Understanding the Cadastral Value of a Property

What Is Cadastral Value?

By the end of 2023, the value of residential property transactions in Mexico is expected to pass the $25.7 billion mark. Understanding what cadastral value is and how it’s calculated plays a huge part in the success of your property transactions.

The cadastral value of a property or assessed value is one of the most important aspects of real estate valuation in Mexico. It serves to establish the taxable base of the property tax. The cadastral value is essential for the Land Registry process for settlement set out by the Ciudad de México Treasury.

In essence, the cadastral value is a tax value that is used to calculate property taxes linked to the purchase and sale of real estate. It serves as a value assigned to real estate to provide local authorities with a definition of the taxable amount of the property. 

The cadastral value is also used to calculate:

• -Mortgage and registration taxes
• -Gift tax
• -Inheritance tax

Whether you are going to buy a house or inherit one in Mexico, you should know what the cadastral value is and be able to calculate it.

How Is Cadastral Value Calculated?

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The cadastral value or tax value ranges from 0.05% to 1.2%, depending on various factors like property type, location, and improvements. It’s usually paid to the state government yearly. Investors in Mexican real estate must understand what components contribute to the formation of the cadastral value. 

There are no distinct formulas to calculate cadastral value. Calculation methods may vary from jurisdiction to jurisdiction. Investors can still consider several factors to determine an approximate cadastral value:

1. Property Type

You should start from the property type. There are three main types of property in Mexico: 

• -Rural property 
• -Urban real estate
• -Restricted border and coastal zones

Mexican authorities take into account various characteristics of a property such as its size, location, type, and age. The cost of amenities of property, their quality, and historical-artistic significance are also important when calculating cadastral value.

The government of Mexico doesn’t levy any restrictions on urban real estate acquisition. Foreign investors can acquire it directly or by participating in the capital stock.

2. Market Research

A thorough analysis of the Mexican market is conducted to assess the value of the property compared to similar properties in the area. When conducting market research, look for:

• similar recent sales;
• real estate supply in the area of interest;
• average cost of homes sold in the area;
• price per square foot; 
• annual rental yield value.

You can find property listings and indicators, like property sales volume and price index, on websites like Vivanuncios, Metros Cubicos, and Inmuebles24. 

3. Land Registry Data

The next step is to determine the legal status and value of a listing you are interested in. To obtain land registry data, you need to make a request to the Property Public Registry in Mexico about property documentation. 

Land registry data includes the boundaries of the plot, its area, and information about the owner. It will also be legal proof of non-debt of the property taxes left by the previous owner. Then, to register the change of ownership and to ensure that all rights and titles are correctly transferred to your name, you will need the purchase-sale agreement.

4. Property Improvements

Property improvements are features that add to the property cost or make it unique. Any Mexican authorities evaluate remodeling or additions of the property to determine their impact on the cadastral value. Features and local amenities that add value:

• excellent property condition; 
• swimming pool;
• driveway and garage;
• high-quality furniture;
• local security;
• well-developed local amenities like supermarkets, schools, and medical facilities. 

Additional factors like good local infrastructure and close proximity to a river or lake can also influence property value. In general, the cadastral value may not exceed the price the house would fetch on the market. 

Cadastral Value vs. Market Value: What’s the Difference?

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It’s common to confuse contrast cadastral value with market value. One of the main differences is that the cadastral value is obtained in the electronic office of the cadastre. The market value is obtained through an appraisal or in the act of sale itself. Here are more differences between the two:

• Valuation. The market value is influenced primarily by the price of the area in which the property is located. On the other hand, the regulations determine the cadastral value of real estate.
• Fluctuation. The economic situation affects market value. The cadastral value, on the other hand, is based on a set of fixed attributes.
• Administrative matters. The market value is calculated in the sale-purchase transaction. The cadastral value is used to calculate some taxes like capital gains and property tax.
• Management. The market value is managed on a private basis. The cadastral value is managed by the cadastre.

For example, in Dubai, there is no cadastral value in the same form as it exists in Mexico. There is a system of market value for real estate Dubai agencies have to evaluate and manage.

In Summary

Knowing the cadastral value of a property is a crucial part of buying property in Mexico. By implementing those steps of cadastral value evaluation, you will be able to stay away from overpriced property and unwanted legal property issues. 

Mexico Daily Post