How to Buy Real Estate in Panama (Part Two)
Every real estate transaction requires the participation of several parties. Buyers and sellers come together with the help of service providers, real estate agents, bankers, insurance brokers, and others. This is the second of a series of articles examining the world of Panamanian real state from the point of view of the varied participants. In Part One, I examined some of the issues facing the real estate agents. In this segment, I will be looking at some of the issues influencing the buyers, newly arriving expatriates who are coming down to buy for themselves or invest in this "hot" real estate market. There are a whole range of factors pushing and pulling on these people, and its a wonder anything can get done at all sometimes. Each buyer has gone through his or her own experience, and I can only hope to hit the highlights and maybe mention some of the most common factors. I request your feedback, and ask you to comment on this article and help me to make it better. Late Addition: I've already gotten several emails, all saying the same thing. Basically, "Hey, you didn't tell us how to buy real estate." Maybe I didn't make myself clear enough. The purpose of these articles is to provide some insight into the other guy's head. If you're going to be buying real estate, then you already know all the challenges you're facing. Sometimes real estate agents, Panamanian lawyers, and Panamanian real estate owners forget who they are dealing with. That's why I wrote the article, to give them a little insight. When I finish the series, I'll do a "wrap-up" article with a full-blown "how to" and "what not to do" and all that. Now, to carry on with the rest of the article as written...
Welcome to Panama:Your flight is on final approach to Tocumen International Airport, and out of the window you can see the lights of Panama City as the plane descends for touchdown. There's the comforting "bump" of the main wheels hitting the runway, and you taxi up to the main gate to begin your first visit to Panama. You've done your homework, read thousands of web pages and emails, made phone calls, and consulted with others who have made the big move. And now it's your turn. As soon as you get to the door of the plane that first blast of warm, moist tropical air hits you, and right away everything is different, and you get that "you're not in Kansas anymore..." feeling. Welcome to the Republic of Panama.
On Short Final to Tocumen; Welcome to Panama
Buying Back Home: It's hard enough to pull off a real estate transaction in your home town, where you know everyone and everything is a comfortable as possible. Anytime money is being exchanged for anything, people tend to get weary, to protect their hard-earned cash or nest-egg, and to watch out for potential problems, stumbling blocks, fraud, or hidden issues with regards to tax burden, school systems, or whatever. So, it's a stressful and difficult thing to do when you speak the language, have known many of the participants since grade school, and are protected by the network of laws and institutions you are accustomed to dealing with. So, buying real estate anywhere is a stressful experience. But moving to the third world to spend a quarter-million dollars in the shark-infested waters of the Panamanian real estate market can take it to a whole new level.
Personality Types: All of the different factors and issues in this article have stress at their center. Different people handle stress in different ways. For the purposes of this article, I am going to create two completely fictitious characters. The first is an artist from northern California who graduated from Berkley, knows that mushrooms are not just for Pizzas, and plans to sell her mixed-media art on the Internet. She's already made enough money to buy a place and not have to work for the rest of her life, and she sees the move to Panama as an adventure and an exciting life experience.
"This Just Came To Me..."
There are some people who are naturally relaxed and easy-going people. They can roll with the punches, tend to be optimistic and cheerful, and will see their moving experience as a rewarding challenge that was fun and exciting. These people are easy to deal with, don't have many problems completing their move or transactions, and whatever comes up they simply deal with as necessary. They don't get very excited, nervous, angry, or scared, and they don't over-react to any situation. These people are a rare breed, and it seems that most of them are staying in Kansas, anyway (because they're happy where they are.)
The Successful CEO: The other end of the scale is represented by the guy who pays strict attention to every detail. He was a very successful CEO of a large company back home, and he got there by making sure everything happened as it was supposed to happen. His employees consider him to be a benevolent tyrant, the kind of guy that rides everyone hard for their own good, and for the good of the company. He's hard to please, but he gets the job done. He's also very accustomed to people asking "how high" when he says "jump." He's been the boss for so long, he's forgotten that everyone else in the world is not afraid of him. He's got money, which he considers to mean power, and he's going to go down to Panama to show them how it's done.
"Panama Has Some Problems, But Nothing We Can't Fix"
This type of personality has a tendency to bring stress upon themselves. They're looking out for the snake that they know is under every rock, and the crook behind every tree. They view a setback or a delay as a failure. Any change or deviation from the predetermined plan causes them to get upset and concerned. They see the glass as half-empty, and they can just "feel" that everyone is out to grab a piece of their hard-earned nest egg. They don't really trust anyone they run into, and have a tattoo on their butt that says "Remember The Alamo - Caveat Emperor" (that's not a typo). He drinks and smokes but does not gamble and thinks casinos are for idiots.
So, Which Are You?: All of us fall somewhere along the continuum described above, from the laid-back pot smoking artist to the prozac-munching field-mouse-nervous CEO. Obviously, these two characters represent the extremes of the bell curve, and the rest of us are somewhere in the middle between the two. But hopefully you get the point and can corretly and objectively place yourself somewhere along line between flower-child and stressed-out paranoid.
These are the pople who are coming down to Panama to buy real estate. "They" are us, and we are them. We are the ones with the money in our bank account back home that everyone wants to get from us. The buyer is in the driver's seat because the buyer can always just walk away from the deal. They are the holders of the money, and at any point they can just catch a cab back to the airport and say "forget it..."
But every purchase is an agreement between two parties, the buyer and the seller, who mutually decide upon the value for a property, and the money is exchanged for the land, house, or condo. Middlemen are service providers to both of the principal parties (buyer and seller) and they make a cut or commission on the deal. When done correctly, everyone should walk away from a real estate deal with a smile on their face. The buyer is happy because he now owns the land he wanted. The seller got the asking price, and the middlemen earned their commissions to get the deal done and the paperwork signed. Drinks, all around...
But the buyers bring with them a whole laundry list of warts and rough spots that can make this process a lot more difficult than it has to be, and sometimes communication can break down to the point where deals fall through. Sometimes buyers and sellers can't agree on a price, and they walk away. But very often the bundle of fears, concerns and limitations the buyers bring to the process are simply too much to overcome. I'll discuss a few of those factors.
The Language Barrier: The English/Spanish language barrier is at the root of many of the problems and discomforts felt by many new arrivals in Panama. The language barrier is less of a problem for people who have spent a considerable part of their lives traveling abroad and living in different countries. For someone who speaks English, French, Italian, German, and a little Turkish, the prospect of having to pick up some Spanish to get by in Panama will not represent a major obstacle. But someone who has no international experience at all has a much higher hurdle to clear.
Most people coming to Panama to buy real estate speak very little or no Spanish. One of the greatest fears is the "fear of the unknown," and the inability to communicate easily and understand what's being said around you naturally causes discomfort. This barrier can become critically important when there are hundreds of thousands or millions of dollars at state in a real estate transaction, and the "devil is in the details." If you can't understand or pick up on the details due to differences in language, then there tends to be an exponential increase in levels of stress, tension, worry, and fear.
What usually happens is people meet somewhere in the middle. That is to say, the newly arriving expatriate learns some Spanish, and the people you're dealing with either speak some English, or they make an effort to understand your smatterings of Spanish mixed with charades. Somewhere between the two, the message gets transmitted, and understanding occurs. That's fine for buying a gallon of milk at the corner store, but what about spending a big chunk of your life savings on some ROP land on the side of a mountain somewhere. The stakes are much higher.
The language barrier makes people work harder. It's more difficult to understand someone who's speaking to you in broken English or with a heavy accent. You are forced to "actively listen" to get the message. Usually, listening is a passive act. You just sit there, listen, and process what's being said. But when the message is being delivered with a heavy accent, you are forced to pay close attention and to make sure you understand every word. You have to stop the conversation and request clarification for phrases or words you didn't understand. Having to work hard just to understand what's being said naturally raises the stress and tension, and makes you mentally fatigued at the end of the day. Shopping for real estate in Panama is very often described as "exhausting" and this is one of the reasons why.
Trust Me: The language barrier creates a requirement to place huge amounts of trust into the service providers who are helping you buy land. Buyers are forced to depend on lawyers, real estate agents, translators, guides, or other middlemen to communicate. And when you're working through a translator and don't understand half of the conversation, there is always the lingerding doubt about what's "really" being said during the part of the conversation you don't understand. People become totally dependent on outside assistance to communicate, and you can't tell the saints from the demons just by looking at them.
All Horror Stories have Something in Common: They all started out with a leap of faith. Someone placed trust and confidence in a service provider, and somewhere along the line that trust and confidence was violated, at least in the mind of the buyer. Every deal that's gone bad started off with a smile and a handshake. We're all friends until somebody takes someone else to the cleaners.
Changing Legal Environment: The US Constitution stops at the border. Panama is governed by their own set of laws and regulations, and they're in Spanish, by the way. Also, did you hear about the new law that reformed the old law, which changed the tax exemption schedule for those who meet the other requirements from the previous modification, but in reality no one knows what the new law means because the government has not published their guidelines on how its supposed to be interpreted, and you can forget that anyway, because I hear it's going to be tossed out... (You get the point.) The only constant in Panamanian law is change. The influx of expatriates and their money is causing the Panamanian government to retool a lot of things that have traditionally been almost ignored. So buyers are faced with the need to be able to understand and comprehend complicated and changing tax and real estate laws and regulations that are written in a foreign language. How many stress points is that worth? Again, it goes back to fear, worries, communication, and stress.
They Don't Even Measure Stuff Right": Square feet become square meters. Acres become hectares. Miles become kilometers. Buyers have to quickly learn to convert measurements and change their concepts in their heads. They know how big something is when they look at it, but the conversion to metric is another step required before they can compare potential properties to known lands and comfort zones. It's just another step, and one more little annoyance that must be overcome before the buyer can feel comfortable.
"There's So Much to Choose From": Buyers have to choose from a dizzying and constantly changing array of real estate options. It seems like builders and developers are announcing new projects almost daily. Buyers have to choose between the city and the interior, between the mountains and the beaches, between the Atlantic and Pacific, and between closed communities and raw farmland. There are just a lot of decisions to make. Some people are good decisionmakers who can effectively use logic and reason to sort through the options, and quickly and easily come to a decision on what's a good fit for them. Others struggle mightily with this process, and they are never really sure if they are making smart decisions.
"I think it was something I ate...": Anytime a person travels to another country, changes in food and water can cause upsets in the digestive process. There are a whole lot of other health issues that can distract and distress buyers, things like sunburn and dehydration for example. It helps to understand that the person sitting at the table might have other, more pressing requirements to attend to before they can focus on the real estate deal.
Risk Management: If buyers can find a way to build their confidence and make a decision, then the deal will get done. Sellers and middlemen would be well served to keep all of these factors in mind when dealing with the newly arrived buyer. While some will be completely comfortable and will sail through the process, others will verge on a nurotic breakdown and will require considerable hand-holding, lengthy and repeated explainations, and assurances that they are not getting ripped off.
Please Help Me Make This a Better Article: All of you who have purchased properties in Panama are the "been there, done that" voice that everyone else who has yet to make the leap needs to hear. Please either comment on this story (below) or send your comments to don@panama-guide.com. I will incorporate your replies into the article, and thanks.
