Valuation of Property in Mexico

Val­u­a­tion of Prop­erty in Mexico

Valu­ing a Prop­erty for Tax: If you own a house in the USA, Canada or Europe, you are required to pay tax to the gov­ern­ment, usu­ally based on a rate-able value of the property.

In Mex­ico, the Rate-able value is known at the Cat­a­stro, and is set by an offi­cer of county; no onsite inspec­tion is required. The Cat­a­stro value will vary depend­ing on the area in which you intend to buy, and can be a frac­tion of the com­mer­cial value of the property.

This Cat­a­stro is used by the Notary Pub­lic to assess the value of the annual equiv­a­lent of the “Coun­cil Tax”, known in Mex­ico as the Pre­dial. The Pre­dial is payable annu­ally, on Jan­u­ary 1st or soon after. You don’t get a bill; you just know you have to pay it in Jan­u­ary, and you show up to do so each year. You will find the Pre­dial is very low (and could bor­der on insignif­i­cant) when com­pared to say, prop­erty taxes (even at the low­est rates) in Europe or the annual rental value of the prop­erty. This is one of the rea­sons why cost of prop­erty own­er­ship is low in Mexico.

Although the Cat­a­stro is an essen­tial num­ber for work­ing out tax lia­bil­i­ties, in prac­tice it serves of no use in assess­ing the com­mer­cial value of a property.

Com­mer­cial Val­u­a­tion: House prices tend to be regional, and if you live in the UK espe­cially, you are prob­a­bly used to val­u­a­tions of a prop­erty based on the num­ber of bed­rooms and whether the prop­erty is ter­raced, semi or detached, etc — not the square footage being bought.

In Mex­ico, val­ues are not deter­mined or mea­sured on num­ber of bed­rooms; as a mea­sure of value peo­ple instead look at a price per square metre of land and then per square metre of con­struc­tion on that land as they do in the USA, Canada and Con­ti­nen­tal Europe. For exam­ple, you could have a 300 square metre plot with 500 square metres of con­struc­tion. The gar­den is likely to be small, or even, just a patio, in this sce­nario. “Con­struc­tion” is based on outer mea­sure­ments, wall-to-wall and includes garage, cov­ered patios and out-houses or other build­ings, not just the main liv­ing areas.

Some Com­mon Val­u­a­tion Models:Here are some of the more com­mon ways in which prop­er­ties can be valued:

Invest­ment Value: This is deduced by deter­min­ing how much the prop­erty would fetch monthly from a rental (based on sim­i­lar rentals in the neigh­bour­hood / area) and mul­ti­ply­ing by a fac­tor. This fac­tor is usu­ally cal­cu­lated by tak­ing into account the cost of main­te­nance and applic­a­ble prop­erty taxes. If you wanted to see a return in 6 years (which is about aver­age) then your for­mula would be: (Monthly Rental x 12 + Annual Main­te­nance (Includ­ing Ser­vice Fees) & Taxes) mul­ti­plied by Years (6).

Sim­i­lar Recent Sales: If you are buy­ing in a neigh­bour­hood where houses / land plots are sim­i­lar, then you may be able to get an indica­tive com­mer­cial value from prices paid for sim­i­lar size and type prop­er­ties in the area dur­ing the last 12 months. An estate agent would be able to guide you in this respect.

Replace­ment Value: Another way of deter­min­ing the com­mer­cial value of a prop­erty is to take the com­mer­cial value of the plot (land), and add to it the cost of con­struc­tion, should you build it today (this is usu­ally expressed in cost per square metre of con­struc­tion) and depre­ci­ate this value accord­ing to the age of the house. You would then add on the value of any spe­cial fea­tures.
Fea­tures that can Add Value: Val­ues of prop­erty can esca­late when the fol­low­ing fea­tures exist on or near the prop­erty (remem­ber that fea­tures attached to the prop­erty are sub­ject to depre­ci­a­tion fac­tor, men­tioned above):

Prop­erty is well served by local infra­struc­ture (e.g. good roads, airport)

The prop­erty is near a body of water; river, lake ocean (but watch out for ris­ing water levels!)

The prop­erty has good panoramic views of the area

Prop­erty is in good con­di­tion and requires lit­tle or no imme­di­ate maintenance

Prop­erty has a swim­ming pool / whirlpool

Good land­scap­ing, dri­ve­ways, garage, water pres­sure sys­tem, par­a­bolic satel­lite system

Any fur­ni­ture: Homes in Mex­ico are often sold fully fur­nished, but not always; check.

Local secu­rity — for exam­ple in gated areas — where all res­i­dents in the com­mu­nity pay a small annual fee to a secu­rity man­age­ment com­pany for 24x7 vigilance

Any fea­tures which make the prop­erty unique and added to the cost of con­struc­tion and / or take up addi­tional land; e.g. a large orna­men­tal fountain.

Nego­ti­at­ing / Bar­ter­ing: Try to find out (from the Agent if you are using one) what the his­tory of the prop­erty is: who owns it, for how long and why are they sell­ing? Are they in a hurry? Do they need cash fast? How far would they be will­ing to nego­ti­ate or barter — espe­cially if you can close quickly. How much dis­count you can nego­ti­ate will depend on each indi­vid­ual sit­u­a­tion. How­ever, you should not offer the ask­ing price and be pre­pared to walk away (and show that you will) — at the risk of los­ing the house — if you can­not get a deal that you think rep­re­sents value. Even in Mex­ico, some peo­ple are sit­ting on prop­erty they paid too much for: make a cold, accu­rate assess­ment, and if nec­es­sary, politely say “no, gracias”.

Ulti­mately, the value of real estate / prop­erty, like the value of any­thing, is what some­one is will­ing to pay for it. If you fall in love with a par­tic­u­lar plot or house, you may be will­ing to pay extra for it. If you can, keep emo­tion out of the equa­tion, and if you can’t, cer­tainly make sure that you don’t show any emo­tion as it will be imme­di­ately sensed and will erode your nego­ti­at­ing position.