The rapid development of real estate in Baja California started around the year 2000. Skyrocketing real estate prices in the United States drove a lot of Americans, especially those shopping for their retirement homes, to look for a cheaper but still convenient alternative south of the US border.
The Baja region seemed to fit the ideal location of a retirement and vacation haven. It’s only a few minutes drive from San Diego, it has beautiful beaches, cheap health care, and affordable real estate properties. The Mexican government also eased its land ownership laws, permitting foreigners to buy lands through various arrangements. Today, Americans account for at least one-fourth of the local population of some border cities in Baja. Some of the real estate hot spots in the region are Loreto, Rosarito, La Paz, Ensenada, and San Felipe.
Though still cheaper compared with properties in Southern California beachfronts, real estate prices in the Mexican region are also on the rise. A 1,500-square-foot house could cost around US$200,000 while a custom-designed oceanfront home could cost more than US$2 million. Gone were the days when one could acquire a beachfront property for only US$30,000.
In the early 1990s, most real estate buyers in Baja were already in their retirement age; rarely were there 30-year-olds making property investments in the region. Nowadays, the Baja Peninsula is no longer limited to foreign retirees. The lower cost of living and low taxes encouraged younger people to buy lands. The average age of buyers in Loreto Bay for instance is 45.
Before acquiring that dream house by the beach though, foreign buyers must first educate themselves about Mexican law. Foreigners can own lands in the interior of Mexico but the lands on the coasts and borders extending to 100 kilometers (about 62 miles) are within the Prohibited Zone. However, they can still hold property through bank trust, land lease, commercial property, and federal zone concession.
The method used by residential property buyers is the bank trust or Fideicomiso. It is an agreement between an authorized Mexican bank (the trustee) and a foreign buyer (the beneficiary) wherein the bank purchases a piece of property on behalf of the beneficiary and is subject to the instructions of the latter pertaining to the use of the land. The actual buyer or beneficiary still retains all the rights to the property. The trust agreement has an initial term of 50 years and is renewable indefinitely.