• Tue. Sep 26th, 2023

    Opportunities in the Mexican Real Estate Sector

    ByJames Forsyth

    Sep 19, 2023
    Opportunities in the Mexican Real Estate Sector

    The Mexican real estate sector is experiencing a surge in interest from both domestic and foreign investors, thanks to the country’s attractiveness for international tourism and the rise of nearshoring. However, navigating the complex and costly tax regime applicable to the real estate sector in Mexico can be challenging for investors. One investment vehicle that presents advantages for investing in real estate in Mexico is real estate investment trusts, known as FIBRAs.

    FIBRAs are publicly traded investment vehicles that provide individuals and institutions with a more attractive tax regime compared to other real estate investment options in Mexico. They offer favourable tax treatment, making them particularly beneficial for qualified investors, including those in the private equity industry. Unlike foreign residents who are subject to tax on gross rental income, distributions from FIBRAs are subject to income tax on a net basis. This means that there is no dividend withholding tax and no ordering restrictions, allowing for tax-free returns of capital.

    Furthermore, FIBRAs offer flexibility in terms of investment opportunities. They can be established to cater to the specific needs of certain sectors, such as hospitality and telecommunications, allowing them to leverage exclusive tax benefits within Mexican regulations. FIBRAs also permit investments in both greenfield and brownfield projects without any restrictions. In other words, investors are not required to own a stabilized real estate portfolio to conduct an initial public offering of a FIBRA. This opens up opportunities for the acquisition of existing real estate portfolios, triggering a tax basis step-up.

    The Mexican real estate market is evolving, and there is a growing interest in acquiring well-established FIBRAs with subsequent delisting from the Mexican stock exchange. This indicates the dynamic and changing investment strategies in the Mexican real estate arena.

    In conclusion, FIBRAs provide a compelling and tax-efficient avenue for investors looking to capitalize on opportunities in Mexico’s real estate sector. As the sector continues to adapt and evolve, strategic investors have the potential to find significant opportunities for growth and development. However, it is crucial for potential investors to carefully navigate the regulatory landscape and consider their specific objectives when exploring FIBRA investments.

    Source: Ritch Mueller’s article “Real Estate Investments in Mexico” (June 9, 2022) – not available online.