The nearshoring trend and the attractiveness of Mexican beaches for international tourism have sparked a lot of interest in investing in real estate and the hospitality sector in Mexico. However, navigating Mexico’s tax regime can be complex and costly for both Mexican and foreign investors.
One investment vehicle that presents advantages for investing in real estate in Mexico is real estate investment trusts (FIBRAs). These investment vehicles provide individuals and institutions with a more attractive tax regime, but they need to be publicly traded on a Mexican stock exchange. It is worth noting that there are no Mexican private FIBRAs.
One of the key advantages of investing in FIBRAs is their favorable tax treatment. Unlike foreign residents, distributions from FIBRAs are subject to income tax on a net basis. This means that investors enjoy a more favorable tax rate. Additionally, there is no dividend withholding tax and no ordering restrictions to make tax-free returns of capital. Mexican and foreign pension plans also maintain their income tax exemption when investing in FIBRAs.
Another advantage of FIBRAs is their flexibility. They permit investments in both greenfield and brownfield projects without any restrictions. This allows investors to acquire existing real estate portfolios and trigger a tax basis step-up. It is also possible to raise funds through a public offering of certificates and leverage tax-exempt secondary offerings for further development funds.
Interestingly, there is a growing trend in the market for acquiring established FIBRAs and subsequently delisting them from the Mexican stock exchange. This indicates evolving investment strategies in the Mexican real estate sector.
In conclusion, FIBRAs provide a compelling and tax-efficient avenue for investors seeking opportunities in Mexico’s real estate sector. As the sector continues to adapt and evolve, strategic investors are well-positioned to find opportunities for growth and development. However, it is important for potential investors to navigate the regulatory landscape and consider their specific objectives when exploring FIBRA investments.
[Source: The original article “Real Estate Investments in Mexico” by Ritch Mueller, published on June 9, 2022]