Oaxaca is one of the most popular destinations in Mexico for foreigners looking to purchase real estate. Located in southern Mexico, Oaxaca is known for its rich cultural heritage, stunning landscapes, and laid-back vibe.
For many years, Mexico has allowed foreigners to purchase property through a bank trust known as a fideicomiso. This system was established to get around laws restricting foreign land ownership near borders and coasts. While a bit more complicated than direct ownership, using a fideicomiso provides foreigners with full rights to use and sell property.
So can foreigners truly buy property in Oaxaca? The short answer is yes, absolutely. However, there are some important considerations buyers should keep in mind.
Benefits of Buying Property as a Foreigner in Oaxaca
There are many great reasons to purchase real estate in Oaxaca as a foreigner:
Low Cost of Living and Real Estate Prices
The cost of living and real estate in Oaxaca are quite affordable compared to the United States, Canada, and Europe. Even in popular expat spots like San Miguel de Allende, property is generally less expensive in Oaxaca. This allows foreign buyers to purchase high-quality homes for a fraction of what they would pay back home.
Oaxaca enjoys a predominantly warm, subtropical climate with average temperatures around 80°F. Cooler temps found in the mountains provide a welcome escape from the heat. With a lack of extreme weather, Oaxaca has comfortable conditions year-round.
Laid-Back, Authentic Mexican Culture
Oaxaca offers an authentic slice of Mexican life not overrun by mass tourism. The slower pace provides a peaceful lifestyle rich in Mexican traditions, indigenous cultures, stunning architecture, arts, and delicious, native cuisines.
Lower Cost of Living
In addition to lower real estate costs, Oaxaca features an overall lower cost of living compared to the U.S. and Canada. Everything from dining out and entertainment to utilities, healthcare, and other services come at budget-friendly local prices.
While not located directly on the coast, Oaxaca sits a short drive from world-class beach destinations like Huatulco, Puerto Escondido, and Zipolite. Owning property enables easy access to enjoy Mexico’s stunning Pacific Ocean beaches.
Popular Places for Foreigners to Buy Property in Oaxaca
Some of the most popular areas for foreigners to purchase real estate in Oaxaca include:
The vibrant capital of Oaxaca state, Oaxaca City offers charming cobblestone streets, bright colonial architecture, lively markets, museums, galleries, and restaurants. Homes range from modern apartments to stunning historic mansions.
San Agustin Etla
Found in Oaxaca’s lovely central valleys, San Agustin Etla provides a peaceful country setting with scenic mountain views. Large plots allow for luxurious villas with pools, gardens, and outdoor living space.
A world-famous surf destination, Puerto Escondido features beautiful beaches, a laid-back vibe, and great homes, condos, and lots near the ocean. The area has a sizeable expat community.
San Miguel de Allende
Located in neighboring Guanajuato state, the colonial town of San Miguel de Allende is a popular expat magnet. Quaint cobblestone streets, old churches, boutiques, and cafes make it a charming place to own property.
Teotitlán del Valle
Nestled in the Valley of Oaxaca, this traditional Zapotec weaving village provides a peaceful small-town lifestyle surrounded by stunning landscapes. Local real estate is very affordable.
Buying Process for Foreigners Purchasing Property in Mexico
While buying real estate in Oaxaca as a foreigner is possible, the process differs from purchasing property in your home country. Here are some key steps in the process:
Select the Property
The first step is selecting the right real estate, whether a condo, house, land etc. Only work with experienced brokers familiar with Oaxaca’s market and the buying process for foreigners.
Negotiate Purchase Price
After identifying the property you wish to buy, negotiations with the seller take place to agree on a price. This is generally lower than the initial asking price. Hiring a real estate attorney can help get the best deal.
Sign Promissory Contract
Before completing the full purchase, a promissory contract is signed outlining the agreed purchase price, responsibilities of both parties, and penalties if either party backs out.
Foreigners must show proof of funds and obtain a mortgage loan from a Mexican bank if not paying all cash. Down payments tend to be around 30-40%.
Set up Fideicomiso Trust
Since foreigners can’t directly own property near Mexican borders and coasts, a bank trust called a fideicomiso must be created to hold title and provide beneficial rights to the buyer.
Transfer Funds and Finalize Closing
The buyer must wire funds to complete the purchase. A notary public oversees signing of all closing documents to finalize the transaction.
Execute Deed Transfer
The notary records the property deed reflecting transfer to the bank as trustee and beneficial ownership to the foreign buyer. The deed gets registered with public records.
Pros and Cons of Buying Through Fideicomiso
Purchasing real estate by setting up a fideicomiso trust for foreigners has both advantages and disadvantages:
- Allows foreign ownership rights near beaches and borders
- Renewable 50-year trusts provide long-term use
- Bank handles title and transfers, avoiding probate issues
- Provides inheritance options for heirs
- Tax payments and property management handled by bank
- Higher fees than domestic purchases around 2-5%
- Cannot own property directly as individual
- More complicated buying process
- If trust is not renewed, bank assumes full ownership after 50 years
Costs for Foreigners Buying Real Estate in Oaxaca
When budgeting to purchase property in Oaxaca, foreigners should factor in these typical costs:
This makes up the largest expense, whether you pay cash or obtain bank financing. Prices vary greatly based on size, type, amenities, and location of the property.
Paid at closing, this covers notary charges, taxes, appraisal, and other transaction costs. Usually around 4-6% of purchase price.
Banks charge an initial set-up fee of 1-2% of property value. Ongoing annual fees for administration average 1% of property value.
Annual municipal property tax called predial is around 0.2% – 2% of assessed value. Paid in quarterly installments.
Mexico requires all homeowners carry residential insurance. Premiums vary based on property value, location, and coverage limits.
Maintenance and Utilities
You will incur ongoing expenses for water, electricity, gas, garbage pickup, gardening, pool service, security, repairs etc.
A buyer’s real estate agent charges commission fees around 2-4% of the purchase price upon closing, unless you directly purchase from an owner.
Requirements for Foreigners to Buy Real Estate in Mexico
To purchase property and obtain a fideicomiso trust, foreigners must meet several key requirements:
- Valid passport with FMM tourist permit good for 180 days
- No outstanding debts with the Mexican tax authority SAT
- FM2 or FM3 temporary or permanent resident visa (recommended but not required)
- Proof of address in country of legal residence
- Documentation of legal source of funds for purchase
- Application forms and fees for bank trust
Some banks may require a higher minimum purchase price for granting a fideicomiso to foreigners, such as $150,000 USD or more.
Financing Options for Foreigners Buying in Oaxaca
Foreigners have several options to obtain financing for an Oaxaca property purchase:
Paying all cash is the simplest route requiring no bank loan. But it limits options for buyers without large savings.
Mexican Bank Mortgage
Local banks like Banorte, Banamex, and HSBC offer mortgages to foreigners for 50% or more of the purchase price with 20-30 year terms.
Loan from Foreign Bank
Some overseas banks provide mortgages to expat clients buying abroad. This avoids currency exchange fluctuations of peso loans.
Some owners directly provide financing to buyers with interest-only payments over 1-5 years until the balance is paid off.
The seller may accept a portion of the purchase price as a down payment with the remainder paid in installments over 6-12 months until paid in full.
Taxes on Oaxaca Real Estate for Foreigners
Like Mexican nationals, foreign buyers are subject to the following taxes that must be budgeted for:
Expats must file annual Mexican income tax returns on worldwide earnings if residing over 183 days each year. Tax rates are 11.5-35%.
Capital Gains Tax
A 25%-30% capital gains tax applies to the profit when selling a property. As a foreign homeowner, this tax is paid upon sale then you can obtain a refund when you leave Mexico.
Value Added Tax (VAT)
A 16% VAT applies to construction costs for new homes or improvements exceeding ~$122,000 pesos.
An annual municipal predial property tax must be paid, typically ranging from 0.2%-2% of the assessed value. Paid quarterly.
Expats with worldwide assets above 2 million pesos pay an annual wealth tax called IEPS of 0.5%-1.25% of the asset value. Some exemptions apply.
Obtaining Visas as a Foreign Property Owner
While not required, getting a temporary or permanent resident visa as a property owner has benefits:
FM2 Temporary Resident Visa
Having an FM2 visa avoids having to exit Mexico every 180 days to renew tourist permits. Requires proof of monthly income of ~$2700+ USD. Valid 1-4 years.
FM3 Permanent Resident Visa
An FM3 visa allows you to reside in Mexico indefinitely with multiple entries/exits. Needs monthly income of ~$1950+ and proof of address.
Permanent Residency through Real Estate
Spending over $249,000 USD on property may qualify you to apply for permanent residency without other visa requirements.
Visa options provide more convenient long-term stays and access to financial services as a recognized resident.
Key Tips for Foreigners Buying Real Estate in Oaxaca
To make your property purchase in Oaxaca go smoothly, keep these tips in mind:
- Hire a real estate agent familiar with the buying process for foreigners.
- Consult a notary public and real estate attorney to protect your interests.
- Get pre-approved for financing if needing a mortgage.
- Negotiate all costs like commissions and closing fees.
- Obtain a title report to confirm ownership and no liens.
- Have a home inspection done even if not common in Mexico.
- Understand all documents before signing.
- Get insurance immediately after purchase.
- Make payments for fees, taxes, and costs via certified check or wire transfer.
- Formally assume responsibility for utilities right after closing.
Following these tips will help you avoid problems and have a stress-free home buying experience.
While buying real estate in Mexico involves more time, costs, and paperwork than purchasing property domestically, foreigners absolutely can buy property in popular destinations like Oaxaca through a bank trust.
Taking the time to understand the buying process, requirements, costs, and financing makes the buying experience straightforward. Consulting experienced real estate professionals and attorneys also provides assurance you complete the purchase properly.
Owning a beautiful home or condo in Oaxaca provides an incredible lifestyle in one of Mexico’s most fascinating and scenic states. Despite some challenges, many foreigners happily buy property in Oaxaca to enjoy the culture, climate, landscapes and comfortable way of life.
Doing thorough research beforehand and following the buying steps carefully results in a rewarding, enjoyable purchase. For help making your Oaxaca property dreams a reality, consult the right real estate agent, lawyer and mortgage specialists today.