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.
|
