You may never want to buy real estate in Mexico, but if you want to better understand your neighbor to the south. How Mexicans think and relate to the world, it is helpful to look at their relationship to the land. Legal, cultural and political forces in Mexico’s history have created a distinct psychology and legal framework of land ownership that differs considerably from that of the United States.
Mexicanos, like most Latinos, have a strong tradition of passing on “the family property” to their heirs. Property is not just a commodity, it is a legacy. In the United States we tend to view real estate as simply another commodity. Since the average gringo moves every four years, possession or family tradition is not as important as property resale value. When mom and dad die in the states the heirs most often sell the property. In many instances the heirs live in another city or state.
Mexicanos are very connected to their origins. You hear Mexicanos refer to “mi tierra”, my land, when referring to where they were born. Gringos refer to their birthplace as just that – “where I was born”. An often expressed fantasy of Mexicanos is to someday have a ranchito in the area of their family’s village or city of origin. It always seems to be a ranchito instead of a condo at the beach or a townhouse in the city – the gringo fantasy.
The identification with rural life is very Mexicano and is reflected in their relationship to animals both domestic pets and farm animals. Animals are more central to the Mexican experience; including Mexican folk lore and indigenous cultural traditions.
The population in Mexico is: 10% European, 30% indigenous and 60% mestizo is reflected in the way property is viewed. A people whose traditions are integral to the land.
All of these cultural, historic and sociological factors create a strong bond to the land and what it can produce and sustain.
What gringos perceive as curious and illogical in the Mexicano approach to selling, leasing or developing property is due to cultural, political and legal differences, “Property title” for example. For the Mexicano possesion of the land is what counts, properly recorded title is nice to have but not that important. If you expect to pass property on to your heirs, who will also continue to possess and occupy and develop the land, title papers become less important. In addition, the Mexicanos upbringing and experience has taught him to mistrust the government. It is best to avoid any unnecessary involvement with the government, especially if there are tax advantages to not having property title recorded.
Mexico Origins are socialist not capitalist
To further confuse the foreign real estate buyer, there are Ejido lands that were established in a land reform movement initiated by President Lazaro Cardenas in the 1930’s. He also confiscated foreign owned lands, nationalized the nation’s oil (threw out the foreign owned oil companies), and established the Ejido peasant cooperatives. The Ejidos were given the use of large parcels of land for agricultural purposes and government loans to finance planting and cultivation. Much of Baja California’s Ejido properties are coastal desert, unsuitable for farming but ideal as tourist camps and gringo retirement communities.
The Possessors of land and the Ejidos cannot sell their property to anyone, be they foreigner or Mexicano but can rent or sell the use rights to the property. At this writing, the Ejido privatization program is in process and under certain conditions foreigners can purchase property from Ejidos or enter into joint venture commercialization of the property. The laws controlling Ejido property agreements are subject to conditions that are specific and unique to each cooperative and require expert counsel for interpretation.
Conflicts often result when the foreign client becomes confused and paranoid about the legal right of his “landlord” to assure compliance with a long term lease or contract for usage. Problems can also occur when a landlord dies and the heirs decide to change the relationship; or at lease renewal time when the landlord wants a significant increase in the lease payments. The flames of conflict are often fanned by an unethical, often unlicensed, Mexican attorney who perceives an opportunity to extract fees for title studies, lease contract analysis and promised litigation to secure the foreigner’s “rights”. Unscrupulous Mexican attorneys often extract a hefty retainer and provide no real services for the client.
Mexico’s socialist traditions create property “ownership” concepts that baffle Gringos . For example, there is a phenomenon in México called PARACAIDISTAS, (translation: parachutists). A quick descent upon public or private lands by squatters who literally seem to fall from the sky to create “overnight” cardboard shack communities. Until the mid 1980’s, the best a private land owner could do in Baja California was contain the invasion by fencing and guarding the remaining lands un-invaded by the squatters. Government officials were sympathetic to property owners but would usually avoid the political risk of taking action against the invaders. The PAN party came to power in Baja California in 1988 and began providing more protection of personal property rights than previous PRI party governorships.
The political and historic gringo view of protecting “private property” is based on a capitalist tradition and model; quite different than the more socialist view of land in Mexico. The Mexican tradition: if you are not working or occupying all of your land you obviously have too much land. Therefore, why not share it with your less fortunate countrymen. The idea of land banking or using real estate as a commodity is rare among Mexicanos. It is typically the reserve of corrupt politicians who control regional planning and commit public funds to accelerate property values in which they have a vested interest.
Comercial Use of Property in Mexico
The development of property for commercial purposes in Mexico is often viewed negatively by gringos who apply U.S. construction standards for completion and quality of work. Gringos frequently point out that construction projects in Mexico are left abandoned, often for years. The conclusion made by foreigners is that Mexicans are inferior at construction planning and implementation. The factor that most results in construction delays or incompletion is the volatility and exorbitant costs of financing in Mexico; as a result most financing is done “out of pocket”. When the funds run out, construction stops.
Apart from out of pocket financing, major peso devaluations also stop construction by reducing the buying power of the capital for materials and labor. In the last major devaluation, capital reserves were reduced by 50%. This also sends the stock market into a tailspin, drying up even more desperately needed investment capital for large development companies that are publicly traded. With devaluation, development loan rates soar. Fixed rate loans and cap limits do not exist, therefore, ten to fifteen point loan rate increases are not uncommon after a devaluation, driving developers deeper into debt.
Commercial building in Mexico is quite unlike the “quick return on investment” objective that drives most U.S. construction. The U.S. construction industry enjoys the luxury of a stable currencey and interest rates.
In addition to economic factors, commercial real estate development is also affected by the cultural traditions mentioned earlier. Most Mexicano’s view real estate development through the lens of property ownership being a legacy rather than a commodity. The view is, if I don’t finish it right away so what? I’m not going anywhere. I’ll pay for progress that I can afford when I can afford it and If I die with the project unfinished my heirs can finish it. The cultural value is that the developer’s heirs will probably continue to live in the same town and run the family business.
Quality of construction in Mexico
It differs from the U.S. in that it reflects a simpler view of what is functional and an artesan’s standard of quality. The U.S. tradition is one of precision standards administered by building technicians. In Mexico construction work is not judged by how precise it is but by the overall ambiance it creates and its unique character (the builder as artesan). These differences between the two cultural approaches to construction are exemplified by the titles used to describe builders in each country. In the U.S. builders are called: Engineers, Architects or Contractors. In Mexico the builder, who manages the job site, is most often a non technically trained person called a “Maestro de Obra”. Just as an artist or teacher is referred to as a “Maestro” so is the construction supervisor.
“Obra” is the word used to describe a construction project or a work of art: painting, a play or a musical production. An artist doesn’t worry about the precision of his work. The artist’s concern is: does the finished product please the senses? Very often Mexican artesan builders cannot read building plans. As a result, architectural training in Mexico includes the making of scale models (sp. “mecate”). The Maestro de Obras can understand and follow, with incredible accuracy, the dimensions and details of a scale model. U.S. citizens who do not take the time to understand Mexico’s approach to real estate and the development of same will most likely become unhappy with their Mexican real estate investment.