Panama Real Estate Purchase Process

If foreign property investors make themselves aware of the real estate purchase process in Panama before actually committing to the market they should find that their property transactions proceed smoothly and that the whole buying process is relatively stress free.

Foreign buyers are permitted to own freehold title to the majority of land and property available for sale in Panama, but investors need to be aware of certain restrictions that apply and also the difference between purchasing titled properties and rights of possession in Panama.

As with many emerging real estate markets in the world the Panamanian property market is proving particularly popular with overseas investors keen to cash in on rising local and international demand for accommodation to let and purchase.  And as will all real estate markets in the world, those interested in purchasing property in Panama require the services of a respected and reputable lawyer who specializes in real estate transactions.

Although there is a sophisticated process of land registration in Panama and the Panamanian Public Registry System is very reliable, issues can arise relating to the title deeds on properties that appear at first glace to be free of liens, mortgages, encumbrances and ownership disputes.  A decent lawyer will assist a potential purchaser with their real estate due diligence and will charge between 1.5 and 3% of a property’s price for their services.

An investor may also like to make use of a licensed real estate agent in Panama to assist with the hunt for properties that matches their investment criteria.  It’s likely that the majority of properties an investor views will be titled properties – i.e., properties with legal and irrefutable proof of ownership and registration – but occasionally investors will be shown parcels of land or pieces of property where only ‘rights of possession’ can be purchased.  This real estate is not officially ‘owned’ and does not have a title deed and therefore any investor considering making a purchase of rights of possession real estate should be aware that it is unlikely they will even be granted deeds, title or true ownership of the real estate in question and should therefore walk away from the sale or at the very least consult their lawyer about what exactly they are considering buying.

Land offered for sale in areas inadjudicables or areas insulares - also known as lands in non-adjudicable areas - are owned by the government and are not available for sale to foreign investors.

Once an investor has located investment real estate in Panama that matches their objectives it’s usual to make an offer to purchase via the estate agent and once a purchase price has been agreed upon and terms for the sale discussed, a preliminary contract known as the Promesa de Compra y Venta or Promise to Buy and Sell is drawn up by the buyer’s lawyer and signed by both the investor and the vendor.

This contract is conditional – it can be conditional to title searches being conducted satisfactorily, to the buyer raising finance, to the vendor completing outstanding work on the property or to both parties completing other property transactions in a chain.  Once signed the contract is legally binding and the property investor will have to pay a deposit in the region of 10%.  If the buyer withdraws from the sale for any reason other than those stipulated in the contract they forfeit this 10% - if the vendor withdraws they have to return the 10% and pay a further 10%.  If they refuse the investor can sue for the money or for the contract to be enforced and the sale to proceed to closure.

Some buyers prefer to pay the 10% into a holding account managed by their lawyer – this type of account is rather like an escrow and the benefit of this is that the money is readily accessible by the buyer if the sale falls through - the disadvantage of this is that until the vendor physically receives the deposit they can withdraw from the sale without having to pay a penny to the buyer.  An investor in Panama should take legal advice about how to proceed with paying this deposit.

Once the Promesa de Compra y Venta has been signed the investor’s lawyer will have to carry out a series of checks on the property, the vendor and the title deeds and a buyer can also have a survey of the property done as well as part of their due diligence on the real estate in question.  The vendor usually has obligations to pay the property transfer tax, which is 2% of the property’s value, and obtain paz y salvos or certificates of good standing to prove that all taxation and services bills are up to date on the property being offered for sale.  He should undertake these tasks during the period between the preliminary contract being signed and the sale moving to completion.

When all conditions for the sale have been met the sale can be closed – it usually takes about 6 weeks for a normal sale to move from preliminary contract signing to contract completion.

The final contract is usually drawn up by the real estate investor’s solicitor and it should always be in Spanish and signed by vendor and buyer in front of a public notary.  Contracts written in any language other than Spanish cannot be legally enforceable in Panama.  Upon completion the outstanding balance of the real estate’s price will be due – usually the bank handling the investor’s funds will issue the vendor with an irrevocable letter of payment as soon as it receives the registered public deed transferring the property’s title to the buyer. 

In terms of additional costs and fees associated with buying real estate in Panama it’s usual for the vendor and buyer to manage their own lawyers’ costs but the majority of other costs can be negotiated as to who pays them.  Standard practice is for the vendor to pay the 2% transfer tax as well as the estate agent’s fees and for the investor to pay the public notary fees, but sometimes an investor will agree to pay all fees and sometimes the asking price for a property reflects all fees.  An investor should get legal advice and make themselves aware of extra charges they will become liable for on a transaction by transaction basis in Panama.

South/Central America:- Panama Property Reports
Complete listing of all current property reports for region: South/Central America:- Panama