Property Ownership in Mexico

Whenever I am talking to folks about buying and owning in Mexico, I inevitably get the comment, "I heard foreigners can't own property in Mexico". While this used to be the case, the laws have definately changed.
As foreigners, coastal properties had been off limits until 1974. At that time, the Mexican government made it possible for foreigners to own property in Mexico. They accomplished this with the "Fideicomiso". A Fideicomiso gives you the right to a 50-year title perpetually RENEWABLE BY LAW!

"Fideicomiso", or bank trust, is defined for real estate purposes as a transaction entered into between a Mexican bank and foreign individual or firm investing in areas otherwise restricted to foreign investment, with the bank serving as trustee or legal owner with respect to a certain real property interest and the investor serving as the legal beneficiary of the trust. The bank holds title to the property in trust for the beneficiary who retains the exclusive right to the use and control of the property.
As trustee, the bank acts on behalf of the beneficiary in transactions involving the property held in trust. However, the beneficiary controls and makes investment decision regarding the property, including the decision to transfer, assign or otherwise dispose of this or her interest in the property.

The trust is essentially a contractual arrangement which, in most respects, is identical to the type of trust commonly used in the United States . Trusts are established for initial 50 year periods and can be renewed indefinitely.

There are actually two ways a foreigner can own land near the coast in Mexico. One option is a 50 year automatically renewable bank trust called a Fedeicomiso as dicussed above.. A fedeicomiso is secured by international known title companies, we use Stewart Title Insurance Company.

The other way to own land is through formation of a Mexican Corporation that holds title to the land. You must be doing business in Mexico in order to form a Mexican Corporation. In the scenario, title is fee simple title held by the Mexican Corporation.

Economy and Industry in the DR

The growing Dominican economy has developed primarily due to a well-managed tourist flow and flourishing agricultural industries. "The country is growing at a rate near unparalleled in its recent history" Tom Blass reports in an article appearing in The Banker April 3, 2006. The GDP growth rate is presently almost 7.9% per year.

The currency is the Dominican Peso (DOP). The exchange rate is roughly 32 pesos to the US dollar.

US companies with a presence in the Dominican Republic include Johnson & Johnson, 3M, UPS, Abbot Laboratories, Baxter, Verizon, Citibank, Marriott, Hilton, Remax and Century 21.

The July 2006 implementation of DR-CAFTA (Central America Free Trade Agreement) will stimulate trade between the United States and the Dominican Republic because $1 billion in taxes and tariffs will be removed for American companies involved in trade with the Dominican Republic,

Tourism
The significant rise in tourism is a factor in the growing Dominican economy, and it's expected to continue to reach new heights in the coming years.

The Dominican Republic attracts the most tourist visitors of all the Caribbean islands. 2005 saw growth rates in excess of 7% higher than the previous year. Travel companies in the US and Europe are highlighting the Dominican Republic as a premier vacation destination.

Tourism Minister Felix Jimenez stated that the Dominican government will be investing $5 billion in tourism infrastructure through 2008.

Hotel occupancy in the Dominican Republic is currently 74%. There are only 70,000 hotel rooms available to accommodate more than four million tourists per year. In the next 8 – 10 years, ten million tourists are expected to visit the Dominican Republic, requiring 250,000 rooms. . During the high season (12/15 – 4/30 and 7/15 – 8/31) hotel occupancy rates are currently as high as 95% in beach destinations.

The majority of the tourists visiting the Dominican Republic come by air and stay for a minimum of one week. European tourists’ average stay is two weeks.

The major tourist destinations in the DR include Punta Cana, known for it’s large, upscale all-inclusive resorts; Puerto Plata, Sosua and Cabarete, tourist areas popular with wind surfers and college students; La Romana and Casa de Campo; and the focus of recent tourist attention, the Samana Peninsula.

The President-elect of the National Hotel & Restaurant Association, Luis Lopez, forecasts that Samana will become the new prime destination in the Caribbean with the opening of the El Catey International airport. The Dominican Secretary of Tourism is focused on the Samana Peninsula with the support of DR President, Leonel Fernandez, who recently signed a plan to develop and promote the area. The Samana Peninsula is the only region with a government plan in place.

A nature-lover’s haven with lush green mountains and beautiful white sand beaches, Conde Nast Traveler has called the Samana Peninsula one of the 25 best locations in the world.

Process for Buying Real Estate in the DR

The process of buying real estate in the Dominican Republic is fairly simple and somewhat similar to the process in the United States.

A Contract of Sale is signed by both the buyer and the seller, before a Dominican notary (Notaries in the DR are required to have a law degree) or may be certified through the Dominican Consulate in the US. The buyer normally posts a deposit for the property, usually not less than 10% of the total purchase price of the real estate in question. The Contract of Sale is submitted to the Dominican Internal Revenue Office for assessment and payment of the transfer taxes. Then, with financing in place, and all the conditions of the Contract of Sale met, the Contract of Sale and the Certificate of Title are submitted the Title Registry Office for the recording of the sale. A new Certificate of Title issued in the name of the buyer is supplied by the Title Registry Office.

As is the case in many markets, there is a risk of fraudulent real estate transactions. With the immense interest in Dominican real estate, there are cases of one property being sold to multiple buyers, property being sold by individuals who do not in fact hold title, and land that cannot be developed being sold to prospective developers. Caution is advised.

Real Estate Taxes, Fees, and Financing

In the Dominican Republic there is a transfer tax of 4.8% of the appraised value of property, which is due at closing. Title insurance is available through Stewart Title at 1.0 to 1.5% of purchase price as one-time charge.

The property tax rate in the Dominican Republic is very attractive. Property valued under RD$ 5,000,000 pesos (approximately $165,000 US) are not subject to property tax. Property valued in excess of $165,000 (US) are taxed at a rate of one percent of the value above $165,000: A property valued at $265,000 will be assessed a tax of one percent of $100,000––$1000 annually).

The Dominican capital gains and income tax rate is 25%. Holding real estate in a corporation offers the advantage of allowing related expenses to be deducted.

Property may be held as an individual, a Dominican SA (Dominican corporation), an off-shore company, or a US LLC. For all real estate held in a corporation, documentation must be submitted in Spanish to the Mercantile Registration in the Dominican Republic.

In terms of financing, 90% LTV is available from both US and Dominican banks. The origination fees range from 0 – 1% with Dominican banks to 3.5% with some US lenders. US lenders generally require cross collateralization of US property equity. Dominican Banks generally loan for a maximum of 20 years, where 30 year loans are available through US lenders. Some lenders will finance the transfer tax, and possibly furniture and appliances as well.

Dominican Republic attracts wave of U.S. investors

This is the transcription of one of several news stories about investing in the Dominican Republic that aired on television last summer.

Dominican Republic awash in investors
Caribbean's pristine Dominican Republic attracts wave of U.S. investors

By Kerry Sanders
Correspondent, CNBC
Updated: 3:21 p.m. PT July 21, 2006

The Caribbean's Dominican Republic is a land of colors with its red, white and tropical blues. But it's all about the green that has people buzzing these days.

The island nation may have been an undiscovered country to Americans just three or four years ago, but today it is paradise found. Real estate projects in this Spanish-speaking country are sprouting like palm trees.

“The United States market is now beginning to identify the values and the opportunities that lie here in the Dominican Republic, particularly in a project like Cap Cana, which is aiming to the highest end of the world market,” said Ellis Perez, president of Cap Cana.

Cap Cana, a project hugging the island's southeast coast, will be the country's largest private community — a mammoth 30,000 acres — with plans for five hotels, five golf courses and thousands of homes. It's just beginning to take shape with hundreds of millions in foreign dollars, 33 percent of which is American.

Real estate in the Dominican Republic is so hot that even before they broke ground at the project Roko Ki they had sold $100 million in properties, 90 percent to Americans — that too, all in one day.

Roko Ki's natural beauty is undeniable. Investors are banking on another seaside jaw dropper, with jungle bungalows for the rich and famous, signature golf courses and fancy villas, signaling even more American interest. The hotel chain Starwood Resort Worldwide is building a Westin.

“In between 10 and 15 years we expect Roko Ki to have 8,000 residences and about 6 to 7 high end, five-star hotels,” said Nick Tawil Fernandez, president of the Roko Ki Westin.

Factors responsible for the recent Dominican Republic fever are varied. They range from a series of Dominican baseball stars, a democratic government encouraging foreign dollars, a number of new direct flights from the United States and a lot of recent good press. These reasons coupled with bargain land prices and cheap labor have helped put the Dominican on the map like never before.

“It's just very welcoming, very hospitable and once you've come here you want to come back,” said Tawil Fernandez of the Roko Ki Westin.

Many Americans fall in love with the Dominican while on vacation. A record number of tourists visited this past season after Hurricane Wilma pummeled Cancun, Mexico.

Even Hollywood is taking notice. Recently Brad Pitt was flying about the island looking for his piece of paradise. Fellow actor Vin Diesel is planning on building in Boca Chica and Robert Deniro is also actively looking.

Nestled between Cuba and Puerto Rico on Hispaniola, the Dominican shares this 29,000-square mile island with Haiti.

Poverty remains harsh reality
Islanders like to say Christopher Columbus was the first tourist here. Historians believe Columbus landed on Hispaniola before making it to the new world. Today well-paid tourism-related employees earn between $100 and $140 a month. Nonetheless, the poverty is undeniable — the poorest being an estimated 1 million Haitians who work in sugarcane farms or construction.

Dominican Secretary of Tourism Felix Jimenez recognizes that low wages are part of the draw but also says foreign money is raising the standard of living.

“My country is a poor country, but we are working and investing a lot of money in new roads, electrical supplies, water supply to help build a modern country,” says Jimenez.

That progress is increasingly visible and is encouraging investments from around the world.

Recently a German businessman sank $50 million into a marine adventure park on the north coast, Ocean World, which has been drawing tourists from all over the country.

Wall Street money manager Boykin Curry and a group of investors recently took the plunge on the island's breathtaking north coast and bought up to 2,000 acres to develop in Playa Grande at a bargain $55 million — golf course included.

“He has seen not only the cooperation of the government, but also of key individuals and key development partners in the country that can help us,” said Carl Carlson, CEO of Playa Grande Holdings.

“We have seen a lot of interest from golfers and from people in the industry and everybody is expecting a lot from us,” he added.

Down the road from Playa Grande is picturesque Cabarete beach —a water sports mecca for world-class wind and kite surfers — that has made a splash with Americans.

“Valero is 5 years old, and at the beginning we had a base of international owners, almost 10 percent were American,” said Mario Magnan, general manager of Valero Beach.

“But recently we're seeing a big flux in American owners. Today, Valero Beach is 70 percent American-owned,” he points out.

Retirees drawn to service factor
American retiree Phyllis Berney from Wisconsin discovered the Dominican Republic was a bargain a long time ago, but it's the Dominican people that sold her on staying.

“My mom is going to be 98 in November, and she said, 'Where else could I be that someone could be so kind they actually help me put on my shoes, that I have someone with me all the time?'” said Berney. “'I don't need a walker because when I want to walk someone walks with me.'”

Five years ago Jason and Michelle Matthews from Philadelphia discovered the Dominican Republic while on vacation. They now live part-time on a farm on the north coast. They also own a 15,000 square foot beachfront villa that cost them $2 million dollars and that they rent out to other Americans.

“I think most Americans have discovered what Columbus discovered a long time ago, particularly on the north coast, it's still an unspoiled pristine paradise. It's not over-invested, not over-developed,” said Matthews.

The trick will be keeping it that way.

Las Terrenas in the DR is like heaven

We've just returned from ten days in the Dominican Republic, including four days in beautiful Las Terrenas. Can you image a more heavenly spot? The picture above was taken at a beach club called "Paco Cabana". It's a relatively new restaurant, bar and beach club featuring fabulous French inspired food, a full bar with tropical drinks, and plenty of comfy spots for lounging and sun bathing.

In just five months since our last trip, there are new restaurants, new development projects under construction, and noticeable improvements to the municipal airport, El Portillo. There is almost no beachfront land available for development besides relatively small parcels.

Also worth mentioning, the newly opened El Catey, Samana International Airport is receiving flights from Canada and Europe, and soon there will be flights arriving from the US.

Buying Real Estate in Costa Rica

Many people have asked me if buying real estate in Costa Rica is the same as buying real estate in the US. My answer to them is in many ways yes but in some ways no. One of the main reasons why I am investing in Costa Rican real estate is because of some very key similarities that it has to buying real estate in the US. The most important similarity to me is that real estate is fee simple, where the owner has the right to control, use, and transfer the property at will without the use of a trust or trustee. You don't have to be a resident of Costa Rica to own property and you're entitled to the same ownership rights as citizens of Costa Rica. Ownership of real estate is fully guaranteed by their constitution to all including foreigners.

Below are my recommendations when buying real estate in Costa Rica and explains the basic process involved.

Make sure that you have a current and valid passport as this will be a necessary document in order to buy real estate in Costa Rica.

Hire a good real estate broker and real estate attorney. In Costa Rica, real estate brokers do not need to be licensed. That means anyone can set up shop and sell real estate which means there is little regulation and you do not need any qualifications, training or experience whatsoever to call yourself a "broker".

When you find a property you want to buy, work with your attorney to obtain a registered plot map (plano catastrado) from the National Registry (Registro Nacional). The National Registry is the government organization that it is responsible for receiving and recording all documents that relate to real estate transactions. The plot map should clearly show the details of the property so that you can confirm what you are buying matches what is recorded. It will indicate the property size and boundaries in relation to surrounding properties so you can see its exact location. It is also not a bad idea to spend a little extra money and hire a topographer to re-survey the property and have the new plot map recorded in the Map Registry (Catastro) department which is located in the National Registry.

It is highly recommended you use a reputable international title company like Stewart Title. They can help you obtain the registration number of the property in the National Registry and help do a complete title search which includes ownership, property location, boundary lines, recorded survey, liens, declared value of the property and any other issues that might be recorded on the property. We currently are using Stewart Title exclusively for all our clients buying in our developments. All our buyers obtain a title guaranty to protect them by guaranteeing the property is free from any liens that could affect the purchase and rights to the property from a fraudulent transfer of title.

Before closing on the property, the transfer deed (esctritura) is drawn up and signed by the seller, buyer and notary.

The deed is recorded in the notary's record book with a copy given to the National Registry for registration under the new owner's name.

Payment is made of all due taxes, stamps and notary fees.

After you close on a purchase of a property in Costa Rica, it is important to obtain a copy of the closing documents signed by the National Registry naming you, or your company, as legal owners. I recommend getting an Anonymous Corporation (SA), itself registered in the Costa Rican Registry of Corporations to hold title to your property. This will provide some form of privacy and, when selling the property, there are no capital gains tax paid in Costa Rica when selling a corporation that owns the property. Also, inheritance taxes in Costa Rica are high, but an anonymous corporation's assets are never included, and the corporation never dies. Most all of our clients purchasing properties in our developments purchase the property using a Costa Rican corporation that we help setup.

Feel free to comment about this post. I would love to hear from you!

Costa Rica Real Estate Transactions and Process

Real Estate Attorneys
Just like in many parts of the United States, in Costa Rica real estate transactions are through attorneys. Title companies may conduct the closing or may provide title insurance. Real Estate Attorneys perform the actual title research and coordinate the closing process.

Foreigners are welcome and encouraged to own titled land in Costa Rica (which is not the case in some other Latin American countries). Titled land in Costa Rica is similar to fee simple ownership in the United States.
Title insurance is available in Costa Rica and can be purchased through Latin American subsidiaries of well known companies such as Stewart Title.
All Costa Rica real estate properties are registered in the government centralized database at the "Registro Nacional". With a property's registration number or "folio real" you can look up a title over the internet if you know some Spanish.
Title is transfered through a transfer deed which in Costa Rica is called the "Escritura de Traspaso" which must be signed in the presence of a Notary Public. In Costa Rica the "Notary Public" is an attorney with an additional year of training to achieve this qualification.

When buying property in Costa Rica, you have several options to choose from on how you take title.
You can take title of the property in your own name individually, jointly with a spouse or other person or in the name of a corporation.
The most common practice in Costa Rica is to form a corporation and then hold title to your real estate in the name of the corporation. This is done for two primary reasons:
1- When properly structured, transferring ownership to the corporation can protect the property from liabilities which may be incurred by you in the future, as an individual. Costa Rican courts generally respect the corporate entity, as separate from the individual and with limited exceptions, will not pierce through the corporation to get at the individual.
2- When you sell property in Costa Rica, the transaction is subject to a transfer tax of 2.5% of the registered value of the real estate or sales price, whichever is greater. This tax becomes obsolete by simply selling your corporation which holds the property, to the the buyer. This will reduce your closing costs and increase your profits on the resale of your property.

Closing Costs

The actual costs to close a transaction will vary, depending on the specifics. Costs may include real estate transfer taxes, documentary stamps, notary fees, title registration, title insurance. If the transaction involves the formation of a corporation this involves additional costs.