Investing in Real Estate in Honduras
Buyer Beware
U.S. citizens should be aware of the risks inherent in purchasing real estate in Honduras and should exercise extreme caution before entering into any form of commitment to invest in property, particularly in coastal areas, on the Bay Islands and near international borders. Honduran laws and practices regarding real estate differ substantially from those in the United States, and there are many cases of disputed or fraudulent deeds and titles. In addition, the Honduran judicial system is weak and inefficient, often prolonging disputed cases for many years before resolution. There have been claims of widespread corruption in land sales and the registry and dispute resolution process, including claims against attorneys, real estate companies, judges and local officials. Squatter activity, spurred by earlier land reforms, has also been a problem. U.S. citizens have spent thousands of dollars in legal fees and years of frustration in trying to resolve property disputes, even in cases in which local attorneys and Honduran and U.S. real estate agents had given assurances to the investor. There have also been incidents in which violence has been used against Americans involved in property disputes. Potential investors should engage competent local legal representation before making any commitments. Investors should talk with other U.S. citizens who have bought property in Honduras and thoroughly check references and bona fides of attorneys and real estate agents prior to engaging in transactions.
Honduran Regulations on the Purchase of Coastal and Island Properties in Honduras by Foreign Nationals
Article 107 of the Honduran Constitution prohibits foreign ownership of property in Honduras that lies within 40 kilometers (25 miles) of the Caribbean Sea, Gulf of Fonseca or the international borders of Nicaragua, El Salvador and Guatemala and on any of the islands and cays belonging to Honduras.
Recognizing that the constitutional prohibition of foreign property ownership in Honduras was a barrier to development of tourism and the economic potential of Honduras' coastal and island areas, the Honduran National Congress passed Decree Law 90/90 in 1990 to allow foreigners to purchase properties in designated tourism zones established by the Ministry of Tourism in order to construct permanent or vacation homes. Consult with the Honduran Institute of Tourism (see contact information below) for more information about designated tourism zones. In addition, foreign citizens and businesses may also buy coastal properties for approved tourism or other development projects that will generate economic benefits for Honduras.
Decree 90/90 and its implementing regulations permit a foreign citizen to acquire a single property not in excess of 3,000 square meters in size to build a private residence. While these individually owned properties can be freely transferred with the approval of the Ministry of Tourism, the only way an individual may own more than one property is through inheritance. The foreign buyer must register the purchase with the Ministry of Tourism and complete construction of the residence within 36 months from the date of purchase or pay an annual penalty worth 20 percent of the value of the property until the construction is complete.
Foreigners or foreign companies seeking to purchase property in designated tourism zones that exceeds 3,000 square meters in size or is for tourism or other development projects must present an application to the Honduran Tourism Institute at the Ministry of Tourism. In addition to providing the requested personal information, the potential buyer must also prove that a contract to buy a specific property exists and that it is registered with the Honduran Tourism Institute. The buyer must also present feasibility studies and plans about the proposed tourism or economic development project.
The Tourism Promotion Law grants several benefits for retirees interested in residing in Honduras, including duty-free entry of a car and home appliances. Retirement income not derived from Honduran sources is exempt from taxes. To become eligible for these benefits, retirees must submit an application, through a Honduran attorney, to the Ministry of Tourism. Beneficiaries must bring into Honduras, through the national commercial banking system, a minimum of USD 600.00 per month. Non-retired persons must bring in a minimum of USD 1,000.00 per month.
In 1998, the Honduran National Congress passed the Tourism Incentives Law which offers tax exemptions for national and international investment in tourism development projects in Honduras. The law provides income tax exemptions for the first ten years of the project and permits the duty-free import of goods needed for the project, including publicity materials.
Ministry of Tourism contact information:
Lic. Tatiana Siercke de Zelaya
Vice President of Planning and Development
Tel: (011) (504) 222-2124
Fax: (011) (504) 222-7752
Tax Implications
Before investing in real estate, it is important to look into the relevant tax implications including taxes on buying, selling, inheriting and transferring property. The land-owner should keep up-to-date on all property taxes, as they are used as proof of ownership.
Dispute Resolution
The U.S. Embassy has many cases on file of U.S. citizens involved in property and investment disputes. U.S. citizens involved in property and investment disputes should hire a local attorney. The U.S. Embassy annually updates a lawyer list that can be found on the Embassy's home page. The Embassy has tried to include only reliable lawyers in our lawyer list, but we are unable to make specific recommendations. You should thoroughly research the lawyers before making a choice. If the case can not be settled out of court, the claimant should pursue the case within the Honduran judicial system and contact the Economic Section at the U.S. Embassy.
The primary role of the U.S. Embassy in property or investment disputes is to help the U.S. citizen navigate the Honduran legal system via their chosen attorney. The Department of State and officers of the Foreign Service are strictly prohibited by Federal Regulations from acting as agents, attorneys or in a fiduciary capacity on behalf of U.S. citizens in private legal disputes abroad. The U.S. Embassy can assist in facilitating communication with foreign authorities or businesses and making inquiries on behalf of U.S. citizens in property and investment disputes. Select embassy staff may also be able to provide general information, but not legal advice, about how the legal system works in Honduras.
Another important role of the U.S. Embassy is to express the interest of the U.S. Government in seeing the property or investment case resolved in a fair and transparent manner according to Honduran law. Embassy staff often emphasize the direct link between a fair and transparent investment climate and future U.S. citizen investment in Honduras. Once a decision has been made in the Honduran courts, the Embassy can urge Honduran officials to execute the court's judgement.
On July 12, 2001, a Bilateral Investment Treaty (BIT) between the U.S. and Honduras entered into force. In cases where the Honduran government is alleged to have expropriated a U.S. citizen's property or investment, the BIT can provide certain protections and serve as an additional tool to press for favorable resolution of investment disputes with the Honduran Government. U.S. investors involved in investment disputes with the Honduran government who have not received compensation equivalent to the fair market value of the expropriated investment may have the right to submit the dispute to international arbitration. However, investors forfeit this right once a dispute has been submitted for resolution in the local court or in accordance with any previously agreed dispute-settlement procedures.
The Embassy receives many inquiries about the applicability of the "Hickenlooper Amendment" -and formal U.S. Government action against the foreign government- in cases where a U.S. citizen's property has been expropriated by the Honduran Government. "Hickenlooper" was superceded by Section 527 of the 1994-1995 Foreign Relations Authorization Act, commonly known as the Helms Amendment. Invocation of the Helms Amendment would require the President's intervention to prohibit U.S. financial assistance to the foreign government.
The Helms Amendment can be invoked in cases where the foreign government has illegally expropriated the property of U.S. citizens without providing adequate compensation. However, the prohibitions on assistance may be waived if the property has been returned or effective compensation has been provided within three years of filing the claim. It is important to note that the Helms Amendment only applies to cases where it can be clearly proven that the foreign government was involved in the illegal expropriation of the property.
Disputes with the National Agrarian Institute
The National Agrarian Institute (INA) is a government agency responsible for the use of national lands, agrarian reform and the adjudication of land invasion claims. INA-linked cases on file at the U.S. Embassy usually begin with an invasion by campesino groups seeking to occupy and farm idle land. After squatters have invaded a property, they can file a case with INA asking for a Certificado de Afectación - a legal title granted by INA. Generally, in order for INA to award the title, the property must lie within designated national lands, be idle and be fit for agricultural use. In the case that squatters have filed for a legal land title with INA, the investor needs to work with INA officials to determine if expropriation is viable under the National Agrarian Law. In the event that the land is expropriated and awarded to the squatters, the investor may have the right to receive compensation for the value of the property as well as any construction and improvements made to the property. Compensation would come in the form of government bonds. In order to mitigate the possibility of land invasions, the potential buyer should check with INA to guarantee that the property is not eligible for expropriation under the National Agrarian Law.
Secrets to Success
The definition of a successful investment depends on the investor's particular criteria:
- Can I have quiet enjoyment of the property?
- Can I build what I want to on the property?
- Can I rent the property and/or use it for tourism purposes?
- Can I pass the property to my heir without overwhelming taxes?
- Can I sell the property and take my profits out successfully?
U.S. investors who consider their property investment to have been successful suggest the following:
- Don't be an absent landlord.
- Get to know people who will look out for your interests.
- Check and double check titles and documentation yourself - don't rely exclusively on your lawyer.