The weaker peso is attracting more visitors this winter. They are enjoying our temperate weather and lower prices for food and lodging. The increased ¨snowbird¨ population is putting pressure on restaurants and hotels to hire more staff. In some cases, these businesses are offering higher wages for the next 3-4 months to entice dental and medical assistants and other young workers away from their jobs.
If we have more condos being built in Zona Romantica, the concern about demand is still on the table. So far, the pre-construction sales reported are encouraging. If the peso continues to be in the 20’s compared to the US dollar, we can experience more rental demand. These condos in many cases, will be an added supply of rental inventory in the Romantic Zone.
Now Versalles is very popular, as well as in the Hotel Zone for new condo construction. These locations are very popular for rentals, as well.
US Dollars vs Mexican Pesos
Wealthy nationals and foreigners like the idea of buying and selling real estate here in US dollars. They see a US dollar price for real estate as a way to park their money in an asset instead of a bank or investment fund. The US dollar is more stable than the peso at the moment. Two basic facts you need to think about when buying in US dollars, is to understand the tax structure in Mexico for capital gains, and to not over pay.
As in the majority of foreign countries, property purchases and sale prices are recorded in the currency of the country where the property resides.
Currency and Capital Gains Tax
For example, in tourist areas of Mexico, if a purchase price of $100,000 USD is recorded at 20 pesos and the pesos continues to be weaker, when the owner sells, he can face a gain because the value of his property is more pesos, not less. If he sells when the peso is 25 to the US dollar, this is a gain. The ISR or capital gains tax will be computed with these numbers even though the purchase price can be sold and paid for in US dollars.
If the peso becomes stronger against the US dollar and the exchange is 15 pesos to the US dollar, the property purchased for 20 pesos a US dollar will have a loss when the property is sold. This will lessen the ISR or Mexican capital gains tax. The sales price again may be paid in US dollars, but it will be recorded in pesos.
Calculating Tax Owed in Mexico
It should be obvious to all of us by now, that rental income and equity in sales transactions are affected by the tax income structure for the country where the property exists. In the US tax code currently, an American citizen can take advantage of receiving a credit of some type for the taxes paid to Mexico. Check with your American accountant.
The Mexican Peso Mirroring US Actions
The Mexican currency has become a gauge of US policies on immigration, trade, and illicit drugs. Nationalism or protectionism policies affect all economies who deal in trade with the US. Mexico and Canada, as the other two countries in North America are certainly impacted.
A weaker peso might not be good for US companies who export their goods to Mexico. Their dollar prices into pesos will require more pesos for the consumer to pay for their product. In short, a stronger dollar is not necessarily great news for American firms with international exposure.
Making the Currency Exchange
Exchanging currency in Mexican banks has become more difficult. Some banks require you to have an account to change money.
Point of Purchase Exchange: Be aware of the exchange when you want to pay for goods and services with US dollars. The exchange rate may be much lower than a bank or commercial exchange.
This article is based upon Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray