Moves to open up Mexican property market to overseas investors

For many years now there have been restrictions on foreign ownership of property in Mexico with properties or land within 50 km of the coast or 100 km from an international border out of bounds for foreign owners. These are restrictions which were introduced in 1917 when the country lost a significant amount of land during the conflict with the USA. In a move which many believe has been long overdue, legislation is currently going through the Mexican parliament to amend the 1917 legislation.

While this will open up various beach resorts to direct foreign ownership, in the longer term there are concerns that when you also take into account the growing interest in real estate investment trusts (REITs) and the massive impact they are having on the market, could Mexico be headed for a property bubble?

The Mexican economy

In line with the vast majority of Latin American economies, HSBC recently downgraded forecast economic growth in Mexico for 2013 from 3.2% to 2.9%. This is as a consequence of international economic challenges such as those seen by European governments and their North American counterparts. However, in the long-term this level of economic growth is something which many governments around the world can only dream of.

While there is no doubt that economic growth across Mexico is putting more pesos in the pockets of the general public, there is some debate as to whether ever increasing property prices may well already be moving out of the reach of the masses.

Re-urbanisation

The Mexican government has been targeting re-urbanisation of rundown inner city centres for some time now and recently made available an array of financial incentives for investors. Many of the real estate investment trust managers are looking to take advantage of these incentives and allocate funding for inner-city developments. This is all good and well for the inner cities but many of Mexico’s larger house builders have land away from the city centres which is lying idle.

There are serious concerns about the long-term future of many of Mexico’s housebuilding companies amid signs that real estate investment trusts are changing the landscape of the Mexican property market. Indeed a number of these large property investment companies have joined the Mexican stock market giving the wider public the opportunity to buy shares in a large portfolio of property investments.

Foreign investors

Many international investors have been looking at ways to gain access to the wider Mexican property market, aside from the very complicated trust arrangements in place, and will be pleased to see an indication of legislative change. International investors will also have significantly more funding available than the Mexican general public and therefore they may also push property prices to levels which are also unsustainable in the longer term.

The Mexican government will at some point need to step in and take more control of the property sector although with the economy under pressure it would be a brave move to raise interest rates and take the heat out of the property sector. Time will tell whether the change in legislation will open the floodgates to international investors looking for prime coastal property across Mexico.