Is my real estate investment secure if Mexico chooses a left-wing populist government?

On Sunday, July 1st, we Mexicans will go to the polls to elect a new president and a new federal congress (and in some states also governors, state legislators and mayors). This election will be particularly important because even though the country is politically very divided, most Mexicans will cast a vote in the hope that a change of government will bring a solution to problems like corruption and insecurity. Andrés Manuel López Obrador (AMLO), the presidential candidate who is the current leader in the polls, is considered by many as a left-wing populist and by his followers as the virtual winner of the election. Many of my foreign clients who own property in Mexico have asked my opinion about the outcome of the election and when we talk about this I’ve noticed that most people have two words in mind that create concern: “eminent domain” (or “expropriation” for Canadians).

So should I be concerned about my property if AMLO wins the election?

The short answer to that question is: No.  Here are some of my reasons for giving that response: 1) even if Lopez Obrador wins the election, none of his campaign promises are related to exercising the right of eminent domain on assets owned by foreign companies or foreign individuals, he seems to be aware of the important role foreign investment plays in the Mexican economy; 2) In the remote case he decides to exercise the right of eminent domain, he most surely do so on properties owned by Mexicans and there will still a proceeding that has to be followed and certain legalities that have to be met such as proving  the concept of “public purpose” (which is not easy and can be overruled by the Mexican Supreme Court); and 3) Mexico has developed good political and economic relations with many nations, so exercising the right of eminent domain on properties owned by foreigners will create a severe conflict for the Mexican government.  Furthermore, if you are American or Canadian, there is a document that protects you even more in a worst-case scenario: NAFTA.

So how can NAFTA be of help in a case of expropriation?

Your real estate purchase in Mexico is considered foreign investment under Mexican law and NAFTA includes a full chapter (Eleventh) regarding investment among the three nations. Article 1110 of NAFTA states the specific list of requirements in case the government of country intends to expropriate investment from any of the other two countries: public purpose, non-discriminatory basis, due process and compensation. Furthermore, a dispute over a case of expropriation under NAFTA will not be resolved in local courts but in an international arbitration tribunal (like the ISCD in Washington, D.C.), so this makes expropriating even less tempting.

As you may know well, NAFTA has been under renegotiations recently but no new agreement has been reached so the original text is in full force. Even if the whole agreement is canceled (which in my opinion is highly improbable due to the economic repercussions), Mexico will still rely substantially on foreign investment and therefore will have to provide legal certainty to foreign capital coming into the country. This is something that all the presidential candidates, including AMLO, seem to agree on.