Top

6.1 Fair Tax Regime
6.2 Professional Services
6.3 Capital Markets
In-Country Assessment Information

6. Appropriate Regulation

Goal – A comprehensive regulatory regime that is transparent, efficient, simple in its implementation and that leads to accurate reporting of property values and prudent protection from market risks

  

6.1 Fair Tax Regime

Core Question: Do market participants feel the overall tax rate is fair and participate in formal transactions?  Weak. All three of Mexico’s key taxes for potential property investors – transfer taxes, overall business taxes and divestment taxes – are high by international standards.

Transfer Tax

6.1.1   What is the total property transfer tax including all duties and payments? Very Weak. Mexico’s 5.3% total transfer tax is very high by global comparative standards.

Overall Tax

6.1.2   What is the overall tax rate on entrepreneurs(as a percentage of profits)? Weak – Mexico’s total applicable tax on entrepreneurs is 66.6%, leading to a country ranking of 118 out of 183. Trend ↓ – this rank is down four places from Mexico’s 2013 rank.

Source: Doing Business 2014 – Paying Taxes & Registering Property, World Bank
http://www.doingbusiness.org/data/exploreeconomies/mexico

6.1.3 Divestment

Survey Question

SQ 24  What is the tax on profits for foreign investors when divesting property?

Article 27 of Mexico’s Constitution prohibits non-Mexicans from owning land within the country’s so-called “restricted zone”, comprising all lands within 50 kilometers of the coast and/or within 100 miles of its foreign borders. Historically, foreign investors have only been able to invest in those prime lands indirectly, via fideicomisos (land trusts) created as 50-year leases. A 2013 attempt in Mexican Congress to amend the constitution to allow direct foreign investment in the restricted zone was rejected in February 2014.

Sales of property are subject to a capital gains tax rate of 35% that is applied to residents and foreigners alike – although sellers may be able to claim an exemption for primary residences, up to a given value cap (varies with exchange rates, but around US $270,000 as of mid-2014).

Sources:.

1) Stevenson, Mark. Mexico Could Loosen Restrictions On Foreigners Buying Land. 23 April 2014. Huffington Post. http://www.huffingtonpost.com/2013/04/24/mexico-land-buying-restrictions_n_3149717.html

2) Summerfield, Brian. ‘Fideicomiso’ Staying Put. National Association of Realtors: NAR Global. 11 February 2014. http://theglobalview.blogs.realtor.org/2014/02/11/fideicomiso-staying-put/

3) Franklin, Wayne – tropicasa.com. The ABCs of Capital Gains Taxes on Mexican Properties. 19 February 2014. http://www.banderasnews.com/1402/re-tropicasa-realty-capital-gains-abcs.htm

 

back to top

6.2 Professional Services

Core Question:  Are the professional services necessary for efficient and transparent property markets available and appropriately regulated and supervised?
No – Weak. Overall, Mexico’s property sector suffers from the serious drawback of having many of its key real estate professions (realtors and mortgage brokers) remaining completely unlicensed. The situation is slightly more optimistic with regards to appraisers, who at least typically have professional degrees – but even appraisers are only subject to voluntary credentialing in Mexico.

6.2.1 Asset Valuers

Survey Questions

SQ 25  Are property valuers licensed and/or certified by the government?  No – Weak. Mexico’s appraisers, known as Peritos Valuadores (Expert Valuers) are designated by local jurisdictions. Since licensing is not a national function, responsibility for disciplinary actions against appraisers who engage in misconduct appears to fall to municipalities, voluntary valuer associations such as the Institute of Mexican Valuers, and universities.

Source: National College of Industrial Engineers – Code of Ethics and Principles Regulating the Exercise of Valuation in Mexico. http://www.conaii.org.mx/codigo_peritos.html

SQ 26   How effective are mechanisms in place to discipline valuers who engage in misconduct? Very Weak. See above.

6.2.2 Brokers & Agents

Survey Questions

SQ 27  Are real estate brokers and agents licensed and/or certified by the government?  No – Very Weak.

The term “real estate agent” can apply to any individual involved in facilitating the buying or selling of land in Mexico. Although there is a voluntary organization known as AMPI (the Mexican Association for Real Estate Professionals), there is no licensing or certification of Mexican “”agents”” by the federal government.

A registry of agents created by the Federal Consumer Protection Agency registers agents – but since registration is not mandatory, it is not clear how the government would even impose specific disciplinary actions on agents engaging in misconduct.

Source: Tara Dodrill, eHow Contributor. Do You Need a Real Estate License in Mexico?
http://www.ehow.com/about_5349038_do-real-estate-license-mexico.html

SQ 28  How effective are mechanisms in place to discipline brokers or agents who engage in misconduct?  Weak – see above.

6.2.3 Mortgage Professionals

Survey Questions

SQ 29  Are mortgage professionals licensed and/or certified by the government? No – Weak.

Mexico has had very strong growth in its mortgage market over the past decade, with the number of loans more than tripling from 400,000 in 2000, to over 1.4M in 2008. This growth was perhaps not surprising considering that seventeen percent of Mexico’s population entered the middle class between 2000 and 2010.

However, Mexico has not implemented strong regulation or disciplinary mechanisms for mortgage lenders or brokers. Anyone can become a mortgage broker in Mexico, and there are no special requirements or broker’s licenses to do so.

Sources:

1) Christopher E. Herbert, Eric S. Belsky, and Nicholas DuBroff. The State of Mexico’s Housing – Recent Progress and Continued Challenges. Joint Center for Housing Studies. Harvard University. Working Paper W12-8. December 2012.

2) Ben Bain and Jonathan J. Levin. Mexico’s Banks Target Wealthy in Booming Home Market: Mortgages. Bloomberg, 23 November 2012.

3) http://www.mortgagesinmexico.com/buyingpropertyinmexico.html

SQ 30  How effective are mechanisms in place to discipline mortgage professionals who engage in misconduct? Weak – see above.

 

back to top

6.3 Capital Markets

Core Question: Are capital markets well-regulated and diversified enough to provide financial resources to private-sector entrepreneurs and innovators?  Yes – Strong. Mexico’s capital markets are uniformly strong, with only moderate restrictions on FDI; a recently much improved regulation regime for securities exchanges; and a deep market for asset-backed and high-yield securities.

Capital Flows

6.3.1  How restricted is the flow of capital into and out of the country? Strong. Mexico ranks 46th out of 148 nations in terms of capital flow restrictions, with a Global Competitiveness Index score of 4.8 out of 7. This country ranking is down 10 places from Mexico’s 2013 ranking.

Security Exchanges

6.3.2  Is the regulation of securities exchanges transparent, effective and free of influence from government and industry?
Yes – Strong.

Due to certain (at least historical) weaknesses in Mexico’s legal framework for securities trading, including a lack of definition for directors’ responsibilities for the companies they are overseeing, insider deals have traditionally been perceived as a pervasive problem in the country’s securities markets.
Even so, Mexico scored a 4.4 in the Global Competitiveness Index in 2014 for its regulation of securities exchanges, earning a ranking of 51 out of 148 countries. Trend ↑ – this is an extremely large improvement of 33 places since the previous year.

Sources:
Global Competitiveness Report 2013-2014, World Economic Forum
http://www.weforum.org/issues/competitiveness-0/gci2012-data-platform/

Doing Business 2007 – Mexico Case Study
http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Reforms/Case-Studies/2007/DB07-CS-PI-Mexico.pdf

Securitization

6.3.3   What is the depth of asset-backed securities, mortgage-backed securities, high-yield bonds and highly leveraged loans? Strong. Mexico’s securitization score of 2.4 as assessed by the World Economic Forum gave it a rank of 19 out of 62 countries. Trend ↓ – Mexico has dropped three places since 2011.

Much of the growth in Mexico’s securitization market can be attributed to the housing sector reforms that took place starting in 2001, and which included heavy promotion of mortgage origination as well as mortgage-backed securities.

Source: Financial Development Report, World Economic Forum
http://www.weforum.org/reports/financial-development-report-2012

 

back to top

In-Country Assessment