I’ve been a real estate investor for more than 25 years and have bought and sold hundreds of properties so I know real estate. But in Panama the whole process of buying and selling are completely different.
You should know that usually only a Panamanian is a licensed real estate agent or broker. Foreigners can sell real estate but are considered a “consultant” or associate. A foreigner cannot prepare any contracts or other paperwork for the purchase or sale of real estate. A foreigner cannot be a “real estate agent” or licensed until they have been working with a broker for several years then take a test, in Spanish, to get a license. 99% of the foreigners who sell real estate are not licensed real estate agents.
WHO CAN YOU TRUST?
Any foreigner who is working in Panama or selling real estate is required to have a work permit. If you’re working with an expat (foreigner) to buy or sell real estate, you should ask to see their work permit to verify that they are working legally. An owner can sell their own real estate without having a work permit… unless they have made a business out of buying and selling real estate then they need a work permit.
If a foreigner is advertising that they have a “real estate agency” in Panama, it could be an illegal operation. Chances are they do not have a work permit either. It is better to work with a company and sales people are work legally in Panama and avoid those who are not working legally.
Neither the Panamanians nor the foreigners who sells real estate or helps you buy real estate are obligated to a fiduciary responsibility in Panama. A fiduciary responsibility means that they will put your interest above their own. It’s not required in Panama though some honest real estate agents/consultants do put your interest first and foremost. Others will say and do anything to get the sale and their commission.
Some agents, but certainly not all, will put their commission above your best interest. That’s why it is important to always have your OWN attorney do a title search and create the purchase contract. Your attorney can also give you advice about what is needed to successfully buy real estate in Panama. Unfortunately, many real estate sales people will not tell you that:
♦ You should always get the property inspected
♦ You should get the septic and water systems inspected
♦ You should verify that there is a Certificate of Occupancy filed
♦ You should verify that all taxes have been paid (even if in a corporation)
♦ Be aware of the pros, cons and dangers of Right of Possession property
♦ 3% capital gains tax (on full sales price) even if a corporation
♦ 2% transfer tax (on full sales price) even if a corporation
♦ Review the survey to verify what you are buying or get a new one
♦ If there is a tax exemption, it needs to be transferred to you
♦ The best way to take title for your situation
Your attorney will make sure that your interest is protected before any contracts are signed, money changes hands or title is transferred. Most likely, all contracts and other documents will be in Spanish. Unless you are fluent in Spanish it is especially important to get YOUR attorney to create, or at least review, all documents. Do not trust what someone other than your attorney says the documents say. You can request that the contract be in Spanish and English.
Closings are handled in a completely different way in Panama. There are no title companies or escrow offices. It is customary to give the seller 3-5% down when the contract is signed (it’s not held in escrow) so it is imperative that your attorney is involved before any money changes hands. Your attorney should not be the same attorney as the seller’s attorney or the real estate sales person’s attorney. You need to have an attorney who represents you and your interest. Your attorney will prepare the closing documents, then you and the seller will go to a notary to sign everything. Your attorney will record the documents once everything is notarized. There are slight variations in closings for right of possession properties.
Titled Versus Right of Possession Property
Not all property in Panama is titled. If you are considering buying a property, you should ask the seller or the real estate sales person for the FINCA (farm) number. With the Finca number, your attorney can do a title search to verify that the person selling you the property is really the owner(s), can determine if there is a mortgage, the balance of the mortgage, if the payments are current, and if all taxes have been paid.
If the seller cannot supply you with a Finca number it is probably a “right of possession” property, meaning there is no title. These properties are usually priced much less than titled property. Because it is not titled, you are taking the risks that someone could come along later claiming that the property has been in their family for years. At that point, you lose your home and all the money you invested. It rarely happens but it does happen.
Right of possession property can be titled but the process takes about 5 years about costs about $6,000 to $100,000. I know some people who have been trying to get their property titled for 10 years with no success. I also know people who lost $10,000s of $100,000s of dollars buying right of possession property. And I know people who have purchased right of possession property with no problems. If you do buy right of possession property, you still need to get your attorney to review all the documents that the seller has to claim their ownership of the property. Get your attorney to review the survey to verify what you are buying. Buyer beware of right of possession property.
Not all right of possession property can be built on. If you plan to build, verify that you can get a building permit before you give anyone any money. If there is a current building on the property, verify that it is legal and can stay.
If you buy titled property, you can avoid any right of possession problems because there is a clear and recorded chain of title.
TAX EXONERATION = NO PROPERTY TAXES
In 2008 the government stimulated the real estate industry by promising a 20-year tax exoneration for properties which were built prior to January 1, 2012. This tax exoneration, which only applies to titled property, can be transferred from one owner to the next. But you should be aware that the tax exoneration only applies to the improvements or construction. You will still need to pay taxes on the land.
The tax exoneration rules changed in 2012. You still get a break on property taxes for houses or condos built after 2012 but not a 20 year tax exemption. Depending on the price, the tax exoneration could be for 15 years to as little as 5 years.
Then in 2018, the property tax laws changed again. If you purchase a titled property for $120,000 or less, you will NEVER have property taxes. Properties valued at $120,000 to $750,000 only have a 0.50% property tax but that is only after the 20 year tax exoneration if it applies.
Right of possession properties currently pay zero property taxes. That’s a plus. But the Panamanian government is talking about requiring all right of possession property owners to title their property which could cost $6,000 to $100,000 depending on the size of the property.
HOW TO TAKE TITLE
In Panama, it is not customary to take title to a property in your own name. Instead, you would take title in the name of a corporation or a foundation. There are several reasons this is done including asset protection and estate planning. Some agents will tell you that you do not have to pay capital gains taxes if you just buy the shares of the corporation instead of the real estate. This is not accurate. If the seller does not pay the capital gains taxes when the property is sold, you could get stuck with the bill later.
There are pros and cons to taking title in a corporation. The biggest “pros” are asset protection and estate planning. You could avoid probate too. The biggest “cons” are the upfront cost in setting up a corporation which can be $1,000 to $1500 depending on which attorney you are working with. There is also a $300 annual renewal fee to keep the corporation alive. If you’re a US citizen, you will also have to report the “offshore corporation” to the IRS. If you take title in your own name, you can avoid these additional costs.
EASY TO BUY, NOT SO EASY TO SELL
If a property is priced right it will usually sell within 30-90 days. But because there is no way to know what the right sales price is, most properties are not priced right. You cannot go by what other people are asking for their property. Generally houses priced under $150,000 sell faster. Anything priced over $500,000 could take two or three years to sell. Some houses have been on the market and priced too high for more than 5 years – yet the sellers refuse to lower their price. It’s crazy!
Some sellers try to justify their sales price based on replacement cost but that is not an accurate way to price properties in Panama because building costs vary considerably.
GOOD REASONS TO BUY
If you find your dream home and it is good price, it may make more sense to buy instead of renting.
Panama is a great place to buy investment properties. There is always a need for more rentals. But you should understand that rents are low in Panama compared to North America or Europe. A typical house worth $125,000 in Panama will only rent for $750 – $800 a month – furnished and all bills paid. You will need to buy below market for investing to make sense. Good property managers are hard to find so it is best to scope out who can manage your property before you buy.
Some towns in Panama have more “upside potential” than others. These towns are usually have fewer expats so they are priced lower than other areas that have been “discovered”. Their is a chance — a risky chance – that the town will improve and more expats will move in which could – could – cause the property prices to go up. It certainly won’t happen fast though. You should plan on at least five to ten years for prices to go up. Keep in mind that if you need to sell quickly, you may not be able to sell for what you paid for the property.
OTHER THINGS YOU SHOULD CONSIDER BEFORE BUYING IN PANAMA
You will need to determine where the closest grocery store is located and if they have the items you need.
If you travel a lot, you’ll want to be close to an airport.
You may not be able to get fast internet or any internet or cable tv service in some areas. Yet other areas have fiber optics and you can get 100-600mbps internet speed.
You’re not just buying a house, you’re buying a neighborhood so it’s important that the surrounding houses are of equal or greater value to yours or you could have a hard time selling later.
Because there is not an active MLS system in Panama, it is very difficult to determine value. You should not rely on what the real estate sales person or the seller tells you: instead, you should do your own due diligence. it takes time to learn property values so that’s another reason to wait at least 6 months before buying.
I highly recommend that you rent for at least 6 months before you even think about buying anything in Panama. In that time, you can be sure you like the area. You will have time to keep track of the sales price of homes in the area so you will know the “right” price to pay when you do decide to buy. During the 6 months that you’re renting, you will get to know a lot of people and get referrals for good and honest real estate agents and consultants. You’ll also likely hear about a few sales people to stay away from. You may hear about a hot deal before it is listed with a real estate agent. If you are moving to Panama, it will take about 6 months to get your permanent residency Visa which is another reason to wait 6 months to buy.
Speaking of listings… many properties you see for sale do not have an exclusive listing with one agent or company. Instead, the seller has told all the real estate sales people in town that they will pay a commission to whoever brings a qualified buyer. With this arrangement, you are likely to see the same property at many different prices on many different real estate websites.
If you are from Canada, do not assume you can trust real estate sales people from Canada. If you are from the USA, do not assume you can trust real estate sales people from the US. Ditto from Europe, etc.
Panamanians are excellent real estate agents! There are a lot of really good expat real estate sales people.
If a real estate sales person goes to church, claims to be a Christian, frequents the Panama forums or Panama Facebook groups, it is NOT a sign that they are trustworthy… the could be just trolling for the next sale/commission.
Getting a mortgage is more difficult in Panama but it can be done. You’ll need at least 20-30% down. And you’ll be required to get a life insurance policy for the amount of the loan and name the bank as the beneficiary so they get their money one way or the other. Most loans will require payment in full by the time you turn 70 years old. Some builders offer short term (5 year) seller financing.
There are a lot of really great real estate agents and sales people in Panama. You’ll meet some of them during a Panama Relocation Tour. But there are also some unscrupulous real estate sales people in Panama too. Buyer beware!
EXAMPLES OF REAL ESTATE FOR SALE IN PANAMA
$85,000 Two bedroom Two bath gated community next to the Pacific Ocean.
Many community amenities including, pools, club house, lake with paddle boats,
BBQ areas, tennis, golf. Only 5 minutes to Westwind Mall and 40 minutes to
Only $125,000 for an ocean front house. Two bedroom two bath fully furnished.
This property is a bit isolated but has an amazing beach and views. It is fully furnished
See house picture in the heading. Check out the view off the deck. Seller financing available.
Fixer Upper for $55,000 – 4 bedroom 3 bath on a x-large fenced lot with a lot of fruit trees.
Only 5 minute drive to the beach. Needs about $10,000 in repairs will be worth $125,000
when completed. This is in a neighborhood which was the executive housing for Chiquita
banana in Puerto Armuelles, the most affordable beach town.
$159,000 Ocean front condo. Three bedroom, Two bath, fully furnished. Amazing views
and ocean breeze. This is 2 miles to Coronado which has a hospital, many grocery stores,
restaurants and more. And it’s only one hour to Panama City
$69,000 in the cultural center of Panama, Las Tablas. Three bedrooms two baths.
Unfurnished. Fenced yard. Great neighborhood
$145,000 fully furnished 3 bedroom 2 bath 2 living area mountain home near Boquete.
Great investment property or place to live. Seller financing available. Ten minutes to downtown
Boquete or 20 minutes to David.
$199,000 for TWO houses. The main house is a two bedroom two bath, fully furnished.
There is a one bedroom furnished rental casita next door for instant income.
This property is 8 minutes to downtown Boquete.
DON’T LEAVE YOUR BRAINS AT THE BORDER!
When you see that gorgeous ocean or mountain view and a house priced much less than you’d pay where you live now, don’t get so excited about the opportunity that you forgot to do the normal due diligence before buying real estate. Always get the property inspected. Never sign any documents or give anyone any money until your attorney has had a chance to review everything.
One other word of caution – don’t buy real estate then leave town trusting someone else to get repairs done or to build your house. You should be present while a house is being built or when repairs are being done.
NOTE: Panama Relocation Tours does not sell real estate. During a tour we will show you several rental properties just so you can get a general idea of what you get for your money in different areas and different price points. We will introduce you to trusted real estate sales people during the tour. Panama Relocation Tours does not accept commissions or “kick backs” for any real estate sales or rentals.