I know, it sounds like something out of an old Star Trek episode… The Restricted Zone… (ok, it was actually the Neutral Zone in Star Trek). But what is it, really? And how does it affect me when I buy real estate in Puerto Vallarta?
I’m glad you asked. The Restricted Zone is a ribbon of land that surrounds the entire country, 50 Kilometers wide along the coast, and 100 Kilometers wide at national borders. The Restricted Zone is provided for in article 27 of the 1917 Mexican constitution in order to keep foreign interests from buying up large portions of Mexican land then annexing them. So the Restricted Zone is just that, a zone where legal ownership is restricted to Mexican citizens.
Stunning Puerto Vallarta Real Estate
Foreigners cannot directly own property in this zone. This worked well for the first 50 years or so… Then foreigners began to look to Mexico as a place to buy a piece of paradise. The only problem is, most of them wanted to be on the beach. Of course, the beach is in all the Restricted Zone… so it was unconstitutional for foreign investors to buy there… but the Mexican Government did not want to turn away all that foreign investment… so they came up with a compromise.
That compromise was to create a system of bank trusts (Fideicomiso – fee-day-co-me-so – in Spanish) which would guarantee a foreigner all the rights of ownership, without actually owning the property. Specifically they are called Fiedeicomisos de Zona Restringida, or Restricted Zone Trusts. These trusts allowed the foreign investor to be the beneficiary while a Mexican bank acted as trustee. With the property held in trust, and the trustee being a Mexican entity, the government neatly avoided the issue of foreign ownership in the restricted Zone. And with the bank’s fiduciary responsibility to the foreign investor, the system has proven over the last 40 years to be a safe, secure way for foreigners to own their own piece of paradise on the beach in Puerto Vallarta. Those who choose to invest in Real estate in Puerto Vallarta (and other Mexican beach destinations) enjoy all the benefits of ownership along the Mexican coast. They were able to buy, sell, lease, improve, pass on and do anything with the property they wanted – within the limits of the law, of course.
Fideicomiso trusts cost about $550 US dollars to set up and are part of the closing process when you buy a property in the Restricted Zone. Once set up, they cost around $450 dollars per year to maintain; fees vary from bank to bank. These fees are included in the closing costs. Fideicomisos are good for 50 years and renewable for another 50. Because you can name secondary beneficiaries, the trust can act as a type of will by passing the property to whomever you designate, should anything happen to you. This is automatic and avoids any probate issues.
The law governing these trusts was overhauled in the 1990’s to streamline the process and make them more secure. In all the years trusts have been available, there have been no instances where a foreigner has lost his property due to a failure in the trust system. You may recall many years ago, there was a great deal of noise in the media about some Americans who had had their property taken away from them by the Mexican government. What really happened is the Americans had not actually bought the property, but only leased it. There was undoubtedly some mischief done to convince the Americans they were buying rather than leasing, but at the end of the day, the Mexican government did not take anything from the Americans, because they never actually owned the property. This is a good example of why you should get a good real estate agent in Puerto Vallarta and close with a notary, but it does nothing to sully the record of the Fideicomiso as a safe and secure way for foreigners to invest in the Restricted Zone of Mexico.
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