Tapping into Mexico's Coastline

Developers who are expanding along Mexico's coastline, hope to satisfy a strong and growing U.S. demand for residential and resort properties. Yet they are encountering an interesting, if not inconvenient, truth: About half the nation's landmass, and most of its pristine beachfront, is owned by communal organizations. These groups of usually indigenous farmers are called ejidos (eh-hee-ds), and are the beneficiaries of the land redistribution that followed the Mexican Revolution in the early 1900s.

For decades, ejidos — a word with no suitable English translation but that is analogous to Native American reservations in the U.S. — were prohibited by law from selling or even borrowing against their land holdings.

In 1992 that law changed. Now many ejidos in the path of high-priced developments are in a position to dictate if, and for how much, investors will pay for some of the finest beachfront property in North America.

Many Americans living in the West are already familiar with the booming coastal corridor below San Diego. In just the last few years, the value of raw land has multiplied, and developable tracts in excess of 100 acres are becoming scarce. The same can be said of the coastal corridor at the opposite end of Baja, near Cabo San Lucas.

Between these two corridors lies about 1,300 miles of even more beautiful beachfront, including dozens of sheltering islands bathed in year-round warmth and waiting for sailboats. The ejidos' lock on the large, undeveloped area from the Pacific to the Sea of Cortez (Gulf of California) is nearly a monopoly. The path of development goes through them.

Know thy seller

The first step in dealing with ejidos is to understand what they are. Today there are about 28,000 ejidos in Mexico, which own about 209 million acres of land. The people who live in ejidos today descend from the clear losers in Mexico's late 19th century experiment with unbridled free enterprise.

Millions of Mexicans, who had farmed the same plots since Spanish times, lost them through various means and went to work for the approximately 11,000 families who acquired most of the national territory by the year 1900.

The correction and reversal of this problem became the focus of the Mexican Revolution. In 1917, a new Constitution limited the land that could be owned by one individual to about 247 irrigated acres, or more if the land was not irrigated. The excess land was conveyed to ejidos, each comprised of people in the local community who could farm or ranch it for sustenance.

The revolutionaries adopted one more measure, which has had an immense impact on both Mexico and the U.S. as well. To ensure that the ejidos' owners, or ejidatarios, were not taken advantage of again, the new leaders prohibited the sale and mortgaging of ejidal lands.

While the measure worked in one sense — today, more than half of all Mexican territory today is still communal — it left ejidos with two problems. First, ejidos tended to distribute land among their members on a per capita basis. The result is that more than half of all ejido members today farm 12 acres or less.

The resulting inability of ejidatarios to make a decent living, especially after NAFTA allowed U.S. crops into the country, forced millions of rural Mexicans to seek opportunity elsewhere, often in the U.S. Drive through the rural Mexican countryside today, and while there is no sign saying, “This is an ejido,” you will notice more women than men in the streets of these small communities.

Defining the boundaries

The second step in dealing with ejidos is to understand how the revolutionary law was changed. The landmark legislation in 1992 gave ejidos the power to divide, rent or mortgage their land for credit, or to sell it into the private sector.

To take advantage of the law, the ejido has to join the government's Program for Certification of Ejidal Rights (PROCEDE) to certify ejidal boundaries and membership. It is this government program that has facilitated title companies like LandAmerica to underwrite the privatization process.

This procedure is very important because ejido boundaries are often customary and shifting. It is also crucial because ejido membership is based on the personal affiliations of a “community” as opposed to genetic criteria, as in the case of U.S. Indian reservations.

After joining PROCEDE, the ejidal assembly may grant individual ejido members “parcel certificates” that give them the right to rent and mortgage specific plots.

This part of the program was intended to make ejidal land more productive as farmland, but has not to date. More than half of Mexico's population is less than 20 years old. The majority of ejido members are over 50.

Finally, with the approval of the ejidal assembly, and subject to several conditions — such as the right of first refusal by other ejido members — the holder of a parcel certificate can sell the parcel to an outsider. At that point, a new land title is opened in the public registry and the parcel enters the regular stream of private commerce.

Plenty of land awaits

After the first full decade under the new legislative program, only a fraction of ejidatarios have sold parcels to outsiders. For those ejidos in the path of development, change seems inevitable. A number of sizeable transactions have already occurred or been arranged in areas near Cancun and the Sea of Cortez.

Knowledgeable developers are attuned to the unique opportunity to buy relatively extensive blocks of oceanfront at wholesale prices.

For the councils who run ejidos, the challenge will be balancing a hard-won heritage against the lure of ready cash. Ready cash usually wins, but whatever the outcome, the interaction between American developers and Mexican ejidos may well write the next chapter in Mexico's real estate history.

William D. Signet is president of LandAmerica Services of Mexico, a division of LandAmerica Financial Group Inc. He can be reached at [email protected].

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