Buying Property in Panama 101 for Newbies
Wednesday, December 08 2004 @ 05:30 PM EST
Contributed by: Don Winner
BUYING PROPERTY IN PANAMA 101 FOR NEWBIES
This article was written by me, Susan Guberman-Garcia. I am not a
Panamanian lawyer, a real estate developer, or a real estate agent. I
have no property currently for sale and do not plan on having any for
sale in the future. I write from my perspective as an expat who lives
here, and who has bought and sold property here. My husband and I own both ROP and titled property, in the Bocas archipelago and live on
Isla Cristobal. This article is simply a summary of what we have
learned from our experiences and those of others we have talked to,
including our own lawyers. It is just one person's opinion, so take
it with the proverbial grain of salt and rely on your lawyer for
advice in real estate transactions.
Don't be in a hurry.
It's a buyers' market, and you will not find "bidding wars" like you
may in the USA. Look at lots of properties before you buy. If you
are looking at rural or island properties, make sure you see it during
the rainy season. If its not elevated, it might be a swamp. Don't
fall prey to "buy now" syndrome. Never give in to the temptation to
give a seller or agent a deposit check on the spot even if you think
you've found your dream property. (See below). Most people advise
expats to rent for awhile before buying anything. I think that's real
good advice (even though we didn't do it!)
Know what you want
Make a checklist of what is important to you. Some of the things you
might include are:
1. Do you want to be near the ocean? Or do you prefer the mountains.
2. Heat vs. coolness. Do you want a tropical climate or a temperate one?
3. Urban vs. rural: Do you want to be in a city, or within a short
commute of one? Or do you want a more rural environment? How
important is it to be close to shopping, movie theaters, etc.
4. Do you have medical issues that require you to live near high
quality healthcare facilities?
5. Do you have specific hobbies that you want to be able to enjoy near home? Like surfing, scuba diving, mountain hiking, birdwatching?
6. Do you have a sailboat? Do you need protected water access?
7. How far do you want to be from neighbors? Do you want nearby
neighbors or quiet seclusion?
8. Do you want a ready made house, condo, etc.? Or do you want to buy raw land and build to suit yourself?
9. Do you want a "planned community" where there are rules and
restrictions (see below) or do you want to be free to build and live
as you like?
10. What is your budget? Include maintenance and transportation costs in your budget. For example: If you live on an island you will need to buy a boat. Is that in your budget?
…and lots of other things to consider also. The above are just a few,
so you get the idea. If you don't know what you want, you will need a
lot of time to find out what it is. Visit the different parts of the country and spend at least a couple of weeks in each. Talk to as many people as possible about what they like and don't like.
Understand the differences between TITLED property and RIGHT OF
POSSESSION ("ROP") property
Titled property means you own the property. Right of possession
means that you own only the right to occupy the property. You can
sell that right just like you can sell titled property, but you are only conveying what you own, no more, no less. Understand that
because you don't actually own ROP land, you cannot use it for
collateral on a mortgage and you cannot use it as a qualifying
investment for a residency visa. And if you fail to take action
after you buy to demonstrate your "occupancy" of your land (fencing,
signage, erecting some kind of structure), you may find yourself
dealing with squatters' claims later. ROP ownership, like titled
ownership, is (or at least, should be) documented and recorded but
with a different government agency. This does not mean you should
never buy ROP land, it just means that you have to be careful and know
what you are buying and why you are buying it before you buy. One
more thing: you must pay property taxes yearly on titled land, but
not on ROP land.
Protect yourself against squatter claims
Like most countries, Panama law recognizes "squatters rights" to land under certain circumstsances. If you are buying rural land, make sure you walk every inch of it before you sign, to look for signs of human habitation. If you see anything that indicates that anybody except the owner (the person who is selling the land) is living on it, or farming it, don't buy it. If the owner tells you "that's my cousin Jose, he'll move before we close," that's a red flag. Unless your lawyer obtains Jose's signature on a document that says he has no claim to the land and doesn't own it, you have a problem. This is especially important if you are buying ROP land, but is also necessary to prevent subsequent squatter claims to titled land.
Dealing with real estate agents
There are all kinds of real estate agents in Panama. Some are very nice, honest people, and some are aren't so nice and honest. But even
the honest ones are operating from a very different rule book than
agents in the USA, and things that would get your real estate license
yanked in the USA are legal here. Be aware of the following:
1. There is no multiple listing service (MLS) in Panama. If anybody
tells you otherwise, they are lying and probably a crook.
2. Real estate agents are usually unlicensed and even if they are
licensed, the business is virtually unregulated by the government.
3. Real estate agents in Panama, with few exceptions, do not consider themselves "fiduciaries" and don't think they have a duty towards you, the potential buyer at all. In fact, they often don't think they have a duty to their own client, the seller, either! Beware of a practice that is banned in the US but frequently used in Panama: "Net
pricing." Net pricing means the agent will ask the seller what he
wants to get out of the property and then list the property at a
number far above that, pocketing the difference. If you like a
particular piece of property, ask the agent if he is using net
pricing. He may lie, but if he squirms and looks away or won't
answer, insist on an offer conference with the owner if you want to
make an offer.
4. Real estate agents do not "cooperate" with each other (remember,
there's no MLS) and will not show each other's properties. (In Bocas,
they don't even speak to each other.) So do not rely on a single real
estate agent for your property search. Look at their listings online
and visit each agent who has a listing that looks interesting to you.
They will absolutely not show you FSBO property, don't even ask.
5. Never EVER give a real estate agent money. Earnest money deposits should be handled through your lawyer (see below) and agent
commissions should be paid by the seller out of escrow. If any real
estate agent ever asks you for money, run do not walk in the other
6. If you want recommendations for real estate agents or feedback on a particular agent, go to the various yahoo groups (many are already
identified below in this article). Be sure to include regional groups
(such as http://groups.yahoo.com/group/panbocas/ or
http://groups.yahoo.com/group/retireinchiriqui/ Remember that you
can join any Yahoo group as a web-only member if you want to do so.
This means that you can visit the groups whenever you choose and read the threads and FILES that interest you, and not have to worry about being deluged with emails. You can change your yahoo group
preferences at any time to switch between email and non-email
Where to find FSBO properties:
a. If you are looking for a house or condo in Panama City, use the
classified ads in La Prensa, there are lots of them. And get yourself
a copy of "ESPACIOS" Magazine. It is a giveway, available at most
newsstands, and probably at your hotel. Ask the hotel clerk to get
you a copy. It has hundreds of listings, mostly condos, but also houses.
b. Escape Artist classified ads. Don't pay attention to the
"articles" touting big developments, the owner gets a lot of money to
rave about them and the information is not reliable. But do visit the
classified ads, there are lots of FSBO as well as real estate agent
listings. Go to:
http://realestate.escapeartist.com/Properties/Panama/. Remember that
these ads are just like any other classified ad source: Caveat emptor.
c. This group: http://groups.yahoo.com/group/Panama_Real_Estate is
all about property and has lots of FSBO listings
d. Regional portals and sites – most will have FSBO as well as
agent-listed property for sale ads - www.bocas.com,
www.come-to-boquete.com are a couple of them.
Planned communities – Things to watch out for
1. Do not under any circumstances make an offer to buy into a "planned community" until you have read and approved all CCR's
(covenants, conditions and restrictions). As in the USA, the CCR's
will be incorporated into the sales contract and are binding on you.
Unlike the USA, developers in Panama often take a very casual attitude
towards disclosing them. If any developer tells you "the CCR's aren't
written yet, don't worry, they will be simple, just sign here," walk
away. One prominent island planned community in Bocas is involved in
a multiplicity of lawsuits filed by disgruntled buyers who signed off
on CCR's that had not even been written yet. When they were written,
they were draconian and unreasonable (according to the unhappy
buyers). Don't get yourself into a situation like this. Read first
(very carefully) and discuss the CCR's with your lawyer before you
sign. Don't believe verbal promises ("yes, I know it says you can
only have one pet, but don't worry, we won't enforce this…") as they
are not binding and are worthless.
2. Be especially careful about buying into large, fancy planned
communities in the Bocas del Toro archipelago (or any remote island
area). The historical pattern of such developments on tropical
islands is that most of the promised amenities (restaurants, shops,
marinas, etc.) often never get built. If those amenities are your
primary reason for buying into a planned community, make sure you
investigate the developer's finances very carefully, to make sure they
can afford to build everything they are promising.
1. Don't do ANYTHING until you have retained a Panamanian lawyer to represent you in the real estate transaction. ANYTHING includes
giving a deposit, signing a promise contract, or opening an escrow
2. Hire a lawyer who comes with recommendations from other expats who have used the lawyer for similar transactions. A good place to get lawyer recommendations is on yahoo groups.
Do post messages asking for feedback. There are two very large yahoo groups that are good sources for asking for lawyer recommendations and feedback: http://groups.yahoo.com/group/viviendo_en_panama/ and
http://groups.yahoo.com/group/Panama_laws_for_expats/ has a FILE
folder with attorney recommendations and also one for attorney ads
3. Do not hire a lawyer who has any affiliation with the seller.
Conflict of interest rules for lawyers in Panama are not what they are
in the USA (not sure if there are any…).
4. Get a quote for handling the transaction, including the "due
diligence" that your lawyer must do to protect you against title
defect and prior possessory rights or squatter claims. If you need
or want a Panamanian corporation to own your property, the quote
should include the initial costs and yearly fees for this.
5. If you anticipate using your property as all or part of a
financial investment to qualify for a residency visa, be sure you
discuss your visa alternatives with your lawyer BEFORE you buy.
Remember that ROP land does not qualify. There are articles about the
various ways to qualify for visas in the VISAS folder of
http://groups.yahoo.com/group/Panama_laws_for_expats/ but remember that the law is constantly changing, and such articles are only to be used as general research and preparation for meeting with your attorney.
6. The first legal document that will be created and signed by the
parties to a real estate transaction is called a "promise contract"
(also sometimes referred to as "preliminary promise contract" or
"promise to buy." Either your attorney or the seller's attorney will
draw this up. Remember that ALL LEGAL DOCUMENTS IN PANAMA MUST BE IN SPANISH. If you are not fluent in Spanish, you must have it
translated. Your attorney should be able to provide a translation
(for an additional fee). Even if you and the seller are English
speakers, the promise contract still must be signed in Spanish (your
attorney may also have you sign the English version.)
This preliminary contract sets forth the basic terms of the deal and
all contingencies. For example, it should state that the sale is
contingent upon approval of the CCR's (if a planned community is
involved), the approval of a survey done by a licensed surveyor, good
title, no prior possessory or squatter claims, etc. etc. etc. The
promise contract will state the price, the time limit for closing and
a legal description of the property, and anything else you and your
attorney think is important. It will also call for an earnest money
deposit. Typically, it provides that the earnest money deposit (which
is usually around 3% of the purchase price) is non refundable except
for failure to meet a contingency. The promise contract is a binding
contract and enforceable in court. Do not sign it unless you are
absolutely sure you want to go ahead with the transaction, subject to
7. Deposits and escrow: Your attorney and the seller's attorney
should agree on how the earnest money deposit and balance of the
purchase price are to be handled. All funds should be kept in some
kind of escrow. The most reliable form of escrow is a local bank.
The bank holds onto the money until the conditions set by the parties
are met. (In the case of the earnest money deposit, it would be
signing of the promise contract by all partiers and approval by their
attorneys) and then release the funds to the seller. The balance
would be paid upon recording of the deed in the Public Registry if the
property is titled. (Using a bank escrow can be tricky if you are
buying ROP land; in that case it might be better to use a private
escrow service.) There are private escrow companies who offer escrow services; your attorney will know about them. NEVER give the seller a check directly, all money should go through some kind of escrow. This protects the buyer against being ripped off and protects the seller against loss of deposits due to buyers' remorse.
8. All land should be surveyed (with survey markers) and the survey
signed by a licensed surveyor. And you should personally walk the
entire property to ensure that the survey marks show that the property
is where you think it is supposed to be. It is not uncommon for
properties, especially ROP land, to be surveyed for the first time
when it is sold, and the survey may show that the property is smaller
or larger than the parties originally thought it was. The seller may
be honestly confused about how much land he owns, or he could be
deliberately misleading you. In some cases, the parties will agree to
split the cost of the survey, or the seller may pay for all of it (if
the property has not been previously surveyed.) NEVER even think of
buying land that has not been surveyed.
Other miscellaneous issues
1. Oceanfront land is subject to setbacks for public access. There
is currently confusion in the law about how far back the setbacks go,
and the setback is different for islands than for mainland property.
The current popular consensus is that there is a 20 meter setback from
the high water line, for public access. In Panama, as in most
countries, all water and beaches are public and cannot be bought or
sold. Under the law, you need a "concession" to build within this
setback zone. In the Bocas del Toro area, concessions have typically
taken years to obtain, and building permits are routinely given out
while the concession is pending. (Note that most locals do not even
apply for them, but you definitely should.) If you are planning to
buy island property that requires a dock, or you are planning to build
a house on stilts over the water, you will need to talk to your
attorney about this issue. If a concession has already been granted,
that makes the property more valuable. Beware of buying any property
that has structures on it that require a concession but the seller has
not applied for one and the contract says it is the responsibility of
the buyer to do so. Anything more specific is beyond the scope of
this article. If you want to research this issue, go to the LAND LAWS
folder in http://groups.yahoo.com/group/panama_laws_for_expats and see the article on evolution of coastal land management in Panama.
2. Property tax exemptions: There are laws that provide for
property tax exemptions for new construction, but not (in most areas)
for renovating an existing home. If you are buying titled land and
planning to build (ROP land does not require payment of property
taxes), talk to your attorney about this. If you are buying property
for a tourism business, you may be eligible to apply for a "Law 8"
exemption from all taxes. Talk to your attorney about this also, and
you can, in preparation, read Law 8 in its entirety, in the file
folder on business laws at:
3. The "shares in a corporation" trap: Some developers will try to
talk you into buying property in a transaction where you will not get
a title or even possessory rights, but rather, "shares in a
corporation." This is a very high risk deal and you should walk away
from it. You do not want to be a junior partner in a business with
people you have not known for years and trusted. You have no control
over the corporation, and have no way of knowing what debts and
liabilities it may have. A business partnership is like a marriage:
Buying into this kind of deal is like marrying the guy (or gal) you
met in the bar last night.
4. Seller financing and "land contracts" – This refers to a sale
where you pay a certain percentage of the price down, make installment payments and title passes to you only upon completion of payments. These types of deals are very high risk in Panama, since the law does not protect you (unlike the USA where you have certain rights that are protected by law). You could lose everything if you miss a payment, or if the seller loses his land in a lawsuit or bankruptcy. Don't do it unless you can afford to walk away from every penny you put into it right up until the time of payoff.
5. Mortages and construction loans: With the exception of certain
condo and residential developments in or near Panama City (and maybe
one or two other places), where the developers have made deals with a bank to guarantee loans to anybody, you are not going to be able to
walk in and get a mortgage on property, no matter how good your credit
is in the USA. Your application will not even be considered until you
have been here awhile, have obtained legal residency, and have
established a Panamanian credit rating. And remember: You cannot ever get a loan against ROP land.