Country Overview | Key Property Facts

Types of Tenure:

Property in Panama can be bought on a freehold or leasehold basis.

Forms of Ownership:

There are no restrictions on ownership of property by foreigners, except that article 121 of the Panamanian Tax Code says that foreign persons, or Panamanian corporations with foreign ownership, cannot purchase property located less than ten kilometers from the frontiers, nor on islands under the jurisdiction of Panama. Foreigners may engage in commerce or industry without limitations.

Panama encourages long-term foreign investment and offers a retiree incentive program, the Pensionado program, which is not necessarily age-related and whose benefits are considerable such as tax exemptions and big discounts on utilities and basic services.

It is advised that a good way to protect all rights as a foreigner to hold real estate is through the establishment of a Panamanian Corporation. This will protect you from frivolous legal proceedings or asset seizure in your home country and has advantages under Panamanian law as well. Constitutionally, the government cannot seize private property unless it follows a procedure similar to eminent domain in the U.S. The owner receives fair market value for land and improvements.

The two most common alternatives used by foreigners are (1) to ensure that the property purchased is already titled, and (2) to purchase a “possession right”.

Titled Properties

The Public Registry Office (Registro Publico) keeps record of all titled properties in all nine provinces of Panama. Information regarding titled properties is readily available through the Public Registry, and thus it is fairly simple to undertake a preliminary due diligence.

The following are the steps necessary to successfully buy a titled property:

Perform a complete due diligence of the property, including a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.) as well as verification of any other special characteristic, limitation or encumbrance over the property.
Enter into a Promise to Purchase Agreement to secure the property, which will give the buyer time to properly execute the due diligence, and to obtain financing. This agreement must be recorded in the Public Registry in order to affect third parties.
When due diligence has been completed, enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property.
Ownership is confirmed once the public deed containing an annotation regarding change of ownership is registered at the Public Registry Office.

Generally, payment is not delivered to the seller, until transfer of ownership has been registered. But in some other cases the parties agree to appoint an escrow agent (lawyer or banker) to receive the funds under an escrow agreement, which states that payment will be made immediately upon presentation of the deed of transfer of ownership of the property, duly recorded at the Public Registry Office.

Possession Rights Properties

(Derecho Possessorio)
Not all properties in Panama are subject to registry in the Public Registry Office. Many beach front properties, islands and real estate in special tourism zones such as Bocas del Toro and Portobelo are owned and managed by the national or local municipal governments, and only “possession rights” are granted over these lands for a determined period of time.

Persons interested in investing in projects located in these restricted areas should be very careful to ensure that the award of the “possession right” or “limited ownership” is granted by the pertinent national or local municipal government authorities. It is important to verify the following:

That the award of the piece of land has been issued by the correct authorities.
That the award contains a complete description, including limits, boundaries, encumbrances, and other important details of the land. A complete blueprint should have been drawn and approved.
That the activity to be undertaken by the purchaser is allowed, that is that the construction or building to be made is acceptable to the national or local government.
That the award be extensive for a period of time suitable for the purchaser.

Due to the lack of uniformity regarding the granting entity for “possession rights,” it is of utmost importance to review each purchase individually and make recommendations especially for each land option. The length of the transaction process for the possession rights transfer will vary, and can take up to 6 months.

Restrictions:

Regarding ownership of Panamanian land, the following restrictions apply:

Under Article 286 of the Constitution, foreign ownership of property within 10km of an international border is forbidden.
Untitled land must be owned by a citizen of Panama for a minimum of 2 years before it can be sold on to a foreign buyer. (After the two-year period, the land can be titled and re-sold without restriction).

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.

Property Rights:

Panama scores 30% in the Heritage Foundation’s assessment of the security of its property rights. The Heritage Foundation states, “Panama suffers from weak property rights and freedom from corruption. The judicial system is backlogged with cases, not committed to contract enforcement, and subject to political interference. The economic climate is further hurt by a significant amount of corruption in the judiciary and civil service. Trade regulations are enforced inconsistently”.

Mortgage Finance:

Panama has the most modern and successful international banking center in Latin America, with more than 85 banks from 35 countries.

It therefore comes as no surprise that mortgages are readily available in Panama for qualified foreigners seeking to finance local property purchases. Panama’s banking laws meet the strict standards of leading financial centers around the world for transparency and regulation, and in deciding from which bank to obtain your mortgage, there is no shortage of options.

Below is outline of the mortgage process provided by Philip James Realty.

Home Mortgage Loans

Home Purchase/Home Improvements.

Mortgage: Maximum USD $500K.
Terms of repayment up to 30 years.
Up to 80% financing of the appraised value of sales price whichever is lower

Leisure Property

Summer home

Mortgage: Maximum USD $300K.
Terms of repayment up to 30 years.
Up to 80% financing of the appraised value of sales price whichever is lower.

Interim Residential Construction

Mortgage.

Maximum USD $500K.
Terms of repayment: Up to 18 months for interim construction program Long Term Financing: 30 years.
Up to 75% of total construction cost of project, including land and blueprints or 100% of total construction cost, whichever is lowest

Land Financing

For purchase of land for residential properties.

Mortgage: Maximum USD $150K.
Terms of repayment up to 15 years.
Up to 50% financing.

Who applies?

Applicants must be al least 18 years of age.

The maximum age is 75 years.
Foreigners that are not living and not working in Panama.
Foreigners with less than two years living and working in Panama

Other Requirements

Appraisal of the property is requested by the Bank Fire insurance with extended coverage insurance for 80% of the appraisal value of improvements and life insurance for 100% of loan balance

LOAN REQUIREMENTS FOREIGNERS

Home Mortgage Loans

Amount                                      Interest Rate
Up to $150,000.00                      6.50%
Over $150,001.00                       6.25%

Finance: 80%.
Terms of repayment up to 30 years (75 years old, ending Age).

Requirements - People earning a salary

Original Job letter.
Copy of Passport.
Copy of the latest two payroll receipts.
Last (2) Income Tax Returns ’04 and the ’05 or the ’05 and ’06.
Signed and Completed Application Form (provided by HSBC).
(2) bank reference letters (credit references preferable).
Authorization to check credit references

Requirements - Self-Employed

Copy of Passport.
Last (2) Income Tax Returns ’04 and the ‘05.
Signed and Completed Application Form (provided by HSBC).
(2) bank reference letters (credit references preferably).
Authorization to check credit references

Usually, A life insurance policy must be taken out for the amount of the loan. This can be included in the mortgage payment if you are under the age of 65. A medical exam may be required to be taken in Panama depending on your age and the amount you borrow.

Issues & Risks:

Panama's real-estate market is in the midst of an unprecedented explosion. A combination of easy credit, foreign demographic trends and, most importantly, quite a bit of speculative momentum appears to be behind the surge in investments in the luxury residential market. The intense level of enthusiasm is raising questions about the sustainability of demand, the likely strain on infrastructure, and the potential risks to some investors and end users should the market suddenly burst.

Just when concerns are increasing in the US about the stalled housing market, Panama's boom appears nowhere near to ending. The country boasts a host of expensive new high-rise apartment and resort complexes that are in the planning stage or already under construction. These are being spearheaded by local and foreign capital, including US and European companies and investors such as Donald Trump, one of the US's biggest names in property development. While luxury tourist resorts are being built in some coastal areas, much of the activity is concentrated in the capital, Panama City.

Whether the pace of growth is being fuelled more by speculation than by authentic demand is a key question. The Prima study looked at immigration trends from the US and residency visas issued to foreigners by Panama's government as a proxy for end-user demand. Its findings suggest that the level of immigration might be insufficient to justify the building of so many luxury apartment complexes targeting foreign purchasers, and that the perception of foreign demand could be overly optimistic.

However, others say that this underestimates local Panamanian demand for property and the importance of foreign, but non-resident buyers.

Still, there are concerns that the building activity is too much for Panama's market to absorb, particularly as property values are rapidly rising. The activity is even larger than recent property development in Miami metro area, which is a wealthier and internationally oriented city and business centre for Latin America. The nearly 11,000 apartments that will come to market in Panama City over the next five years (and that figure could be much higher given the latest project announcements) is nearly the same number that was built in the city of Miami during the past 10 years.

Growth and Challenges

The pace of growth in the residential market also generates challenges for Panama's government. The first is to improve infrastructure to meet the needs of a major increase in high-rise buildings. The roads and public transport system are lacking, and traffic in Panama City is already a major problem. Water, sewage and other services will also be put under strain once the many planned residences are up and fully occupied.

Further, critics say that the quality of construction, and the impact on the surrounding areas, will be compromised by poor enforcement of environmental and public-safety regulations. Finally, a slow bureaucracy and legal insecurity could plague any future legal disputes that could emerge from thebuilding and buying frenzy.

Many of these problems will be even worse in smaller coastal and island communities, where local regulatory enforcement is more lacking, and where the nature of many of the communities is being changed by the inflows of money and foreigners.

Promoters of the new real estate developments argue otherwise. They say that Panama's robust economy, stable government, relative lack of crime, affordable cost of living and an attractive lifestyle justify the investment boom. They also say the government has plans to work together with private investors to provide upgraded infrastructure.

However, there is no real evidence that the government is working comprehensively and in concert with builders. And whether the government will be able to pay attention to, or have the funds available to improve, public infrastructure while it focuses its energies on the huge Panama Canal project is subject to doubt.

In the end, Panama's hot property sector could one day go the way of other similarly frothy markets such as Singapore, Dubai and Hong Kong whose real estate markets were magnets for speculative capital and underwent subsequent volatility, even crisis. Risks for builders and creditors in Panama could be
minimal, as a large number of the new units are being successfully pre-sold in the pre-construction phase.

Those investors and end-users who get into the game fairly early will also gain. There is a risk, however, that those who come in later could find themselves in an overrated and expensive market, and eventually, with collapsed asset values.

Regulations:

Various regulations apply to property transactions in Panama. Firstly, your lawyer – through searching the land register – must check that the seller is authorised to sell the property in the first instance. All parties must also be considered to have the capacity to conduct their own legal affairs independently under the law (e.g. they must not be minors under 18 years old or mentally infirm).

In the case of companies owning property, capacity to act is established from the commercial register or from relevant documents (certificate of incorporation, certificate of good standing, etc.) Third-party claims on the real estate must be honoured (e.g. from creditors) and unpaid taxes must be paid before the transaction can be made. It is the duty of the seller to notify the authorities of the change of ownership within 48 hours of the sale; failure to do so will result in a financial penalty.

Key Property Markets:

Boquete:

Boquete sits in Panama's mountainous Chiriqui region at an elevation of about 3,500 feet. It's quiet, unspoiled, uncrowded. Mountains, rivers, waterfalls. Lush green hills and great masses of red and purple flowers. This is coffee country, and in harvest season the Indians come down from the hills to find work. The men call and sing to each other as they pick. Their children run through the fields and play in the streams.

The climate in Boquete is ideal, spring like year-round with reasonable daytime temperatures, cool breezes, and chilly nights. Beachfront living is nice, but the mountains of Boquete are hard to beat. If you like Colorado, you'll love Boquete. Three-bedroom custom-built houses start at $138,000 and ocean-view lots are under $30,000.

Pearl Islands: If you're searching for sand and sun, Panama has that in abundance. The island of Contadora, the seventh biggest of the 90 named islands in the Pearl Islands archipelago, is in the Bay of Panama, just off the coast of Panama City.

This is the stuff of travel-magazine cover photos: turquoise waters, 13 white-sand beaches, secluded coves, bright red and yellow fishing boats, swaying palm and cashew trees, giant coral reefs, coconuts, mangoes, parrots, hummingbirds, pelicans, sea turtles and bright tropical flowers . . . with occasional sightings of gray and orca whales just off the island's shores.

Today the island is a closely guarded secret playground for wealthy and famous political leaders, writers, entertainers and businessmen -- not just from Panama but from all over the world. Renovated beachfront villas start at $160,000.

Panama City: Panama City is probably the least expensive place in the world to live in a First World city. Here you'll find world-class restaurants, every imaginable luxury, hundreds of multinational businesses . . . all at about half the price you'd pay in Miami, or any other U.S. city for that matter.

Furnished studios start at less than $60,000, beachfront condos from $77,000. A two-bedroom, 1,300-square-foot apartment in the banking district in a building with a pool and gym costs around $150,000. A two-bedroom apartment with views of the bay and maid's quarters costs $160,000 (and rents for $1,100 per month).

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