More Rental Inventory?
A weaker peso will attract more visitors this winter. They are enjoying our temperate weather and lower prices for food and lodging. The increased ¨snow bird¨ population is putting pressure on restaurants and hotels to hire more staff.
With more than 500 new condos being sold and completed, the question of continued demand is still on the table. So far, the pre-construction sales reported are encouraging. If the peso continues to be 20 to the US dollar, we can experience more rental demand.
US Dollars and 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 at the moment.
Two basics to think about when buying in US dollars is to understand the tax structure in Mexico for capital gains, and when you are buying, to not overpay.
In the majority of foreign countries worldwide, property purchases and sale prices are recorded in the currency of the country where the property is located.
If a purchase price of $100,000 USD is recorded at 10 pesos and the peso continues to be weaker, when you sell, you can face a gain because the value of your property is now 20 pesos per $1 USD. The ISR or capital gains tax will be computed with these numbers even though the sales price is in US dollars.
If you buy in USD dollars when they are strong and equal to the 20 pesos per $1 USD, you may not have a gain if you sell when the peso is less than 20 to the dollar.
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 of 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 accountant back home.
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 by the US.
A weaker peso compared to the US dollar makes the export products of US companies more expensive. US dollar prices into pesos will require more pesos for the consumer to pay for the product. In short, a stronger dollar is not necessarily great news for American firms with international export exposure. The net result may be fewer sales of American goods or lowering of prices. It should be understood that export works better for the country with a weaker currency rather than the stronger.
Making the Exchange
Mexican Banks providing a currency exchange have become more difficult. Some banks require you to have an account to change money, especially when the US dollar is strong, and the Mexican bank cannot predict the amount of pesos required for an exchange.
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