Panama Real Estate: An Ultra Detailed Buying Guide
The process of buying property in Panama isn’t always a straightforward one, but–with the right help–it may be a lot easier than you think. We’ve outlined the process from start to finish and defined some of the key terms, to help make relocating to your dream destination a little bit easier.
Before You Start Shopping for Panama Property
- Take your time. Panama is a buyer’s market. There are plenty of properties available, ranging from planned communities in quaint villages to undeveloped land in remote locations. Don’t feel pressured to make a hasty decision.
- Do your homework. Get to know the country. Start virtually, and then come explore the surroundings for yourself. Narrow down exactly which part of this Central American paradise you’d like to call home. Panama offers mountains, beaches, and city living. And depending on where you go, you might even find several of those in close proximity to one another. Also consider how close you’d like to be to major cities, airports, and the best healthcare. Make sure you spend plenty of time in the area to which you plan to relocate. See what it’s like in the different seasons. Picture yourself living there. Get to know some natives and local expats. Find the places you’ll eat and shop. Figure out how you’re going to spend your time in your new environment and what activities the area has to offer.
- Understand the different types of property. Panama has both titled and untitled property that can be yours to inhabit. However, they’re treated quite differently.
- Titled property works just as you’d think. It belongs to you. The title gets transferred to your name and recorded in the Registro Publico, or public registry.
- Rights of Possession (ROP) property is different. The Panamanian government owns title to the land, but you have the right to use the property any way you’d like…just as if it were your own. That is, all except for one important factor: You don’t have to pay property taxes. A full understanding of ROP property requires a little background knowledge of how the concept came to be. It is essentially the original model of real estate, where land rights were granted by the king in exchange for a fealty, or tax. The king protected your rights to the land as long as you remained in good standing. (Think U.S. property taxes.) Some estimates indicate that as much as 90% of land outside of Panama City is untitled, so it isn’t nearly as uncommon as you might think. So don’t let ROP property scare you. ROP land definitely has its risks, but the key is to resolve any issues on the front end by doing your due diligence before you buy. The right team of real estate and legal experts can do all the necessary homework on a property you’re considering, or in some cases they may already have. Let me reiterate that part about choosing the right team. Make sure you go with someone who has experience evaluating Rights of Possession properties in Panama and has a proven track record of success in this area. When done correctly, ROP property can be an excellent investment.
- A Note about Squatters: Both ROP and titled land that is unoccupied can sometimes be inhabited by squatters. After a certain number of years, squatters can actually be granted rights to the property. As a precaution when buying either type of land, it’s important to first check it carefully for signs that someone might be squatting on the property. Go spend some time there. And once you own the land or the rights, the laws are very clear on what measures you can take to prevent squatters from setting up on it.
- Learn the implications of the different types of property for visa requirements, tax exemption, and loan qualification. Because the two types differ it’s important to make sure you’re shopping for the right one. For instance, tax exemption is an excellent perk of buying ROP land. However, because you don’t hold the title, you can’t use it for collateral or a qualifying investment for a residency visa. While property taxes often do apply for titled property, there are some tourist areas where tax exemption applies, even for income earned on rental property. Buying property in the name of a corporation created and controlled by you is another good option to provide strong asset protection and better control over taxes. Setting up a corporation in Panama is a fairly simple and inexpensive process. An attorney can help you with the paperwork and requirements.
- A Note about Financing: While financing can be difficult to obtain in Panama, it is possible. Panamanian banks will offer mortgages to foreigners. However, it is necessary to first build credit in Panama. Seller financing is often a good option, but it’s important to buy only from a credible seller and have all contracts carefully reviewed by an attorney.
Building Your Team
- Find a real estate professional you can trust. The real estate climate in Panama is very different than in countries like the U.S. There are few regulations governing real estate practices. Many agents are unlicensed. There’s no multiple listing service (MLS) and little cooperation between agents. Even commissions vary greatly, ranging from 3 to 10%. Overall, there’s simply no fiduciary duty imposed on Panamanian realtors to protect your interests. So keep in mind that they only make money if they sell you a property, take everything they say with a grain of salt. The best advice we can give is to do your due diligence and make sure you choose a real estate professional who is reputable, someone who understands your goals and will work with your best interest in mind. Run a search on them to see if their name turns up any negative information. Feel free to contact us if you need a recommendation.
- Decide if you need to hire an attorney. Given the intricacies and potential complications of a Panamian real estate transaction (as well as the fact that all the paperwork is in Spanish), it’s probably a good idea to have an attorney to assist you along the way. Just like with any other professional, spend the time to research and find someone reputable. Make sure to spell out what you’d like for them to do. They can assist with the title search, researching rights on ROP properties, registering the title once the property is yours, obtaining English translations of all documents, and interpreting both translations for accuracy. It’s always a good idea to get a quote up front for their services, and it can never hurt to get multiple opinions.
- If needed, find a bank or private escrow company to handle the actual monetary transaction. Due to the potential for corruption and the difficulty of defending yourself in the legal system if a situation were to arise, you should generally avoid giving money directly to the seller or real estate agent. Like many aspects of real estate transactions in Panama, it all ultimately depends on the reputation of the entities with which you’re conducting business. If there is a need for concern, your attorney should be able to handle the disbursement of funds. However, some aren’t willing to do so. In such cases, a bank or private escrow company, can take care of it for you. The wire transfer from a U.S. bank is simple, since there’s no currency exchange, and generally takes around three days to be credited on the Panama side. You can then authorize them to issue the funds, in the form of a certified check, once all obligations have been met.
The Buying Process
- Step 1: Deposit and Contract. Congratulations! You’ve found your tropical paradise to call home. The first step is to sign a contract for purchase, often called a promise contract, and pay a deposit. The contract spells out all the terms and contingencies, the agreed upon purchase price, the deposit amount paid, and the time frame for closing. The deposit is non-refundable, except in a case where certain contingencies aren’t met. The contract itself is binding and enforceable in court.
- Step 2: Title Research. This step will likely be the longest and most complicated in the buying process. Request the title (or government issued Verification Certificate for ROP land) from the seller. It should include the name of the owner and a description of the property. The seller should also provide a map of the property. Consider having a survey completed, particularly if one hasn’t been done before. A survey would verify the exact boundaries of the property, which even the seller himself might not be completely sure of. While Rights of Possession properties obviously require a lot more research to verify that the seller does indeed possess the rights to the land, it’s important to note that research on a titled property is every bit as important. Make sure there’s a clear title, with no liens or other legal issues, before you buy.
- Step 3: Bill of Sale. Obtain the proper form and complete a bill of sale, which shows the name of the buyer, the seller, and the price paid for the property. This document is given to the Notary Public who finalizes the sale and is also used for determining the value of the property for income tax purposes.
- Step 4: Title Transfer. This portion of the transaction is handled by a Notary Public, who holds much greater power than those in the U.S. In Panama, a Notary Public is a high-ranking official who handles all legal aspects of a transfer of land or land rights, among other responsibilities. They will create create a new title, or certificate, which is then approved by the Chief Notary.
- Step 5: Transfer of Funds. Once all of the previous steps have been completed (and not before!), the final step to property ownership in Panama is the actual handing over of the money. The bank or escrow company you’ve chosen will issue a certified check to the seller, as well as separate checks for commissions or other service charges.
- Step 6: National Registry. Once the purchase of titled property has been completed, the title can then be recorded in the public registry. This final step makes it official! You now own your very own piece of paradise with nothing left to do but enjoy the fruits of your labor.
- A Note on the Buying Process: When working with many firms, the steps above may be transparent to you. A company skilled in real estate transactions will often handle many of the above aspects and include the fees in your closing costs, saving you a lot of time and energy.
Tips for Buyers
- Stay out of court. Panamanian courts can be very unfriendly to foreigners and often even corrupt. This is the main reason it’s so important to do your due diligence on the front end.
- Understand the special nature of beachfront property. All Panama beaches are public access. This means the public owns the first 20 meters from the high tide mark.If you buy beachfront property and plan to build a structure that extends into the water (e.g. a pier or even an entire home on stilts above the water), you’ll need to obtain a concession to do so. This process can take years, and no building permits can be obtained until this step is completed. When buying property that already has such structures, make sure that the seller can prove that the proper concessions were granted. (Note that this limitation only applies to the area in and immediately adjacent to the water. The rest of the land is yours to do as you see fit.)
- Avoid gimmicks. Steer clear of anything that sounds fishy or too good to be true. Remember what we said about realtors and the things they tell you. Investigate any and all unusual-sounding deals carefully.
- Use caution when buying in a planned community. Carefully review the development’s CCR’s, or covenants, conditions, and restrictions. Walk away if a builder says they haven’t been written yet. Believe only what’s spelled out in the document, not verbal promises made by the developer.
- A project is only as good as its developer. Because Panama is a thriving retirement hotspot, it is unfortunately riddled with amateur developers trying to make a buck by selling you grandiose dreams of the future. They may try to convince you to get in now in the early stages, with assurances that they’ll later build roads, shopping centers, and restaurants. Make sure they have a proven track record, as there’s always a chance these structures may not get built. If a grocery store right around the corner is a must-have for you, go with a property that already has one.
What other strategies do you use for buying property in Panama?