How to Buy Real Estate in Panama (Part One)

The Panamanian real estate market is red-hot and getting hotter. The market here has changed significantly in the past couple of years, and this is really the first time in the history of the country that large numbers of foreigners are ready to invest millions of dollars and buy their retirement home. Recently there have been a couple of "flaps" on the email forums that have prompted me to take a hard look at the current status of the real estate market in Panama. I've been investigating this article for a couple of weeks now, and it's a pretty big topic to tackle and to do well. I'm going to take this issue in bite-sized pieces. There are several parties involved in every real estate transaction; buyer, seller, real estate agents, lawyers, insurance agents, banks, and probably a couple of others I'm forgetting right now. In this first section I'm going to take a look at the Panamanian real estate market from the point of view of the real estate agents.

The Economics of the Construction Boom: If you've been watching this market for a long time, you've seen the pendulum swing a few times - boom to bust and back again. In 1988 when the US froze all Panamanian accounts in an effort to pressure Noriega to step down peacefully, the Pacific Hill towers in Dos Mares were about half built. When the accounts were frozen, construction work on the project stopped and was not resumed until after the invasion. I rented a house in Villa de las Fuentes #2 owned by a who was involved in the project, and his economic situation was so bad that he had to rent his house to us and move his family to his mother's house.

Panama is Still Recovering from Neglect

After Just Cause and during the 90's the Panamanian economy was recovering the damage twenty-one years of relative neglect and mismanagement, the end result of the years of the military dictatorship. The emphasis was on building roads and infrastructure, and the result was the North and South Corridors, the widening of the highway into the interior, and reorganization of the traffic patterns in Panama City. Another major element was the privatization of the electric and telephone services, which greatly improved infrastructure and services in those areas but at a cost to consumers.

Then in the end of 1999 when the US bases pulled out, Panama was squeezed by many negative economic factors simultaneously. The direct and indirect military spending was gone. Panama had control of the properties of the former canal zone, but the economy was sluggish and there were only so many people that could afford to invest and the market was relatively saturated. The United States was going through an eight month recession in 2001, and as the saying goes "when the economy in the United States gets a cold, the world gets the flu." The trickle-down from the recession compounded Panama's economic problems. On top of everything else, the regime of Mireya Moscoso was not particularly nimble or even capable of managing what was called the "crisis" here in Panama. The combined results of all of these and other factors left the Panamanian economy in a quagmire.

During most of 2001 and into 2002 many construction workers in Panama were unemployed. One of the few large construction projects underway was the Multicento Mall in Paitilla, and there were lines of construction workers out front fighting over what few jobs were available. I was remodeling my house on Clayton at the time, and highly skilled and experienced construction workers were readily available and relatively inexpensive to hire. There was nothing else for them to do, so they were getting by doing smaller jobs (like mine).

Thank you, Allan Greenspan: To jump-start the economy and to break out of the slowdown of 2000-01, the Fed cut the prime rate thirteen times, starting at 6.5% in Jan 2001 and finally landing at 1.0% in June of 2003. The lower rates improved access to capital across the board, halted the recession in the United States and jump-started economies around the world. Lower interest rates made it easier for consumers to obtain loans for houses and apartments. Builders began to get active again and all kinds of projects started to appear, especially in the end of 2003 and into 2004. As previously reported, there are currently 155 new buildings under construction or on the drawing board in Panama as a direct result of those cuts. The information in that article is now two months old, so there might be even more. This end result of this boom of growth and construction is a dizzying array of options for the potential buyer. If you're considering a real estate investment in Panama, one of your primary problems is to sort through all of the different options. You would not have had that problem just two years ago.


Construction is Booming in Panama

Establishing my Bona Fides: If you're reading this article then there's a good chance you might already know something about me, and if that's the case you can skip the boring part. But I do I expect that quite a few people will be reading this article, so I want to take the time to provide a little personal background and history.

• Living Here: I first arrived in Panama in June of 1987, assigned here by the United States Air Force. Since then I have lived here for all or part of fifteen of the last nineteen years. I was living in the Washington D.C. area between 1991 - 1994, and even in those years I made several trips down to Panama for either personal or professional reasons. So it's fair to say I've spend a considerable amount of time living and working in Panama, the better part of the last 19 years.
  
  
• Spanish Language Fluency: I am fluent in Spanish, and feel perfectly comfortable speaking in either language in a conversation. I listen to news reports or read the newspapers and understand practically every word. My Spanish language capability allows me to better check the "pulse" of what's going on by just asking people's opinion on the street.
  
  
• Real Estate Experience: I am not a real estate broker and I don't have a license. With the exception of my own house which happens to be for sale at the moment, I don't sell real estate. My ex-wife was a real estate agent who helped the US servicemen find apartments in Panama city back in the 80's. I was here during a military build-up where prices were on the rise and properties were scarce. I was here during the military draw-down, when the rental market crashed and many properties went unoccupied for years. I witnessed the Panamanian government selling newly acquired properties in the former canal zone, and bought one of those properties myself at auction. I was here during the "crisis" of 2000-01, when the economy was in a slump and no one was building anything. And, I've since seen the first waves of new immigration and an explosion of construction and investment. So, I have a considerable amount of first and second-hand knowledge and experience in the Panamanian real estate market, although mostly as a casual observer.
  
  
• Repossessed Properties: I've spent quite a bit of time "tinkering" in the repossessed properties market mostly for my own personal reasons. I understand how the repossessed properties market in Panama works, including the legal process. I have purchased repossessed properties myself. There are some real values out there but you really have to be here on the ground, and you have to be willing to buy something that's a little ugly and neglected, requiring some TLC. The repossessed properties sector in Panama is not a sector for the faint hearted, and it's a moving target because the available properties are constantly changing. But there are some opportunities out there.
  
  
• Contacts With Developers:I've met most of the major real estate developers and builders in Panama. I've talked to most of the major builders who are putting up all of the new towers in Panama City. Many of the people building the large developments targeted at the English speaking expatriate community sponsor Panama Guide. My discussions with these people have given me an insight into many aspects of how real estate, especially new construction, is developed, promoted, and marketed.
  
  
• Contacts with Real Estate Agents: I've rented at least seven different houses or apartments, and all contracts were executed through several different real estate agents. I've purchased a house in the former canal zone through the Panamanian government, with the help of a real estate agent. I've met and talked to literally dozens (probably more than a hundred) real estate agents through the years. Most recently, I went out of my way to call or contact all of the most prominent and important real estate companies and agencies in Panama to prepare this article.
  
  
• Contacts with Expatriates: For starters, I own this website. I own and manage several of the largest Yahoo email groups, and participate or follow most of the other Panama-related forums around the internet. I've been watching the "traffic" for the past five years, and have listened to some horror stories and heard about some great deals.
  
  
• Limitations: On the other side of the coin, there are quite a few limitations or limiting factors that only afford me a relatively narrow keyhole through which to examine and analyze this subject;
  
  
  
  • I'm Not an "Expert": Beware of anyone who advertises themselves to be an "expert." My own personal definition of an expert is someone who knows a whole lot more than you do about any subject. So, if you know absolutely nothing about any particular topic and the "expert" knows about 20% of what's out there, then that person is an "expert" relative to your personal knowledge base, even though they don't know 80% of what's going on. Compared to a whole lot of other people, I don't know squat about the Panamanian real estate market. I can write an article based on my own personal experiences and on what I can learn from others, but by now means do I consider myself to be an "expert" in this area. So, fair warning there.
    
    
  • Limited Exposure to the Interior: I know Panama City much better than I know the interior. I know apartment buildings much better than farm land. I can't tell you a thing about the inside view of Bocas del Toro, Volcan, Chiriqui, or the Azuero. There are other people out there who can fill you in on the local details, but I'm not that guy.
    
    
  • Potential for Conflict of Interest: I am aware of and recognize that in my position with Panama Guide there is a potential for conflict of interest. I don't sell anything to the readers of Panama Guide, but all of my sponsors are hoping that the readers of this website will buy their products or use their services. I consider my good name, personal honor and integrity to be my most valuable assets. Panama City is a small town, and people quickly develop a reputation based on their personalities and individual idiosyncrasies. I have caught a lot of "flak" for doing what I do the way I do it, but those who know me well understand instinctively that I will not compromise my personal morals, values, or integrity to pick up a new sponsor. As a matter of fact I have rejected several sponsors for exactly those reasons. I am exceptionally proud of the businesses that sponsor this web site. And, I strive to maintain and present a balanced and objective view of any subject or topic. My entire goal here is to help shed some light on the dynamics of the real estate market in Panama, and hopefully everyone will benefit from a greater understanding of the processes at work. Now, will I catch a bunch of flak for writing this? Probably, especially from two perpetually disgruntled individuals. Everyone's a critic... Whatever. I'm getting used to it.
    
    
  • It's a Huge Topic: If you consider the title of this article for a second; "How to Buy Real Estate in Panama," you have to ask youself if anyone can really do it justice in a totally fair and completely balanced way. There are several issues to consider. First of all, nobody can tell you everything there is to know about buying property in Panama, if for no other reason than the explosion of new projects and operators who are popping up on the radar screen. Who can keep up with it all? Also, consider this - I have to worry about conflict of interest, but tell me who doesn't in this environment. A real estate developer? A service provider such as a lawyer, real estate agent, or banker? Or maybe you should listen to someone who is already here and buying property. Unfortunately, that guy sees you as potential "competition" to find the next "great deal." And everyone knows someone who was ripped off, and someone else who bought 90 hectares for $60,000 or $.06 cents per meter (I'll bet it wasn't titled...) You certainly can't count on the Panamanian government to give you the clear scoop in English. They're too busy trying to figure out how to handle this tidal wave of competing interests. So, it's a big subject, probably too big for anyone to handle, but I'm going to give it my best shot. Now, with all of that having been said as preamble, on to the main event...

Real Estate Agents in Panama: The purpose of this article is to give the reader an insight into the world of the real estate agent in Panama in the current market conditions. Real estate agents must study all applicable laws and regulations, pass an exam, and be issued a license by the Panamanian government in order to legally represent properties and earn a commission on the sale. They are required to carry a card documenting their standing and qualifications. Individual real estate agents often band together to form companies, and individuals and companies join professional organizations such as ACOBIR. I will address several of the most common issues or topics that dominate the lives of real estate agents.

• "Does That Guy Have A License?": In practice, your chances of running into someone who is representing property (showing you around) but is not a licensed real estate broker are pretty good. It happens all the time. In this market it is a common practice to hire "representatives" who are not licenced real estate agents but who work for a real estate office or group. That person will show properties to clients or customers, but when the sale is actually executed the licenced agent on staff will be the agent of record on the contract. The "representative" does not get paid a commission but rather a salary or a fee for "professional services." Another angle is to open an office or company that is really coordinating the activities of several licensed agents, and to help or assist Panamanian real estate agents with limited English language and marketing skills in accessing the English speaking expatriate community. There are several offices or companies that have a "front man" who is the public face, warm handshake, and fluent English on the phone, but that person then passes you off to the agent who is representing the property that you're interested in. The "front man" may or may not have a license. The law regulating real estate agents in Panama is pretty clear, and this practice is on the "margins" of legality. I'm going to have to do some more digging into the law to find out if this practice is legal. Anyway, legal or not, it's going on.
  
  
• Honor Among Real Estate Agents: Ask any real estate agent or group and they will tell you about two or three of their peers who they respect and trust, right off the top of their heads. Some are considered more "solid," respectable, ethical, and trustworthy than others. Agents and companies often form informal groups or alliances between themselves, and they trade information about properties, clients, sellers, and the market in general. Most of the real estate agents I've talked to are networked with three or four others in this way. Panama is a small market, and the established players are either Panamanians or Zonians who have been here most or all of their lives. By law, foreigners can only get a real estate license only after having lived here for at least five years. So for the most part, all of the real estate agents tend to know the others who are working in the same market, area, or sector.
  
  
• Distrust Among Real Estate Agents: There are sharks swimming in the waters as well, and this business can be very cut-throat at times. Most real estate agents out there have been ripped-off or taken advantage of by another real estate agent at least once. Unethical agents will steal clients, properties, and information from other agents in order to earn a commission they would not have or should not have earned. For the most part this kind of activity is not reported, and even if it was the time and effort required to get some kind of justice or settlement simply is not worth it. Usually the agents just let it go and play the "what goes around, comes around" game. Honorable and ethical agents will just "write off" the bad guys, and refuse to do business with them again in the future.
  
  
• Undeserved Perceptions: Many people, especially foreigners arriving in Panama for the first time, have a general fear and mistrust of the real estate agents here. Buyers have often invested a lot of time on the internet, doing their homework, and trying to prepare themselves to dive into the murky waters of real estate in Panama. From some of the things that get posted to internet websites and email forums, it's amazing that anyone can get anything done at all. I'll save the buyer's point of view for another installment, but for now realize that all of that fear and loathing usually gets directed at a real estate agent. And from my personal experiences and investigations into some of those accusations, for the most part the negative perceptions are undeserved.
  
  
• Stuck in the middle...: The real estate agent is the person who has to try to bring two parties with differing price points and concerns together to sign a contract and close a deal. Some deals are much easier than others, and sometimes deals break down and don't go through, usually due to failures to clearly communicate between the various parties. Property owners can decide to jack the price of a property from one day to the next. In one recent situation, I received an email from someone who had their eye on a property for almost a year, and it had been listed all that time for $275K. Then one day the price on the website popped to $325K. It turns out that the owner had simply traveled to Spain and the United States and saw how Panama was being promoted as a destination for retirement and investment. When he got back, he called the real estate agents with instructions to raise his asking price by $50K. Real estate agents live in the middle ground between the two interested parties. They have to represent the properties at the price asked by the owner. Owners can change their asking price on a whim, and the ones who deliver this new price to the buyers are the real estate agents. Very often this kind of thing generates additional distrust from the buyers, and since no one can prove or document anything (the buyer can ask anything he wants, any time he wants) buyers often feel that they are getting taken advantage of. And, their first point of contact is the real estate agent.
  
  
• Most Real Estate Agents Are Honest and Hard Working: Huh? You read it correctly. The real estate agent in Panama is the ultimate "middle-man" and someone is almost always out to screw him out of his hard-earned commission. The property owners want real estate agents to identify potential buyers, but often will not hesitate to try to cut the real estate agent out of the deal in order to not pay the commission. Buyers want real estate agents to scour the countryside to find good properties at good prices, but they won't hesitate to try to cut the real estate agent out of the deal, in order to pay 5% less for the property. Both are motivated by simple greed, and the real estate agents end up getting hammered in the middle. Consider this; a 5% commission on a $400,000 sale is $20,000. After the connection has been made, the buyer and seller can easily "circumvent" the real estate agent, reduce the sales price and split the difference. The math remains the same regardless of the size of the sale, only the scale changes. In the end the real estate agents end up getting it both ways, and spending a lot of time trying to keep everyone honest and to avoid wasting their time and resources.
  
  
• There is no Multiple Listing Service in Panama: MLS does not exist in Panama. I called Howard Toole of www.PanamaMLS.com and asked him specifically about this. He catches the most questions (and flak) about using the term "MLS" in the name of his business. According to Howard, he uses the term "MLS" as a "marketing tool." And, his website specifically says "...there is NO MLS in Panama...". His business model is close to and somewhat similar to an MLS-like system in that many different real estate agents use his website to list properties. While many people will criticize his use of the term "MLS", by now everyone should understand the difference, and know that there is no MLS in Panama. Many people have proposed the adoption of an MLS-like system here in Panama, and maybe someday that will happen. But it's not here now.
  
  
• There are no "Realtors" in Panama: Well, actually, there probably are. In researching this article I learned that any licensed real estate agent who is a member of the Panamanian Association of Real Estate Brokers and Developers (ACOBIR) can apply to the National Association of Realtors (NAR) for formal recognition. If they send in a form and pay $50.00 annual fees, then can then legally call themselves "Realtors" and use the "International Realtor" logo (below). Of the agents in Panama, www.PanamaRealtor.com catches the most flak for using "Realtor" in the name of their business. They are currently in the process of joining ACOBIR and NAR, and will soon list the International NAR emblem on their website;
  
  
  
  
• "Sign This, Please...": The real estate agents ask property owners to sign exclusive listing agreements to try to ensure they will earn their commission if they spend their time, energy, effort and resources to show a property. Some real estate agents want buyers to sign "non-circumvent" agreements, which basically oblige the buyer to go through the real estate agent to purchase any properties the agent shows the potential buyer. So, real estate agents want both buyers and sellers to sign documents to try to keep avoid getting cut out of the deal, but in reality its a difficult case to prove in court, costly, and time consuming. For the most part, the real estate agents simply "absorb" these kinds of things when they happen ocassionally, and write it off as part of doing business.
  
  
• "Free Tours "r" Us...": Someone told me about a posting on a website advising people interested in buying property in Costa Rica to simply contact a real estate agent and tell them you want to look at a bunch of property, and that you would end up getting a free and better tour of the country than any tour guide service could provide. Real estate agents have to be on the lookout for people who want to just look and look and look and look and look and look (you get the idea...) Gabi Carles explained to me that since many of their customers are referrals, they tend to get people who are in Panama to look at property for the first time. They take the time and make the effort to build a rapport, to establish and keep open lines of communication, and to provide an excellent level of initial service. She said that very often, when those customers return to Panama on their second or third trip, they reestablish contact and end up purchasing several properties. Many real estate agents consider this type of thing to be an investment in the potential for a future sale, but sometimes their goodwill can be abused.
  
  
• "They want to charge me $100 to show me properties...": I was able to find two companies that regularly charge people a fee to show them properties in the interior, PanamaMLS.com and Century 21. The fee is refunded if you buy something through them (their costs get covered by the comission.) But there are a lot of people out there who are taking advantage of the real estate agents, so some have taken a harder stand to protect their time and resouces. On the other hand, the trend is to use "loss leaders" of travel incentives to fly people down to Panama for free and to show them around. Prima Panama and International Living are in kind of a contest to see who can toss the most resources into this kind of thing, so the guys with the money are willing to spend it to show you around. The guys who are not at that level or who have fewer resources at their disposal have to use other tactics. But those guys are often out there in the backcountry, scrounging up good deals and making them available for purchase. The decision to either use or not use this kind of service is a decision that each individual will make. The funny thing is that there are trends in both directions - more agents are charging fees, and more companies are offering travel loss leaders. Go figure...
  
  
• "And a pasture, and a waterfall, and a view of the ocean, and a growth of mushrooms...": Sometimes people come up with some really off-the-wall requests for property, and the real estate agents make their best effort to go out and find exactly what the buyer is asking for. They find the perfect property at an excellent price, then the buyer all of a sudden switches from mountains to the beach, or from the beach to the city, or from the city to Bocas. Real estate agents can get whiplash sometimes from the buyers changing requests.
  
  
• "The Information On Their Website is Innacurate": Most of the larger real estate operations that have a significant web presence work hard to keep their public listings up to date and accurate. Very often one of the real estate agents representing a property that's listed on a website will advise the company that a property has been sold, and then something will happen between the deposit and the final close, and the deal falls through. In short, things happen sometimes. A big site might have dozens or hundreds of listings, and it's unreasonable to expect that every one of them be absolutely perfect in all regards, every time. Again, most real estate agents are relatively honest and hardworking people, and they are doing the best they can in an exceptionally dynamic market.
  
  
• "They List Sold Properties For A Long Time After They Have Been Sold": Some comanies leave "sold" properties up for a few months after the property was sold. They do this for a couple of reasons. First of all, they are a representation of the types of properties they handle. Also, sold listings tell people who are looking for property how much a similar property in an area sold for, giving them a perspective on how much a similar property might be worth. Also, buyers sometimes contact the real estate agents and tell them "find me something like that one...", so they are using the sold listings as an example. In addition, having stable content helps with search engine rankings. So there are a good many reasons why real estate companies do this, and in the end who cares, because they can run their websites any way they want, right?
  
  
• "They stopped returning my calls and were unresponsive to my requests...:" Sometimes real estate agents or companies will invest hundreds of manhours and god knows how much money, time, effort, and resources to haul a client all over the place, and and sooner or later it becomes apparent that the person has no real desire to actually buy anything. They just want to look and look and look and look and look and look and look and look... Eventally, the client sees all of an agent's inventory, and the agent will pass them off to another agent. And then to another, and then to another. Once three or four companies have shown one dude more than sixty properties, then just decide to blow the guy off. If a real estate agent is not answering your calls, then find a different real estate agent. It's really just that simple.
  
  
• "I suspect they hold an option on the properties they are selling...": A word about "options." They don't really exist down here, but people play games with properties and try to make a buck on a flip. Here's what happens; there are two "closes" on any property purchase. The first is when the buyer makes a downpayment on a property, usually 10% of the purchase price. At that point the buyer and seller sign an agreement in which both agree to proceed with the sale. That contract establishes the price, a length of time to finish the deal, the details on the property, and just about anything else that the two parties agree to. Then, the purchase goes to phase two, which is the "actual" or final close on the property. The seller gets paid, the purchase is registered in the public registry, the title is transferred, etc. What people will do sometimes is put a downpayment on a property to tie it up (or basically to establish a first "option" on a property) and then will try to sell it to someone else before the second or final close takes place. In other words, they want to lock the property in at a low price, then resell it before they actually own it, and make a profit on the flip. The first seller gets paid off with the second buyer's money. This is the closest thing there is to an "option" in this market, and it's really like playing with fire, because if the person who is trying to do the flip does not follow through on the sale they are in jepardy of losing their deposit. It is simply not done all that much. What is common, though, is to buy something and then turn right back around and sell it again...
  
  
• "Hey! I know that property sold for less than that two months ago...": Exactly. Someone bought it, and now they want to sell it at a higher price. But here's what happens. The buyer goes through a real estate agent to make a purchase, and has a good experience with that agent. So, now that he has the property, he lists it for sale again at a higher price. Those of you out there who are watching the listings regularly are getting to know the properties that are shown on the websites, and sometimes you recognize a property from a couple of months ago. Well, the new owner is simply reselling the property to make a profit. In most cases, this is NOT done by the real estate agents or companies, but rather by individuals and investors. But, there is an appearance that the real estate agent or company is doing this, because the same property pops up on their site for sale at a higher price each time. One agent told me about a property they've sold three times to three different buyers.
  

My eyes are getting crossed...: That's it for now. I'll probably make updates, additions, and changes to this article as new thoughts and concepts are brought to my attention. With that in mind, I would invite everyone who has taken the time to read this far to comment on the article and tell me what you think. I would especially like to hear from real estate agents and professionals in Panama. Did I accurately reflect some of the issues you face every day? What did I forget? Make this article better by giving me feedback.

Part Two - From the Buyer's Point of View: Just a taste of a preview. They're nervous. They don't speak the language. They're afraid of getting ripped off. They might be chugging down Pepto Bismo and their sunburn is peeling. They're conflicted because they want to make the leap, but don't know if they should. They don't know who they can trust. They have limited time and money. The laws are confusing, different, and changing. You get the picture. Have a great night, and I hope this helps.