We will talk here about buying a home in Panama; however our advice easily computes to almost anything or any place when moving overseas. As a caveat, this blog is a summary of our experience and, as we have learned, not every experience here in Panama is the same. It is not intended to give legal advice, but to inform people of the process we followed.
First and foremost, use every fiber of your due diligence. We have continually advised that people spend at least a year on the ground in the country prior to buying real estate. Being on the ground and meeting your future neighbors, exploring your future neighborhood, and getting involved in a community are the only ways to be sure you are making a solid decision. This is also a way to make sure that buying real estate is right for you. It is easy to buy real estate in Panama, but hard to sell. It is a depressed real estate market at this time, but appears to be showing signs of turning around. We have met several ex-pats that rent and will continue to rent with no intention of buying, and that was a decision which was right for them. Also, living abroad is not right for everyone. We do not want people to jump right in and buy real estate without knowing that this move is right for them. Because it is so hard to sell property here, making a quick decision to buy can be bad. We knew that this was at least a 10 year adventure for us, and we knew that Panama was the place we wanted to be. As a result, making that decision to buy was good for us. We did not buy our home to use as an investment.
Second, learn the customs and laws of the country of which you are considering. This is done by reading blogs, doing internet searches, and asking questions. There is a lot of information out there, and you need to decipher through that information.
Third, and certainly not least, obtain wise counsel in a reputable real estate agent and an attorney. You may also want to speak with your financial advisor and your CPA or tax person.
In any developing country everyone must understand that they are no longer in the United States or Canada. Laws to protect consumers are practically non-existent outside of those places. Things like mortgage loans are rarely available to expats and if you find one, it will be a high interest rate and unusual terms. Be prepared to pay cash. That being said, you will need to know how you will get the money to the seller. Bringing more than $10,000 cash into Panama is scrutinized by the U.S. government due to concerns about money laundering. There will be requirements and documentation at the IRS. Make sure you understand the consequences, so it is a good idea to talk to your financial advisor and CPA about this topic. We cannot speak for the Canadian government requirements. There are also costs to do international wire transfers, whether it be from the U.S. or from Canada.
An arms length transaction will usually require a 10% earnest deposit which is non-refundable! We discovered that this is negotiable, but the 10% is “standard”. That money is spent to pay the agent(s), seller’s attorney, and ready the paperwork for closing. Make sure that your decision to buy is solid. Ask questions and make sure that you have a licensed real estate agent and your own capable, tried and tested attorney. It is important to know that both these occupations are protected by the Panamanian government and reserved for Panamanians. If you choose to deal with an American or Canadian agent for ease of communication, it is unlikely that they are licensed. Most of these people work for an unknown person who holds a license and pays little attention to how they operate their business. This goes for rental agents as well. There is a form of the Multiple Listing Service here in Panama, but it is not used or accepted as readily as it is in the U.S. Real estate agents here in Panama appear to strive to sell their own listings and, as a result, are not as apt to share information with other agents. We know several people who used several different agents to sell their property, as well as to purchase property. Also, attorneys may engage in many different businesses and many are not full time in law. Please, ask friends for referrals to find an attorney and a real estate agent who will get your business done in a timely and fair manner. Be careful and use your own due diligence, instinct, and intuition when hiring these professionals. Just because one person had a good experience does not mean that you will. We are choosing not to provide referrals on this blog. This blog does very little advertising and we have not collected any referral fees for endorsements. Our intent is to entertain and educate. If you would like more information on who we used, we will be happy to provide that in a private message.
There are numerous horror stories that float around about properties being sold to multiple buyers, sellers who do not have the right to sell, and buyers who do not get the documentation necessary to have clear title to their home. Make sure your new home has a deed. Make sure that your attorney and real estate agent do their job and both are honest and upright in their dealings. We have met, know, or are friends with each of the above mentioned. We know an individual who came home and found her house seized by the government (including all the contents). The seller didn’t have the right to sell this home or any of the others in the neighborhood. This realtor should be in jail but is not. Advance purchases at substantial savings are often a bad idea. Another friend here bought a new home at the beginning of construction in 2012 and is still not moved in. Their home is within hours of completion but no certificate of occupancy has been granted. The developer has several projects and none are being completed. Buyer beware!
Currently the real estate market in Panama is very depressed. Most sellers are trying to get more than the market will bear. The diligent buyer must also be concerned with over paying. This means knowing what is on the market. We viewed at least 20 different properties in different locations to get a feel for what is out there and what would be a good price to pay. The current President has been in office for five years and will be replaced in the election just a few days from now. Most people here are waiting to see who will replace him before making buying or selling decisions. It appears that the current president has done little to promote business and tourism. The result is a suffering economy. That being said, it can be a buyer’s market for the savvy buyer. Keep in mind that buying in an area with a lot of expats has advantages and disadvantages. Expats tend to drive prices on consumer goods higher in that area. We elected to buy in an area of other expats. We pay prices compared to the States on some things while other things are much less. For the most part, our dollar goes further here than it would back home. We have a very nice home and enjoy dinners out often without blowing our budget. If an expat wanted to live on a very small monthly pension or social security it is possible by selecting a place to live away from the expat communities. That involves immersing into the local culture and definitely being fluent in the Spanish language.
We made an exhaustive list of “must haves” when we searched for our home here. Our agent was aware of our requirements and usually only showed us homes meeting most of those requirements. We wore her out searching for the perfect home without sacrificing any of our “must haves”. In the end she found us a place that required very little compromise and left us some money for a bit of remodeling. She helped us find local contractors to do the work and helped us with the language barrier. She is a full service agent, and went above and beyond every step of the way.
The original purchaser of our home in 2009 placed the home and its contents in a Panamanian corporation. Our seller, who was the second owner of our home, maintained the corporation. We had the choice of purchasing the corporation or having the corporation transfer the deed to us individually. We decided to purchase the corporation. In our research, the corporation has some benefits, even though there is an annual cost to maintaining it. It is a very common way to hold property here and that made the purchase very clean and simple. We actually bought all the shares in the corporation from a Canadian seller. We bought all the benefits, including a country club membership, and, as a result, were able to maintain the balance of 12 years of tax exoneration. Our corporation is the owner of our home and its contents and we know that the corporation will pass to our heirs to do with as they please upon our passing. We opted to use the same attorney as the seller, who was also the attorney and resident agent for the corporation. The attorney prepared the stock purchase agreement as well as all the corporation transfer documents and she will handle the annual corporation renewal on our behalf in the future. Our other assets held in Panama can be protected by a Panamanian will, if we choose to do that. We choose to keep our other assets in Panama at a bare minimum.
Our stock purchase agreement was completed in both English and Spanish, side by side. The law here does not require this contract, or a buy/sell agreement, to be in Spanish to be legally enforceable, but if there is a legal dispute, the court will require it to be translated into Spanish. We liked the way our attorney prepared it. In the agreement, you want to make sure that all the shares of the corporation are transferred and that there are no encumbrances or liens on the shares or on the corporation. Also, you want to make sure that there are no unpaid home owner’s association fees, taxes, or utilities (including cable/internet). It is also good to ask if there are any special assessments being requested. One condo we looked at was making improvements to their pool area and assessed $10,000.00 per owner to be paid at $5,000.00 per year for 2018 and 2019. Had we not asked, we may have never known about that until after closing if we had purchased that unit.
Make sure there is a title search and, if the property is in a corporation, a due diligence investigation is done on the corporation. It is our understanding that real estate deeds are not very old in Panama. There is something here called owning property by “right of possession,” but we did not encounter this in our home search. If you are buying property from an owner with this, please do additional research and ask more questions of the professionals to make sure the owner has the right to sell the property. Our real estate agent took care of our title search and the attorney took care of the corporation investigation.
Title insurance is very common in the U.S.; however, it is not common at all here and is very expensive. We felt pretty safe on the title since our building was built in 2009 and we were only the third owner of the unit. Also, the attorney was the attorney for the corporation, so she had an interest in making sure the title was transferred properly. In addition, escrow accounts or escrow agents are not as common and are relatively new. We used the attorney’s escrow account to handle some of the money transfers. She told us she maintained a separate account to handle these types of situations. As a result, we transferred our 10% deposit to the attorney’s account when we signed the Stock Purchase Agreement.
The seller had to pay some taxes (a 2% title transfer tax and a 3% capital gains tax) and our attorney took care of this payment for the seller. As a result, our contract required us to wire money to cover the taxes to the attorney’s account and the balance was a wire transfer to our seller in Canada. As a side note, one of the main reasons real estate was put in corporations was to avoid these taxes as the taxes are triggered when the transfer of title was filed at the Public Registry. However, a recent change in the law (which is common in Panama with each president) now assesses a 5% share transfer tax when a corporation owns real estate and sells its shares. As another side note, the international wire transfer to Panama required a lot more information (like the purpose of the transfer) and took longer than the wire transfer to Canada. Our seller received her money within a day while it was a week before the attorney received it.
The buyer and seller each have closing costs, including notary fees and attorney fees. Expect those costs and fees to be between $1500-$2000. It took approximately 3 weeks from when we made our original offer (which was verbal) for us to “close” (when we received the keys, paid the balance we owed to the seller, and received copies of some of the corporation documents). However, there was additional paperwork, we, as buyers, needed to receive, such as final documents filed with the Registro Publico de Panama and the original corporation documents. We received those documents approximately 7 weeks later. Closings can take a lot longer, depending upon the title search and the attorney’s schedule. We were lucky in that our closing was relatively smooth and quick.
We moved into our new condo full time at the end of January after doing some remodeling. We are very happy with our decision and with our choice of professionals used. Each person has a different experience, so, as previously stated, do your due diligence. Do not be afraid to ask questions to make sure you understand the process.
We have given a lot of information here, and realize that many of you who follow may not need this detail. There are others who will find this helpful. We would like to encourage questions, comments and feedback especially from those of you who have experience buying and selling real estate abroad. Thanks for reading and sharing. Good luck with your move overseas.
Until next time,
Greg and Jen
