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Mexico takes baby steps to REITs

Provisions in Mexico's new fiscal law could spell the development of the REIT, or something analogous to the popular U.S. vehicle, sources said. While deeply entrenched to the north of Rio Grande, real estate investment trusts have yet to materialize in Mexico. That may soon change, though no one is offering a timetable.

"There are now two incentives with the law that passed in December," said Manuel Tamez, tax associate at Mexico City-based law firm Mijares, Angoitia, Cortes & Fuentes.

One is a tax perk. A vehicle that invests in income-yielding real estate will only be subjected to taxes when it makes its annual declaration or sells an asset. Before, such a vehicle would have paid taxes at the moment of purchase. In a way, the change involves as much a delay of taxes as a potential drop in the total burden. Still, it represents a step forward, Tamez said.

The other provision promoting REITs in Mexico is an authorization for pension funds to allocate 10% of their assets in these kinds of vehicles. While this is undoubtedly essential to their creation, opening the door for institutional investors may not be enough to create a viable industry. As the sector was created in the U.S. to give retail investors exposure to larger-scale real estate development, Mexico may want to tap the little guy as well. That, and other issues, will probably be addressed as the industry comes closer to realization, Tamez said.

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