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Mexico Should Allow Foreigners Unrestricted Ownership of Beachfront Property

By Barnard R. Thompson | Mexidata
Monday, August 1, 2011

In late June a leading Mexican entrepreneur in the visitor industry came to San Diego, among other California cities, as part of an effort to let people know that — for the most part — Baja California and Baja California Sur, the geopolitical divisions of the northwestern Mexico peninsula, are safe for tourists to visit and enjoy. This compared to certain other areas (especially along the mainland border with the United States) where crime and violence associated with drug trafficking and other organized criminal activities seem to thrive, and as a result many media outlets at home and abroad continuously foment fears that taint Mexico as a whole.

Apart from security and safety issues, during a June 28 forum, Ernesto Coppel Kelly was asked by this observer about a Senate bill submitted some four years ago that could have brought about necessary legal reforms to allow foreign citizens direct ownership and title to property in Mexico's so-called "Restricted Zone." Full-fledged ownership and not just a fideicomiso trust deed as is constitutionally now the case, even though the fideicomisos are trustworthy and work well.

A legislative initiative submitted by Baja California Sur Senator Luis Alberto Coppola Joffroy in July of 2007, which after (occasional) debate — and failures of committees to act — was ultimately rejected by the Mexican Senate last April.

Parenthetically, such a change could be huge for Mexico's tourism industry and economy, considering the number of non-Mexicans who would like to live, retire or have a second home on a sunny beach with actual ownership and title to the property. And this is to say nothing about positive publicity, or added income from fees and taxes, increased foreign exchange, investment opportunities, development and growth, and the creation of jobs for Mexican workers, among other things.

The Mexican Constitution of 1917

The founder and chairman of Mexico's six Pueblo Bonito Oceanfront Resorts and Spas, four in the Cabo San Lucas area and two in Mazatlán, Sinaloa, Coppel was asked if the long sought after constitutional and legislative changes regarding border area and coastal property ownership are dead? Or might a bill be resubmitted (recognizing that the current congress has reached lame duck stage and that the issue would be made even more political in Mexico's 2012 presidential election year)?

Acknowledging that the latest effort to legalize restricted area land ownership by foreigners was quashed in the Senate, Coppel criticized not only the Senate but too he finds fault with Mexico's failure to amend the antiquated statutes. While these articles and laws may have been politically important in the distant past, Coppel said, when security and sovereignty were major national concerns, in today's world and in a modern Mexico such protectionist-like restraints and conditions are not needed.

And he predicted that one day in the not-too-distant future constitutional reforms and legal changes will be made to allow non-Mexicans the privilege of true land proprietorship in the restricted zones. This, I might reiterate — and assuming it may occur, even though debate regarding the issue is certain to become heated, given the emotions and inveterate rhetoric about sovereignty, nationalism and the "colossus to the north" that will typically resurface.

The Mexican Constitution, in Article 27 (an Article that in one way or another has been amended some 16 times since 1917), deals with national ownership and territorial jurisdiction of lands and waters, and it grants the state "the right to transmit ownership thereof to private persons, thereby constituting private property." However, the first paragraph of Part I of Article 27 continues:

"Only Mexicans by birth or naturalization, and Mexican companies, have the right to acquire ownership of lands, waters, and their appurtenances, or to obtain concessions for the exploitation of mines or waters. The State may grant the same right to foreigners, provided they agree before the Secretariat of [Foreign] Relations to be considered as nationals with respect to said property and not to invoke the protection of their governments, for that very reason, in matters relating thereto; under penalty, in case of noncompliance with the agreement, of losing the property they acquired by virtue of the same to the Nation. Under no circumstances may foreigners acquire direct ownership of lands or waters within a zone of 100 kilometers along the borders and 50 [kilometers] along the coastline.

Foreign Investment

Furthermore, Mexico's Foreign Investment Law, Article 2, Part VI, specifically calls attention to the constitutionally mandated "Restricted Zone," reiterating the aforementioned territorial prohibitions of 62 miles from the borders and 31 miles along the seashores.

It should be noted that many foreign residents already "own" restricted zone properties in Mexico, through fideicomisos. However, a fideicomiso — in this case a type of real estate trust, with a Mexican bank designated as trustee and holding possession of the land title — is not direct ownership. With a fideicomiso, the foreign buyer acquires tenure rights to the property through the (up to 50-year) trust, which is renewable and transferable.

With global economic crises, the economic downturn in the United States, and fear of real or imagined crime and violence in Mexico, the number of restricted zone fideicomiso buyers was down as of 2009. According to the Foreign Relations ministry, in 2000, the final year of the Ernesto Zedillo administration, Mexico granted 1,970 fideicomisos, a figure that rose to 6,611 in 2006, the last year of the Vicente Fox presidency.

In 2007, the first full year in office for President Felipe Calderón, the total reached 7,000 trusts, whereas the number had dropped to 3,402 at the end of 2009, the last year reported.

In a piece on the need for investment in Mexico, and what was called to all intents and purposes immoderate flag-waving by some, the Center of Private Sector Economic Studies (CEESP) said in an April weekly report that poorly understood nationalism hinders the investment of private capital in national development and impedes economic growth.

Certainly all nations have border concerns and sovereign needs to safeguard their coasts and territorial limits; however is it (still) realistic for Mexico to fear a foreign invasion from the north? Could anyone today believe that hostilities might be instigated by non-citizens who have met the requisite qualifications to reside in Mexico — full or part-time residents living under the rule of Mexican law?

As well, in today's world considerations with respect to coastal properties should include economic assessments and not simply the behind-the-times discrimination of Article 27. The latter being prohibitions that inhibit foreign investment and cost the nation money — outmoded concerns that should be addressed through up-to-date regulations.

Benito Juárez and Land Sovereignty

Among those likely to oppose the possibility of foreigners owning property in restricted zones, especially supposed ultranationalists who gain their way into Congress or have bully pulpits thanks to partisan politics, there are surely many who can be expected to invoke the name and ideals of Mexico's beloved Benito Juárez. In this case, for use as an example, let's say those who are against amending Article 27 of the Constitution might point to Juárez and his defense of national sovereignty, as well as his opposition to the French invasion and occupation of the 1860's, as reason and need to resist foreign ownership.

On the other hand, the reformer Juárez might be a prime example of why foreign owners should be authorized, based on bygone and present day economic and development needs. This insofar as President Juárez was forced to declare a two-year moratorium on foreign debt payments in 1861, as the nation was nearly bankrupt and the economy was in shambles, due in large part to the war Juárez waged against the Conservatives. A declaration that too, partially, led to the 1862-1867 French intervention and, in turn, caused Juárez to flee to differing locations in northern Mexico where he setup his government-in-exile during those years.

In other words, it was a time when Juárez and Mexico needed money.

A need that Juárez — as blasphemous as it may sound – tried to meet by selling a sizeable chunk of his nation's northwest to non-Mexicans. A sales effort that would have allowed foreigners to own land that years later would be in the Constitution as within the restricted zones.

After cancellation of an 1859 agreement that became known as the McLane-Ocampo Treaty, which was signed by the United States and Mexico and that led to the failed Leese Concession for Baja California, the latter grant was transferred in 1866 to form the "Lower California Company." A Juárez-supported concession for, essentially, an autonomous U.S. "colony" in Baja California.

An agreement that would have sold most of the Baja California peninsula to "North Americans" for US$100,000.00. A huge area of more than 46,300 square miles that stretched from 31˚ North Latitude, which on the Pacific is south of Ensenada and just north of Punta Colonet (aka Colnett), to 24˚20' North Latitude at the southern end of Magdalena Bay in Baja California Sur. And the boundaries reached all the way across the peninsula, the southern limit just north of La Paz, and back up the Sea of Cortez north to Lat. 31˚ at San Felipe, Baja California.

However, the U.S. parties to the accord were unable to meet its requirements and the Lower California Company died on the vine. Furthermore, the U.S. Senate never ratified the treaty.


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