Buying & Renting Properties in Panama
Why ERA Panama?
Looking for property to buy or rent in Panama can be a daunting task. If you’ve spent any time searching online for properties in Panama, you noticed that, unlike the civilized, orderly Multiple Listing Service (MLS) available in the US, Canada and many European countries, finding your choice property is like looking for a needle in a haystack. The conventional wisdom is that your only option is to contact lots of sellers’ agents in order to be sure you are accessing enough potential options.
You have likely googled “properties in Panama,” shopped around for a while and found a few that piqued your interest. You may have even moved ahead and emailed or called the listing agent for more information, only to discover disappointing results that leave you wondering if there could possibly be a better way to find your property of choice.
Our Relationship-Focused approach
Introducing ERA Panama…… founded on the core values of trust, integrity, professionalism, and on building long-term relationships rather than managing individual transactions, ERA Panama partners with you to make the process of finding your real estate investment efficient and exciting.
Rather than using the used-car salesman approach of trying to sell you what is in the lot, ERA Panama believes in a team-oriented, relationship-focused approach. Our goal is to listen to you, understand your needs and use all of our resources to match you up with the property of your choice.
In effect we can be your sole buyer’s representative in the local market contacting other selling agents as needed in order to find the right property rather than you having to deal with multiple agents and all the hassle that that entails. If you enjoy being proactive and doing your own searches, by all means, peruse as many of our competitors web sites as you like and then bring your selections to us so we can investigate and pursue them further for you.
Even if you are interested in buying pre-construction or “off-plan” from a developer, we strongly recommend the use of our sole buyer’s agent service to act as intermediary, since the developer will naturally be principally looking out for its best interests and will not normally have yours in the front of their mind. Their sales price will still be the same even if we are representing you, since our commission is included into their existing sales price.
Our Process
We begin by creating a profile for you with the aim to fully understand your criteria for investing in Panama.
Our team of real estate experts then scours the land, knocking on doors, pinging people on the web and collaborating with other realtors, in search of the perfect property for you. We pre-screen the listings that match your criteria for investment then send you various properties for your review.
Additionally, if you are living outside of Panama, when you visit the country to see the properties that are available, ERA Panama can arrange for your stay and drive you through the selected properties.
Once we’ve selected a property, we will help you with all the legal and managerial paperwork involved in legitimately owning property in Panama. Our sister company and law firm, Sovereign Management & Legal, handles all aspects of the buying process in-house, so you can rest assured knowing you are in good hands.
We are serious about nurturing our relationships with our real estate clients. We want you to feel the difference ERA Panama can make in your real estate investment experience.
So, if you’re contemplating owning or renting property in Panama, residential or commercial, for business or for pleasure, and want someone on your side you can trust, looking out for your best interests every step of the way, then contact ERA Panama. We look forward to serving you.
Our Guide to Buying Properties in Panama
Restrictions on Foreign Ownership
For foreign buyers in Panama, the following restrictions apply:
- Under Article 286 of the Constitution, foreign ownership of property within 10 kilometers (6.2 miles) of an international border is forbidden.
- Untitled land must be owned by a citizen of Panama for a minimum of two years before it can be sold on to a foreign buyer. After the two-year period, the land can be titled and resold without restriction. (Note: Some untitled land can never be titled, so get professional advice before you decide to buy.)
- There are restrictions on foreign ownership of waterfront and island property. Such restrictions may be avoided if you are investing in one of the Tourism Zones. By law, all beachfront properties must provide a public right of way starting from the highest tide to the property line. (This distance may vary.) Permits to build over the water require a concession from the maritime authority and the Ministry of Finance. (One exception to this restriction is Contadora in the Pearl Islands, where there is no restriction on foreign ownership.) These restrictions are best discussed with our law firm.
Ownership Options
In Panama, you have the option to buy as an individual or through a Panamanian corporation. For large projects, its best to own property through a Panamanian corporation. Although not mandatory, it makes it easier for you to settle disputes, especially in court. However, even for an individual property there are some advantages especially when it comes time to sell, since the transfer of ownership is very quick and straight forward and since there is no transfer to record in the public registry, the transfer tax is avoided. In essence the buyer just buys the company. There are also estate planning advantages as well, since provisions for a transfer of ownership of the company in the event of death are very simple to draw up. When a company is set up to own a piece of property it is important that the company is solely dedicated to holding title to the property and is not used to open bank accounts or do other business under. Any chance that a company has been used for other business will make an educated potential buyer extremely wary about buying the company due to the risk of unforeseen liabilities or debts that may have accrued to the company. See Panama corporations.
Step One: Confirm the title
Of course your ERA agent will do all this for you so the details described in the steps here are for your edification rather than instructions that you will actually need to follow yourself. But we want all of our buyers to be educated buyers so that you understand the entire process.
The first thing that needs to be done is to confirm the legal owner of the property. After you’ve found the property you want to buy, your ERA agent will ask the owner for copies of two important documents—the public deed containing the title (escritura) and the Ownership and Encumbrances Certificate (Certificado de Registro Público) from the Public Registry. These will then be provided to our lawyer for an updated search or to your lawyer if you prefer to retain your own separate counsel. If these documents are not available, ask the seller for a property number (finca). If we have a direct listing agreement with the seller then all this would have been done automatically as part of the listing process. With this information our lawyers (or yours) will be able to search for the title.
The escritura states the owner and carries a description of the property. The Certificado de Registro Público document indicates whether there are any liens against the property or other legal complications. The copies of these documents must be checked by an attorney. An updated search is wise in any case. The seller must also provide copies of the survey plans of the property, and of any buildings describing the size and location of the property.
Getting clear title to property in some parts of Panama can be a problem if you’re not careful. It is best to avoid the San Blas region on the country’s eastern coast, for example, where the Kuna Indians live in what has been designated an independent, sovereign state, where private ownership of real estate is not allowed. Some people have attempted to partner with the Indians to do business here, with no success.
In addition, most of the property in and around Bocas del Toro (and in the country’s agricultural areas) is owned by the government. You cannot readily acquire título de propiedad (formal titled ownership) to any of these properties. Another way to acquire land is through derecho posesorio (rights of possession), which permit a buyer to acquire a right to possession that is transferable, as long as the land is actively used for the public good. This is a problematic area. For instance, a squatter may obtain title through the Panamanian court when the right of possession is over private property and his possession has been undisturbed for 15 years. If claim for ownership is filed in court, it would be turned to title. Rights of possession over government property may only be transformed to title by the Agrarian Reform, but this does not cover coastlands or islands. This type of ownership was created to give access to land to landless peasants; it was never meant for speculation. Disputes over possession rights are common.
We recommend that you do not purchase a property with possession rights unless you are aware of the potential pitfalls. Due to our lawyers’ connections if the right situation presents itself, we can recommend this as a possible option, and it may be quite possible to go through the conversion process to create full title without any obstacles. It is a specialized field of legal work that our lawyers are familiar with and can be rewarding in that it’s possible to pick up properties for a fraction of their real value based on full title ownership. But be aware the process can take many months so we would only recommend this option for the sophisticated or patient investor. From time to time we offer rights of possession properties.
Most property in Panama is titled, and the country has a sophisticated, computerized land registry through which you can easily trace the ownership of property.
Step Two: Promise to buy
Once you are satisfied that the title is in order you will enter into a Promise to Buy-Sell Agreement, which we will prepare for you and assist you in opening escrow for the deposit of the down payment with Latinamerica Title Company (LATCO), our government licensed third party escrow and title insurance company, who is the exclusive representative of Chicago Title in Panama and offers customers the most comprehensive and accurate title and escrow related services in the region, that minimize the risk of buying and selling real estate in Panama. Its underwriter Chicago Title is the largest title insurance and escrow company in the world and issues approximately one in every four title guaranty policies in the United States.
See http://www.latco.com.pa for more information on LATCO and why our decision to use them exclusively for all our transactions sets us apart from our competition. The efficiency of North American style real estate transaction closing is still a relatively new concept here but we are one of the first real estate firms in Panama to totally embrace this vast improvement to the whole process.
LATCO will arrange for the title insurance which you are advised to purchase. Unlike in the United States where the seller pays for the title insurance, here in Panama it is the responsibility of the buyer to purchase it and we always encourage all our clients to do so.
A date for the transfer of title is set at this time. Normally, there is a penalty if either party backs out. During the period set out in the agreement, the seller pays the transfer tax and obtains the clearance certificates necessary to transfer title. You arrange for payment by arranging financing, etc. (see our mortgage broker services). At the agreed-upon time, both parties sign the final contract.
Step Three: Transfer the title
Once Step Two is completed, our law firm will draft the final purchase and sale contract. We will gather all documents and make an additional search to make sure that no liens or mortgages have been filed in the meantime. Our lawyers will then put the contract into final form and draw it up as a public deed. Then all parties will go to a Notary Public to sign the deed. Panamanian notaries are high-ranking officials and are granted far more responsibility than their American counterparts. They represent neither the buyer nor the seller.
Step Four: Transfer the funds
LATCO transfers the funds from escrow to the seller upon the signing of the final purchase and sale contract.
Step Five: Record your purchase at the public registry
The purchase is not final until it is recorded at the public registry. This process normally takes a few weeks, but can be done in about 10 days by having our law firm file the documents directly at the main office of the public registry in Panama City. If you are in a great hurry, the public registry charges an additional fee of $250 for next-day registration (provided all documents are in order). Once the registration process is completed, our lawyers will give you the registered deed and will make sure that a copy is filed with the tax records department (catastro)…and the property will be yours.
Transaction Costs
Real estate agent commissions in Panama typically are 5% of the selling price, and are paid by the seller. The exception for this is with pre-construction or “off-plan” developments when the commission will be paid directly to the agent by the developer and is built into the sales price. Their sales price will be the same regardless of whether you approach the developer directly or go through an agency such as ours. For obvious reasons the developer is only looking out for their interests and so it behooves you to use our buyer’s agent service instead so we can represent your interests. The buyer must pay the expenses regarding Title at the Public Registry. The amount to be paid is estimated according to article 314 of the Fiscal code. This scale is rather cumbersome, but as a general guide, closing costs typically amount to around 4% (including legal fees, title insurance, registration and notary fees).
Panamanian Real Estate Taxes
Transfer tax
Transfer taxes in Panama are paid by the seller, and are 10% of either the updated registered value of the property or the sale price – whichever is higher. If the property is bought by a corporation, it is customary for the shares of the company to be sold (instead of the property), thus eliminating the need to pay transfer tax.
Inheritance / gift tax
Inheritance taxes in Panama have been completely abolished. Despite this, taxes on gifts (inter-vivos) of properties located in Panama are in effect, and the rate depends on the degree of relationship between the donor and the donee. This does not apply to property owned anywhere outside Panama.
Rental Income Tax: If you receive rental return on your property, you will be liable for income tax up to a maximum of 30% (on returns greater than $200,000). However, if you invest in one of the special “tourism zones,” you may be exempt from income tax for 15 years.
Property Tax
Properties with a registered value of $20,000 or lower do not pay property tax. For properties of a higher value they pay as follows: 1.75% from $20,000 to $50,000; 1.95% from $50,000 to $75,000; and 2.10% over any property value above $75,000.
If you buy or build a residential property in Panama, you may be exempt from property tax for up to 20 years. However, this provision is being phased out gradually, although it has been rolled back several times.
The exemption is transferable during the exemption period to any new buyer. The land itself is not exempted and would continue to pay property tax, if its value is above $20,000.
Financing
It is easier to get a mortgage in Panama than almost anywhere else in Latin America. Local financing is widely available for foreign residents – that is, residents holding an approved visa, even if they do not spend all year in Panama. Expect to pay around 30% as a down payment. See mortgage brokering services.
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