When considering an investment in real estate in Mexico, research into the overall economic conditions of the country can be helpful in guiding your decision. A very informative site on economic conditions is the Index of Economic Freedom that is created by the Heritage foundation and the Walstreet Journal. They rank each country on economic freedom based on several factors to include: property rights, corruption, taxation, inflation – issues very important to real estate investors. The latest report for 2008 ranks Mexico 44th out of 163 countries.

Property Rights
On property rights, the 2008 report states that “The threat of expropriation is low. Contracts are generally upheld, but the courts are slow to resolve disputes and are allegedly subject to corruption…foreign real estate investors have found it difficult to secure enforcement of their property interests in state-level courts”. This is somewhat alarming but good to be aware of. Having title insurance from a reputable company can be a great safety net against possible corruption. Mexico received a 50 out of 100 for property rights.

Corruption
Corruption is perceived to be one of the greatest issues that reduces economic freedom in Mexico. Mexico is ranked 70th out of 163 countries studied for transparency and received a failing grade of 33/100 for Freedom from Corruption.

Taxation
Mexico has moderate tax rates relative to other countries. Mexico received a better grade than the US on Fiscal Freedom, 83.4 to 68.3. This can help you in terms of property taxes and sales taxes (VAT), but if you are a US citizen you are still required to pay income taxes to the US based on US rates.

Inflation
Inflation has been kept in check, averaging 3.8 percent between 2004-2006. The government allows the prices of most goods to be set by the free market, with the exception of medicines and energy. Prices are artificially high in the sectors of energy, telecommunications, and transportation due to monopolies that the government has not yet challenged. Currency value is stable and should stay that way thanks to rapid liberalization of the banking sector. 29 out of 30 commercial banks in 2006, were foreign owned. Mexico received a 77.7 out of 100 score for Monetary Freedom.

Overall Mexico received a 66.4% grade for economic freedom. They ranked 9th out of 29 countries in North and South America, and are ahead of Costa Rica, Panama, and Nicaragua. According to the report, Mexico’s most glaring weakness, corruption, has improved recently with a 2002 transparency law that provided public access to government information. I somewhat disagree with the 50% rating on the property rights because there have been few incidents of foreigners losing their property and the establishment of a bank trust or fideicomiso, that grants foreigners the same property rights as citizens. If Mexico can continue to reduce government corruption then the outlook on Mexico Investment appears very rosy.