Investing step by step

Chances are you have never bought Panama real estate before and have many questions regarding the process and legalities. The following text will help to understand the details in practical terms. As in most countries, the purchase usually takes place in easy stages:
The first step is to find a Panama Real Estate you like, and negotiate the price and terms of the sale with the seller (or Panama real estate broker). Second, you should seek a qualified attorney in Panama to handle the due diligence and title search on the property, putting your Panamanian attorney in contact with the seller (or real estate broker) to gather copies of the property title documents and survey (if available). Third, have your attorney prepare a Promise to Buy/Sell Contract to lock in the property sale and secure the terms agreed upon (a deposit of 10% is usually required by the seller upon signing the promise to buy/sell contract), plus this gives you time to do the due diligence and get your funds into the escrow account. Fourth, once the attorney has confirmed the property title is clean, then the final closing is scheduled, where the buyer/seller sign the final Buy/Sell Contract. Fifth, payment is made to the seller, broker, and attorney from escrow (in some cases, buyers/sellers agree that payment is made after the public deed of the property is transferred and registered into the buyers name). Sixth, the Buy/Sell Contract is registered at the Public Registry where they transfer the property title ownership from the previous owner to the new owner.When someone is planning to retire in a tropical paradise like Panama, owning a home, investing in land for reforestation, acquiring a beach-front property are only some of the reasons why it is important to learn the rules about purchasing property in the Republic of Panama. No matter for what purpose the land is being purchased it is important to learn as much as possible regarding the property, including but not limited to limits and boundaries, its encumbrances, registered value, official blueprints, tax burdens and others.
There are different ways to obtain property in the Republic of Panama. First, we will review the purchase of a titled property, which is applicable to land duly recorded and titled in the Public Registry. Next, we will examine the purchase of a “possession right” and the implications of the same. This last acquisition method is common to land located in historically protected areas, such as the tropical paradises of “Bocas del Toro” in the northernmost province of Bocas del Toro and “Portobelo” located in the Province of Colon, in the Atlantic side of the Isthmus.
Titled Properties
The Republic of Panama is blessed with one of the most sophisticated and reliable Public Registry systems in the region. The Public Registry Office keeps record of all titled properties in all nine (9) provinces of the Republic 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 on a lot or property.
Persons interested in acquiring titled property must follow these steps in order to successfully undertake and minimize the risk of their transaction.
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 in order to have enough time to properly execute the due diligence regarding the property, obtain financing and arrange details. This agreement shall be duly recorded in the Public Registry in order to affect third parties. 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 of any Panama real estate is confirmed once the public deed containing such an annotation is duly registered. Generally, payment is not delivered to owner until the proper transfer of ownership is undertaken, while in others, the parties agree to appointing an escrow agent (lawyer or banker) who receives 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. These types of investments are the ones that benefit the most from the purchase of title insurance, which is very traditional and popular in the United States of America. Title insurance has been well received in Panama since it provides assurance of the investment on both the land and the improvements to be made on the same.
General Panamanian law allows for both nationals and foreigners to purchase titled property in Panama. However, please note that article 121 of the Panamanian Tax Code establishes that foreign persons or Panama corporations with foreign ownership cannot purchase property located less than ten kilometers from the frontiers nor islands under the jurisdiction of Panama. This also applies to possession rights.
“Possession Rights” Properties
Not all properties in the Republic of Panama are of private domain and 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 for a determined period of time over these lands.
Possession rights are basically land use acknowledgments which are essentially recognized based on the occupation and use of a certain area of land over 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” be duly granted by the pertinent national or local municipal government authorities. In this sense, it is important to verify the following aspects before investing in this type of real estate:
That the award of the piece of land is 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 shall be drawn and approved. That the 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 specifically for each land option. The length of the transaction process for the possession rights transfer will vary and can take up to 6 months, depending on many factors, such as the date of recognition of the possession rights, inspection by the granting entity, among others.
Many land developers in these special areas have undertaken the task of procuring the possession title documents and transfer the ownership of the same by means of the sale of a Panamanian corporation and its assets. Special caution should be taken with these transactions as the Panamanian corporation could have undertaken other businesses besides that related to the property and there is no official registry of the commercial undertakings of the same.
Due to the fact that most land subject to possession rights is located in islands and in places such as Bocas del Toro located near the frontier of Panama and Costa Rica, special attention should be made to article 121 of the Panamanian Tax Code, explained above. A government commission is presently reviewing this situation. Additionally, the BusinessPanama lawyers have filed a court action requesting the incostitutionality of article 121. However, until this situation is cleared, this is a risk that foreign investors assume.
Other Alternatives for Purchasing Property in Panama
Purchase of a property by means of the acquisition of a Panamanian corporation which already owns the land is an alternative that may be considered by investors interested in purchasing land, provided that a full due ddiligence is made on the corporation and the seller makes substantial representations assuming full responsibility for the corporation’s previous activities.
Other methods for the transfer of property are donations or legacies, which follow a completely different procedure, and most likely will not be an alternative for foreign investors looking to invest and/or retire in Panama.
Conclusion
It is important that before purchasing any kind of property in the Republic of Panama, any investor makes sure to follow these simple steps:
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 of the property. Enter into a Promise to Purchase Agreement in order to have enough time to properly execute the due diligence regarding the property. For titled properties, this agreement shall be duly recorded in the Public Registry in order to affect third parties. Enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property. Payment should not be made to owner/seller until the proper transfer of ownership or “possession right” is undertaken. Consider title insurance over the property for the totality of the sum invested. This will ultimately guarantee your investment.