Canadians! - Baker Tilly...Origo and Coldwell also partnered with Scotiabank Canada, which has offices in the area, as a preferred lender to assemble a Canadian buying program. “You

Invest | vacation property

42 canadianrealestatemagazine.ca

A warm climate, rich culture and welcoming lifestyle for retirees have made Mexico an

increasingly popular destination for Canadians. And with more aging Baby Boomers approaching retirement and having benefited from strong real estate performances back home, more of them are considering buying an investment or vacation property there.

“Mexico is a beautiful country with much opportunity for investors, even in these times of financial difficulty,” says Michael Bondy, tax partner and chartered accountant at Collins Barrow, London, Ont., who owns investment properties in the country.

Geographically, Mexico is not much further than Florida, California or some other US locations where Canadians have been increasingly active in buying real estate. And in many cases, Mexico can be far more affordable.

Many developers, in fact, report that Canadians have become their number one buying group. More and more businesses and consultants are springing up to cater to this demand, and Mexican developers are more assertively targeting the Canadian market.

“Canadians are very ready to buy, and we have become friends,” says Rodolfo Correa Arroniz, partner in Origo Developers, which is building

Canadians!The improved dollar and renewed efforts to attract buyers are putting real estate in Mexico and other Caribbean locales within reach for Canadians. It may seem far away, but it’s an opportunity that may be closer than you think. Wayne Karl reports

Hola,

Large contingent of ‘Snowbirds’ ÒPlentiful beachfront properties ÒPotential for cash flow from rental income ÒAverage age late 50s, early 60s ÒProfessional property Òmanagement companiesExamples of investors buying condos Òconverted from a former hotel for

$70,000, and reselling them 1.5 years later for $150,000 to $200,000 after some refurbishingBeachfront properties have yielded Òas much as 30–40% return, and rarely less than 15% over two years 2,000 condo units in Mazatlan, Òversus 8,000 in Puerto Vallarta

Mazatlan consideration

Source: Sylwia DeSoto, Invest Mazatlan Realtor

Travel advisoriesVoyage.gc.ca, a service of Foreign Affairs and International Trade Canada, issues travel reports and advisories to Canadians considering travelling abroad. The bulletins cover safety and security, entry and exit requirements, health information, Canadian government contacts, laws and customs, currency and weather.

Mexico: As of October 24, 2008, there was no official warning for this country, but voyage.gc.ca says to exercise high degree of caution.

Panama: As of October 24, 2008, there was an official warning for Panama, relating to travel beyond Yaviza in the Darien province, about 230 kilometres southeast of Panama City and near the Colombian border.

Beachfront at Old Mazatlan, Mexico


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Fideicomiso: This is a trust which holds the title to the property in an irrevocable trust, with a Mexican Bank trustee for the benefit of the purchaser (beneficiary). There are administration and bank fees to be paid, as well as notary public fees relating to the costs of formation, which range from US$3,500 to US$7,000, with annual filing fees of US$300 to possibly US$750. The Fideicomiso has a life of 50 years and can be renewed upon application for an additional 50 years. The beneficiary may be changed for example to an owner’s children or to others if desired to dispose of the property. A Fideicomiso may only own one property, restricted generally to less than 2,000 square metres (approximately a 185-by-150-foot lot), and predominantly for personal use. The property can be occasionally rented; however, this creates additional

complexities as the owners should register the business in Mexico, prepare monthly tax filings for the Haciendas (Mexican Tax Authorities), and file Mexican tax returns as well as Canadian returns to report the income or loss for income tax purposes. This can be done but it’s fairly complex.

Special Mexican corporation: Here, foreigners are allowed to control and own, and it may be used to hold title, instead of a Fideicomiso. Corporations are being used more frequently because there are fewer restrictions, they are less expensive to form (US$2,000 to US$3,000 with annual costs of US$400 to US$1,200), and they may own multiple properties or one of more than 2,000 square metres. Mexican corporations can carry

on any type of business including renting properties, operating B&Bs or dive shops and buying and selling properties. There must be at least two shareholders and they have to obtain an FM3 visa from Mexico, which generally costs between US$150 to US$300 per person maximum.

For Canadians who do acquire property in Mexico, it is recommended that you obtain an FM3 visa which allows you to live in Mexico full time or part time without obtaining tourist cards. In addition to being required to use a corporation, it allows you to ship your household goods via overland or sea carrier to any Mexican destination legally without being taxed and to import your automobile with fewer problems. This FM3 visa does not imply residency for income tax purposes, which is still determined by the Canada Mexico Tax Treaty.

Requirements for ownership of property

Source: Michael Bondy

Key facts and figures

1. Cost of construction: $65 to $120 per square foot2. Ocean front lot: $50,000 to $300,000 and up3. Property taxes: generally .25 of 1% of value, and

insurance for costs is reasonable4. Mortgages: generally not available except for

newer developments

5. Corporate tax rate: 34%6. Personal tax rate: highest 28%7. No estate taxes but taxes on income and capital gains8. Rental rates: $500 to $1,500 per week9. Exchange rate, 9 to 11 pesos per Canadian dollar10. Gasoline: $.50 cheaper than US

Source: Michael Bondy

Panama

Palapas at a Caribbean Beach in Mexico



Case study: Life’s a beachMany areas are under development and are very reasonable in price if you’re willing to live a more moderate lifestyle. For example, in areas of Baja on the Pacific side, you can obtain an oceanfront lot for $10,000 to $20,000, or a rudimentary house in a village for $15,000 to $35,000.

We were fortunate, and our beach front house, with land and building, was in the range of $45,000. Property taxes are $100 per year, utilities about $400 and insurance costs are nominal.

For property security, my sister is a resident of the town and looks after all of our properties as well as a number of other American- and Canadian-owned units. Because we are in a smaller village, security is not the same issue as in some other bigger centres. Many people ask friends or property managers nearby to look in on their units while they’re back home in Canada.

We can rent out the property for $500 per week when we’re not there, which more than covers costs.

The somewhat ‘rustico’ look and feel may not be for everyone, but the unit does have high speed internet, electricity and water. The ocean is right outside our front door, the beach is 35 miles long, and the fishing and diving are spectacular.

Source: Michael Bondy, tax partner and chartered accountant at Collins Barrow, London, Ont., and Mexican beachfront property owner

Top 5 things Canadians should be aware of when buying Mexican

1. Understand that different types of property regimes exist in Mexico – for example, regular versus ejido (reserve land), which affects the titling status.

2. Foreigners as individuals are not allowed to purchase land within 50 kilometres of the coastline, and must do so through a Mexican trust called a Fideicomiso.

3. Notaries transact all the real estate closings and transfer of land in the country and are government-appointed lawyers who specialize in this field.

4. Realtors are not required to have licences (though formalization of accreditation is now in process), so choose a reputable realtor who is registered with the national association of realtors (AMPI) and check their references. Many developers contract licensed realtors in target markets such as Canada.

5. Infrastructure varies greatly from area to area, so investigate the state of development of the area in which you are interested (water, drainage, transportation, services).

Source: Victoria Pratt, Pacific Boutique Properties

a multimillion-dollar oceanside complex comprising three condos at Playa del Carmen.

“There are very affordable opportunities in Mexico, even with a weaker Canadian dollar,” says Luis Brasdefer, an expert in Mexican corporate and real estate law, and founder of Mexico Consulting, Vancouver, a group set up to provide business, law and real estate services to Canadians investing in Mexico.

Indeed, several sources say properties of all types can be purchased in various regions of the country for far less what it would cost to buy comparable real estate in Canada or the US. Oceanfront land can be bought for roughly one-third

Beachfront $45,000





Buying off the plan takes on something of a new meaning when the property you’re considering buying is two countries away.

But that’s the reception Canadians have quickly shown a major new development at Playa del Carmen in the Mayan Riviera of Mexico. Origo Developers is building three separate condominiums in this stretch of more than one hundred kilometres of white sandy beaches in the northeast part of the Yucatan Peninsula.

Canadian buyers, a primary target market for Origo, quickly snapped up all the lower priced units in the project when the developer visited Toronto recently on a sales and marketing mission.

“That’s pretty exceptional, considering all the ‘doom and gloom’ in the headlines, and the fact that these clients weren’t on the beach in Mexico looking at the property,” says Kristyn Wong-Tam, broker with Coldwell Banker Terrequity Realty Brokerage, Toronto. “They were buying off the plans, though most have been to Cancun,” the resort area about 50 minutes from Playa del Carmen.

Origo contracted Coldwell Banker to represent the project in Canada.

“It’s very important for us to have a relationship with a realtor from Canada for our Canadian customers’ investment outside their country,” says Origo’s Rodolfo Correa Arroniz.

The developer has three buildings, each with slightly different marketing and pricing strategies.

Canadians responded, buying out the entry-level units at Marina Mia, the building with the lowest price point but the one first being delivered to market, in October 2009. And checking out the prices of the 56 units, it’s no wonder why. For $199,000, you could buy a 1,281-square-foot, two-bedroom ground floor condo with a 280-square-foot terrace. Most of the units in the Marina are priced at $228,850 for roughly 1,294 square feet, and top out at $401,350 for a two-bedroom penthouse.

The company’s other buildings in Playa del Carmen are the mid-range Vaiven, which accounts for the most units, 249, and ranges from $316,250 for a 1,840-square-foot two-bedroom unit to 2,500-square-foot, three-bedroom penthouse for $389,850. The highest-end part of the project, the Element, boasts 92 suites ranging in price from $637,000 to $976,350, and in size from 1,314 to more than 2,200 square feet.

Origo and Coldwell also partnered with Scotiabank Canada, which has offices in the area, as a preferred lender to assemble a Canadian buying program.

“You can actually do the mortgage application in Canada and transfer the paperwork to Mexico,” says Wong-Tam. “You can actually get pre-approved here using your Canadian credit scores, deal with the banks here and, when you’re ready to take possession, they transfer you down there, and that’s where you’ll do your final paperwork.”

TD Canada Trust has also put together a program for using Home Equity Lines of Credit.

Buyers can achieve returns by holding on to the property, if they’re buying it for personal use, or by circulating it into the short-term rental market. Origo offers its own property management services, or unit owners can contract Bric International through an arrangement with the developer. Management fees are about $200 per month, plus 35% of the rental income, payable only if the unit is rented out.

Rental clientele is expected to be a mix of wealthy Mexican locals, European vacationers and, of course, Canadians and Americans.

Buying off the plan, in good faithMexican developer targets Canadian buyers, and it could pay off for both

to one-quarter of the price of similar parcels in North America.

Recognizing the interest in and importance of its real estate and tourism to Canadians, Americans and international visitors, the Mexican government is spending significantly on infrastructure in many areas of the country, and stepping up efforts to curb violence and combat continuing misinformation about past incidents.

The Mexican tourism board, Fonatur, recently unveiled a mega development in the Teacapan region, about 2.5 hours south of Mazatlan, promising to turn it into another Cancun-like resort destination. There are miles of white sand beaches, and the plan is to construct communities with

(L-R) Rafael Correa, Rodolfo Correa Arroniz and Jose Lobaton

Photo: Wayne Karl





condos and other types of housing, plus golf courses and a marina.

There are, however, significant differences in owning property in Mexico than many other countries. It is not a common law country as are the US, England and many of the islands of the Caribbean which were once under English rule, but is a civil law country, as is all of continental Europe. The differences are subtle, but result in some fairly strange rules in Mexico, particularly relating to ownership of property.

Foreigners are not allowed to own property directly within 50 kilometres of the coastline, or 100 kilometres from an international border and all of the Baja California Peninsula.

This is easily circumvented by buying through a Fideicomiso, a Mexican trust (see p43).

The purchase process can be rather daunting due to the differences in civil code and common law, and the fact that real estate agents are not licensed or regulated in Mexico as in other

countries, says Bondy. Legally, the sale is considered binding when the parties agree on the purchase price and terms of sale.

This may be before the purchase price is paid and title transferred.

Transactions should always be ratified before a notary public – that is, an attorney and an agent of the government.

Title insurance is available for about $5.50 per $1,000 of purchase price, he says.

Trumping a deal in PanamaNo one ever accused the Trump Organization of doing something half-heartedly, and that’s certainly not the case with one of the company’s latest international ventures.

The real estate world is used to seeing the Trump name attached to massive luxury projects in major cities in the US and elsewhere in the world, including Toronto, But it’s something of a statement that the company is building a US$400-million project in Panama, the tiny South American country about a two-hour flight from Mexico, and neighbouring Columbia and Costa Rica.

With the Trump Ocean Club International Hotel and Tower in Punta Pacifica, Panama – said to be the largest real estate investment in Latin America – the company says it is ‘walking the walk’.

Panama, not long ago considered a country of political and social unease, if not instability, is fully on stable ground now, and Trump wants in.

“They’re really doing everything right as a country, and it’s really the reason they’re having the boom they have,” Eric Trump, the 24-year-old executive vice-president of development of acquisitions for the Trump Organization, told Canadian Real Estate magazine.

The country is spending heavily on infrastructure, expansion of the canal to accommodate major international supertankers, its medical system and, maybe with Trump’s help, strengthened ties with the US.

“They’re really hitting all the elements people want – retirees and Baby Boomers,” says Trump.

Not due for completion until 2010, the Ocean Club is already 80% sold, Trump says. Prices range from US$400,000 into the multimillions.

Trump couldn’t estimate the number of Canadian buyers in the project thus far.

“We have Canadian buyers in most, if not all, of our buildings. In fact, my neighbours in my building [in New York] spend most of their time in Toronto, and we have a project there.”

Eric Trump

Trump Ocean Club, Panama

Photos: Trump International



Canadians! - Baker Tilly...Origo and Coldwell also partnered with Scotiabank Canada, which has offices in the area, as a preferred lender to assemble a Canadian buying program. “You

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