It is often difficult for people to appreciate the cost of living in Mexico due to the fact that South America has for many years had a fairly tainted reputation. This is an area of the world which many people still recognise as poverty-stricken, politically volatile and economically unstable but in many countries such as Mexico this is not the case. The development of Mexico over the last 20 years has been remarkable to say the least and living costs in Mexico do vary across the country but the standard of living, which is more important, has risen significantly of late. So what can you expect from Mexico? What kind of cost-of-living will you encounter? What are the prospects for Mexico?
Where is Mexico
Before we get into the detail regarding life in Mexico and prospects for the future, it is worth reminding ourselves exactly where Mexico is and what kind of position is has on the international stage. Mexico is in a prime position with regards to trade between North America, Central America and South America and is surrounded by the United States of America, the Pacific Ocean, Guatemala, Belize, the Caribbean Sea and the Gulf of Mexico. It is the fifth largest country in the Americas by total land mass and the 14th largest in the world. The country has a population of around 111 million and is one of the most heavily populated countries in the world with a major Hispanic population.
Many people are unaware that Mexico was actually part of Spain for many years and indeed it was not until 1524 that Mexico itself was founded. The country has a very close working relationship with the United States of America and after overcoming significant political and economic challenges over the years the country is now on a firmer footing than it has been for some time. So how does the Mexico of yesteryear differ from the Mexico of today? What does Mexico really have to offer?
Many will be surprised to learn that Mexico is the 13th largest economy in the world and 11th largest by purchasing power according to the World Bank. The country did undergo a significant economic crisis back in 1994 but the introduction of new macro economic fundamentals has changed the outlook for Mexico and the economy has gone from strength to strength. Even the 2002 South American crisis, which saw liquidity issues and currency problems in many countries, did not have a material impact upon Mexico. This perfectly illustrates the strength of the underlying Mexican economy and the potential for the future.
Like so many South American economies which have shown significant improvement over the last decade, Mexico is now very big in the services sector as well as modern industries such as communications and other technology. However, it is the North American Free Trade Agreement between the United States, Canada and Mexico which has had the most impact upon the Mexican economy in recent times. When you also take into account the fact that the Mexican economy is now based upon a free-market it is not difficult to see why GDP has risen significantly in recent times. The issue of inflation has also been tackled head-on by the Mexican authorities and is now under control after being the bane of the Mexican economy for many years.
There are a number of business areas which are vital to the Mexican economy which include oil, industrial exports, manufactured goods, electronics, heavy industry, automobiles, construction, food, banking and financial services to name but a few. It is this growing spread of business areas within the Mexican economy which has allowed the country to prosper and grow into the position we see today. Overseas investment in Mexico is at an all-time high and many experts believe this will continue for some time to come due to the country’s prosperity and its position between North America, Central America and South America. Mexico has a fairly unique position in the Americas!
While the property market in Mexico took a hit in 2009 due to a mixture of the credit crunch, worldwide economic downturn and concerns regarding drug-related crime in the region there is no doubt it has bounced back faster than any other economy in the world during 2010. Indeed recently we saw the IMF issue a warning with regards to Mexico and the potential for the economy to overheat in the short to medium term with a growth rate of around 4.5% expected for 2010. So what does this mean for the Mexican property market?
There is real danger that interest in the country, which has also seen an improvement in the exchange rate, could well push property prices to levels which are unsustainable against the worldwide economic backdrop. As a consequence, it is likely that we will see the government of Mexico react to this potential problem in the short to medium term with a realignment of Mexican-based rates which will this impact upon liquidity in the property market and property prices. It is the coastal real estate market which has attracted most attention from overseas buyers with prices having increased significantly over the last decade and set to increase further in the short to medium term. Tourism is a very important element of the Mexican economy and one which continues to grow year on year and attracts more and more expats to the region.
It is worthwhile noting that Playa del Carmen is widely regarded as having the fastest growing property market in the world, according to none other that the Guinness Book of Records. Against this backdrop there are concerns regarding short-term property prices in Mexico but in the medium to longer term the economic prosperity of the region and the political and economic stability seen in years gone by will prove to be vital.
Despite the fact that the Mexican economy has grown significantly over the last decade there is no doubt that the cost of living in Mexico is still relatively low compared to countries such as the US and the UK. Compared to the likes of New York in America the consumer price index is roughly half, the rental index is around a fifth of that in New York, the grocer’s index is around half, the restaurant index is around 60% less and local purchasing power is 30% less than that seen in New York.
In more specific terms you should expect to pay around £6 for a meal for one at an inexpensive restaurant in Mexico, up to £19 for a meal for two in a midrange restaurant and around £1 for a domestic beer. Imported beer is a bit more expensive at about £1.40 for a 0.33 litre bottle with Pepsi costing around 55p. The cost of electricity, gas, water and other local services is also relatively low at around £60 a month which is significantly less than that seen in the UK.
There are significant differences in property rents with far higher figures quoted for city centre properties which on the whole can be about 2.5 that encountered in the rental markets outside of the city centre. The average disposable salary in Mexico, after taxation is deducted, is around USD1000 which equates to about £650. On that basis, the cost of living in Mexico is nowhere near beyond the realms of possibility for those coming from countries such as the UK and other developed areas of the world.
As you might expect from a country such as Mexico, where poverty-stricken communities still exists in the rural areas, the major entertainment facilities are in and around the major cities of the country. However, as we mentioned above, the relative cost of restaurants and other facilities is on the main very competitive compared to the UK and other countries, and as such it should not be difficult to accommodate a relatively high standard of living and a relatively good social life in Mexico.
However, even for those with a minimal budget who are considering moving to Mexico there are areas where employment is on the up as prosperity continues to slowly spread across the country. Until now, much of the increased economic activity has centred round the major cities of Mexico but slowly this is changing.
The income tax system in Mexico is, like many others around the world, a progressive system which ensures that those earning more money and residing in Mexico will pay more tax. The first tax income and gains of up to MXP 496, 3% tax, MXP 496 to MXP 4120, 10% tax, MXP 4120 to MXP 7399, 17% tax, MXP 7399 to MXP 8601, tax of 25% with a rate of 28% on all income above this band. Residents of Mexico will pay income tax on their overseas earnings and foreign residents will pay a maximum of 28% on their earnings within the country. There are a number of deductions allowable including school transportation costs, medical fees, pension contributions and medical insurance payments.
Corporation tax in Mexico has been set at 30% for 2010 and is applicable on all earnings regardless of their source. There are also capital gains tax issues to consider as well as branch profit taxes on foreign companies. It is also worth remembering that VAT in Mexico is currently set at 16%.
There is another growing expat community in and around Mexico with the South American countries now very much on the radar of those looking to move overseas. Mexico has for many years been a major retirement destination for expats from around the world and the recent improvement in the economy and the political situation has further strengthened the case of a potential move to Mexico. The cost of living in Mexico varies widely, as it does in so many South American countries, from place to place and while poverty is still a major issue in the country there is no doubt that it has improved dramatically in recent times.
The expat community in Mexico continues to grow and offers a perfect environment in which to glean information and assistance with regards to a potential move.
Unfortunately, many areas of South America and Central America have been tainted by historic political and economic problems which have seen many countries literally on the verge of collapse on a number of occasions. Mexico is a country which has in many ways suffered from this very downbeat assessment of the area when in fact the cost of living and the standard of living in Mexico compares very well to that around the world with the potential for further prosperity in the future.
Whether or not you’re looking to move to Mexico to retire or indeed start a new employment career there are opportunities aplenty although it is worth noting that the Mexican property market would appear to be on the verge of potentially overheating and may pullback in the short-term. However, thankfully the Mexican authorities seem to have learnt to be proactive rather than reactive and it is unlikely they will sit back and allow the property sector to overheat in the short to medium term. The very fact that the Mexican economy is expected to grow by 4.5% in 2010 is a major rebound from a slight fall in 2009. As a consequence, while countries such as the UK and the US are actually walking a tight rope to recovery it seems that the Mexican authorities will have more to worry about on the upside than the downside.
As you would expect from a country which has been prosperous over the last decade, the cost of living in Mexico has increased on the whole. However, issues regarding poverty in certain rural districts have led to a massive divergence in the cost of living and the standard of living across the country. It is therefore possible to pick and choose a destination in Mexico which should be able to support your budget although it is worthwhile remembering that the vast majority of employment opportunities are centred in and around the major cities, where the cost of living can be relatively high compared to the more rural districts.