances, provided they commit not to invoke the protection of their governments in the case of any dispute; otherwise they will lose said land and water to the benefit of the Nation.

The acquisition of the properties is conditional on four points:

• The land will be used only and exclusively for housing.

• The water will not be used for commercial, industrial, or agricultural purposes, or  for any other activity that involves direct or indirect economic exploitation from the use of the property.

• The foreigner must agree with the Ministry of Foreign Affairs in terms of Section I, the ninth paragraph of Article 27 of the Constitution.

• In the event the land is used for a different purpose other than housing, the law will establish the procedures to follow in order for the foreigner to lose the acquired property to the benefit of the Nation.

The Constitutional Committee (“Comisión de Puntos Constitucionales”) issued a positive opinion on this initiative on April 18th, 2013. It was presented and approved by a plenary session of the House of Representatives last Tuesday April 23rd, and then was turned over to the Senate for revision. Once approved, it must be ratified by a majority of the state legislatures.

At Yucatán Expatriate Services, we can advise you in relation to this important Constitutional reform which will simplify the process of acquisition of property by foreigners and also increase the legal certainty of these operations. If you have any questions or comments, please feel free to contact us.