Why to buy property in Panama

Introduction

Panama has captured significant interest from global investors due to its strategic geographical position, robust economy, and adaptable real estate regulations. It has become one of the most attractive markets for property acquisitions, catering to both personal use and investment purposes. The market presents substantial opportunities for rental income and capital appreciation, along with various residency programs designed to promote foreign investment.

Panama's real estate sector is notably diverse, including beachfront villas, contemporary apartments in Panama City, and other property types that accommodate various budgets and preferences. This diversity, combined with Panama's stable economic environment and the use of the US dollar as its official currency, makes it a preferred choice for many investors.

This guide aims to elucidate the essential aspects of acquiring property in Panama, addressing legal and financial considerations, and providing practical advice on property selection and the execution of purchase transactions. It also examines the residency options available to property investors and explores the differences in investment potential across various regions in Panama.

It is imperative to engage legal and financial experts to navigate the complexities of Panamanian real estate laws and taxation. Additionally, understanding regional variations in terms of property prices and investment potential is crucial.

When selecting a property, evaluate your objectives and budget meticulously. Consider the intended use of the property, whether for personal residence, rental income, or future resale. Conduct comprehensive due diligence, including title searches, property inspections, and verification of any encumbrances or liens. Lastly, the process of obtaining residency through property investment should be approached with diligence. Ensure that you meet the requirements for the relevant residency program and comply with all applicable laws and regulations.

Legal considerations

When acquiring real estate in Panama, it is essential for foreign buyers to understand the legal landscape and the conditions governing the property market. This knowledge safeguards their investment and helps avoid legal complications. Below is a comprehensive guide to navigating the legalities of purchasing property in Panama.

In Panama, foreigners enjoy considerable flexibility regarding real estate acquisition. Foreign nationals can purchase and own properties without restrictions on the type of real estate they can buy. However, exceptions exist for lands located in border zones and indigenous territories. Non-residents are permitted to acquire both residential and commercial properties, whether on the primary or secondary market. This legal framework grants foreign investors property ownership rights comparable to those of Panamanian citizens, making Panama an appealing destination for international investment.

What and where to buy?

Property types

Type

Description

Ideal for

City apartments and condominiums

Modern apartments and condos in cities like Panama City, David, and Colon with amenities like pools and fitness centers.

Young professionals, business executives, international investors seeking comfortable living spaces

Beach villas and resort homes

Coastal properties on the Caribbean and Pacific coasts with sea access, private pools, and gardens.

Investors aiming for vacation purposes or renting to tourists

Houses in mountainous regions

Secluded estates and cottages in regions like Boquete and El Valle, offering tranquility and privacy.

Buyers seeking a permanent residence or a second home in an ecological setting

Businesses and commercial

Offices, warehouses, and so on.

Investors looking for high returns through rentals or resale

Investment projects

Turnkey projects from developers, including residential complexes and hotel facilities.

Investors seeking to maximize returns in real estate development

Popular regions

Region

Description

Ideal for

Panama City

The economic hub with modern skyscrapers and advanced infrastructure. Popular areas include Punta Pacifica and Costa del Este.

Investors in residential and commercial real estate seeking central locations and high quality of life

Bocas del Toro

Caribbean archipelago with scenic beaches and a tranquil atmosphere.

Tourists, investors seeking villas, resort properties, or land for tourism development

Chiriqui Province

Known for its cool climate and landscapes, offering vacation homes and agricultural land in areas like Boquete.

Foreigners seeking vacation homes, agricultural land, or properties for ecotourism

Coronado and the Pacific Coast

Regions with developed beach resorts and golf complexes near Panama City. Offers luxury villas and sea-view apartments.

Buyers looking for resort areas with luxury accommodations and convenient commercial facilities

Pedasi and Azuero Peninsula

Known for cultural events and surfing, offering secluded coastal villas or development land.

Investors interested in leisure, tourism, and development projects

El Valle

Mountainous community with cool temperatures and geothermal springs, offering country houses and small farms.

Buyers seeking ecological tourism projects or a home in a unique natural environment

Restrictions

In certain instances, if the buyer's intention is to develop a specific type of structure or project on a freehold site (such as a marina, port, hotel, airstrip, etc.), it is essential to verify whether any national or municipal regulations may prohibit such activities in the area.

To safeguard their interests and ensure the legal integrity of the transaction, foreign buyers are strongly advised to utilize the services of a reputable firm like YB CASE. Experienced attorneys can assist with verifying the legal status of the property, preparing and registering the necessary documents, and providing guidance on all matters related to compliance with local legislation.

The process of buying real estate in Panama

Acquiring property in Panama is relatively straightforward and parallels the processes in many other countries. However, there are specific nuances to consider.

Step 1

Property selection

The initial step is to identify a suitable property. Buyers should evaluate location, property type, potential returns, and their personal or investment needs. Panama offers a wide array of qualified real estate professionals to assist in this selection process.

Step 2

Preliminary agreement

Once a property is selected, a preliminary agreement is signed, detailing all terms of the transaction and the deposit amount. The deposit typically ranges from 10% to 30% of the property price, varying based on whether the buyer is a foreigner or a resident. Upon signing the preliminary contract, the property is reserved for the buyer and withdrawn from the market. If the deal falls through due to the buyer's fault, the deposit remains with the seller. Conversely, if the seller reneges on the sale, they must return the deposit to the buyer, usually doubled.

Step 3

Legal due diligence

Due diligence is essential to verify the seller's legal ownership of the property and ensure it is free from debts or legal issues. This phase includes title verification, legal status checks, and analysis of any encumbrances or restrictions.

Step 4

Contract signing and registration

After successful due diligence and agreement on all terms, the parties sign the final sale and purchase contract, which must be notarized in Panama. At this stage, the buyer typically pays all notary and registration fees and settles the remaining balance with the seller.

Step 5

Property registration

The final step is registering the ownership with Panama's Public Registry, officially confirming the buyer's rights as the new property owner. This process can take from several days to several weeks.

Before initiating the ownership transfer process, selecting a suitable property is crucial. Personal inspection is recommended as photographs might not accurately reflect the property's condition and could be misleading regarding quality. On-site visits also allow for assessing local infrastructure, such as the availability of food stores, ATMs, schools, and other essential facilities, especially if the property is intended for personal use.

Having an experienced attorney throughout the process can significantly simplify the purchase and help avoid common pitfalls. This ensures that all legal aspects of the transaction are properly handled, protecting the buyer's interests and rights.

Arrangement of purchase and sale of real estate

A real estate purchase and sale agreement is a pivotal document in the transaction process, formalizing the transfer of ownership from seller to buyer. In Panama, this document must encompass all essential elements of the transaction, be clearly articulated, and legally valid to protect both parties' interests.

Main elements of a real estate purchase and sale agreement in Panama:
  1. Identification of parties. The contract must clearly identify the seller and buyer, including full names, addresses, contact information, and identification details such as passport numbers.
  2. Description of the property. Detailed description of the property, including exact address, area, boundaries, and cadastral number. Special features of the property, such as additional buildings or plots, should also be noted.
  3. Purchase price. The full purchase price, payment procedures, and terms must be specified. This includes the deposit amount, payment terms, and methods (e.g., bank transfer).
  4. Representations and warranties. The seller typically provides assurances regarding the property's legal status, absence of liens and encumbrances, and confirmation that all taxes and fees have been paid.
  5. Conditions for transfer of property. The agreement must outline the transfer process, including the transaction date and location, and the parties' obligations to register the agreement with relevant authorities.
  6. Legal consequences of contract violations. The contract should specify the repercussions of non-compliance or improper fulfillment of terms by either party, including potential fines, compensation, and dispute resolution procedures.
  7. Final provisions. This section includes details about notarization, contract language, applicable law, and other standard legal clauses.
  8. Signatures of the parties. The agreement concludes with the parties' signatures and the date of signing. Notarization of signatures is required for the document to be legally binding.

Financing options and mortgages for foreigners in Panama

Foreigners can apply for mortgages from Panamanian banks. The application process requires financial documentation such as proof of income (bank statements, tax returns), copies of your passport, and other forms of identification. Typically, a credit history and letters of recommendation from banks are also necessary.

Banks may require foreign borrowers to make a down payment, usually between 30% and 40% of the property's value. Additionally, some banks may require that borrowers have a regular income or financial security in Panama.

Interest rates for foreign mortgages can vary, influenced by factors such as the borrower's creditworthiness and the loan term. Generally, rates range from 6% to 8% per annum, with mortgage terms ranging from 15 to 30 years, depending on the bank and loan conditions.

Alternative financing options

  • Some developers offer their own financing schemes with phased repayment plans, which may include installment payments during the construction period or even post-completion. Initially, the buyer makes a down payment (30-50% of the property's cost), with the remaining amount distributed over several equal payments.
  • Many foreigners prefer to use personal savings or secure mortgage loans from banks in their home country, where they have an established credit history and proven income, to purchase property in Panama.

The choice of financing method depends on the buyer's personal circumstances, financial stability, and ability to meet the requirements of Panamanian banks. It is always advisable to conduct a thorough analysis of available options and consult with an expert to obtain the most advantageous and secure financing solutions.

Things to consider

Infrastructure

The quality and availability of infrastructure significantly influence the valuation of real estate in Panama. The presence of a well-developed transport network, educational institutions, medical facilities, and shopping and entertainment centers can markedly enhance a property's value.

Stage 1

Object size and condition

The physical attributes of a property, including its size, number of rooms, construction quality, and overall condition, also impact its value. Newer or recently renovated properties with modern amenities and high-quality finishes typically command higher prices.

Stage 2

Construction stage

When selecting apartments in a new development under construction, it is crucial to understand that the completion of the complex will take time. There are several conventional stages of construction, each affecting property pricing:

  • Excavation stage: purchasing property in Panama at this early stage is much more cost-effective than at later stages. As the project nears completion, property costs increase. By the time keys are handed over, the price of apartments may surpass the initial price by 30%.
  • Mid-construction: buying an apartment when the residential complex is halfway completed can save buyers between 10% and 15% compared to the cost at project completion.
  • Completion and commissioning: this stage is the least advantageous for saving, as prices align with market levels. However, it allows for immediate commencement of repairs and final finishes.
Stage 3

Legal status of the property

In Panama, there is a distinction between titled real estate and ROP properties. Titled properties are generally more expensive due to greater legal security and the ease of transferring ownership rights.

When acquiring real estate in Panama, buyers must account for several additional costs beyond the property's purchase price.

Notary and registration fees

  • Notary fees: ~1% of transaction value.
  • Registration fee: Required for recording the contract in the Public Registry.

Home insurance

  • Optional but recommended for risks like fire, flood, or earthquake.
  • Cost varies based on property value, location, and covered risks.

Utility connections and maintenance

  • Additional costs for connecting to utilities (water, electricity, internet) in new developments.
  • Monthly maintenance fees, especially for condominiums.

Estimated costs

  • Professional appraisal: Necessary for loans or tax purposes, costing several hundred to several thousand dollars.

Accounting for these additional costs is crucial to avoid unexpected financial burdens and to fully understand the total investment cost.

Real estate taxation and available tax preferences

Tax type

Description

Responsible party

Value range

Tax rate

Tax on transfer of ownership

Buyer pays legal, registration, and notary fees; seller pays 2% sales tax on cadastral value or sale price.

Buyer, Seller

Taxation on capital gains

Seller pays 3% capital gains tax before notarization; 5% capital increase tax if selling through share transfer.

Seller

Annual real estate tax

Tax rates vary based on property type and value (see breakdown below).

Property owner

Primary residential property

Up to $120K USD

Exempt

$120K - $700K USD

0.5%

Above $700K USD

0.7%

Additional properties

Up to $30K USD

Exempt

$30K - $250K USD

0.6%

$250K - $500K USD

0.8%

Above $500K USD

1%

New constructions

Tax exemption for the first 10 years (for properties $100K - $250K USD) or for the first 5 years (for properties above $250K USD).

Pensioners and elderly

Potential reductions or exemptions from property taxes, subject to conditions.

Tourism real estate

Exemption from real estate taxes for up to 20 years for tourism investments.

Paying taxes

Property owners must annually declare property and pay applicable taxes to municipal services or authorized banks.

Property owners

Residence and residence permit through investment in Panama

Panama offers various programs for international investors to obtain residence permits through financial investments. One of the key programs is the Golden Visa program, which allows individuals to secure permanent residence by investing in Panamanian real estate or other economic assets.

Program

Requirements

Benefits

Golden Visa

Investment >$300K in local real estate.

Permanent residence in Panama.

Proof of legality of investment funds (bank statements, financial documents).

Inclusion of family members in the application.

Clean criminal record.

Access to the local housing market and business opportunities.

Medical examination to ensure no public health risks.

Tax benefits.

Simplified access to banking services and social protection.

Visa for Pensioners

Monthly income >$1K from reliable sources (government/private pensions).

Significant tax breaks.

Monthly income reduced to $750 if purchasing real estate worth $100K or more.

Exemptions on imports of household appliances and personal vehicles.

Discounts on health services, medications, medical care, and entry fees to cultural events.

Friendly Nations

Employment with a company registered in Panama, establishing a company, or investing in real estate market.

Relatively fast and simplified residence process.

Investment >$200K in Panamanian real estate.

Right to conduct business activities.

Proof of financial stability (bank balance >$5K).

Access to local banking services.

Additional $2K for each dependent family member included in the application.

Ability to stay in Panama indefinitely, with status updates every five years.

Eligibility to apply for citizenship, enabling long-term residence and societal integration.

These programs offer various migration strategies for foreign investors, providing extensive opportunities to invest and reside in Panama. Each program has specific eligibility requirements, investment thresholds, and benefits, allowing potential investors to select the most suitable option based on their financial situation and long-term goals.

Contact specialists

When undertaking a significant purchase such as real estate, it is crucial to utilize the services of professional legal experts. YB CASE offers qualified legal support for conducting real estate transactions in Panama, ensuring the safety and legality of all aspects of your purchase.

About YB CASE:

YB CASE specializes in providing legal services for real estate transactions in Panama, particularly assisting foreign investors in navigating the complexities of buying property abroad. The company offers comprehensive services, from initial consultation to full transaction completion.

YB CASE's team possesses extensive knowledge of local legislation and real estate practices, enabling them to effectively address legal issues related to property acquisition and registration, verify the legal status of properties, and engage in tax planning. Their expertise helps minimize risks and protect clients' investments by ensuring transparency and security in every transaction.

The company also provides guidance and comprehensive support for obtaining residency in Panama. YB CASE experts assist clients in navigating various immigration programs, such as the Golden Visa and Friendly Nations Visa program, selecting the most suitable options based on the individual needs and circumstances of each client.

Tags: Panama
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