The Realities of Real Estate in Panama: Essential Insights for Expats
Panama is a Growing Destination for Expats
Panama has long been a popular destination for expats from the US and Canada who are drawn to Panama for its tropical climate positioned safely below the hurricane belt, Pacific and Atlantic beaches, a vibrant culture and relatively low cost of living. Many people from the US who visit Panama as a possible option for living claim it is not as affordable as smaller towns in the US. But if you’re considering relocating from a larger city or suburb, Panama is definitely less expensive for rentals and real estate purchases.
I moved to Panama in 2019 from San Luis Obispo, California and promptly did what everyone advised me against doing; got into a real estate purchase contract. I couldn’t help it! I got seduced by the brand new construction, ocean views, sparkling pools and miles of tranquil beach to walk and collect shells. I also got a bit bamboozled by a scammy realtor. I like to turn my mistakes into cautionary tales so others don’t fall into the same trap. At the end of this post you’ll see a video link to the interview I did with Andrea Cooper, Managing Partner of PGS Realty, and Mike Kelly, Owner of VIP Relocation Tours Panama. You’ll find it highly informative and if you need to set up medical providers in Panama City, Mike Kelly is your go-to person for that service.
My Top Recommendations Regarding Real Estate
Don’t buy property for at least one year of living in Panama in both rainy and dry season, unless you are an investor and buying for those purposes.
If you don’t understand pre-construction in Latin America, now is not the time to learn. Never put a deposit on any property that you have not seen for yourself and had a lawyer review the contract. The benefit of working with a licensed broker is that they will know the quality builders and steer you away from the ones with a bad reputation.
Understand the market in Panama is different than the US or Canada. It has been a buyer’s market for years. Appreciation isn’t typically a thing here except in a few specific locations, and trends in Panama City are vastly different from other areas of Panama. Mortgages are rarely secured by foreigners and are at high interest rates, have an age limit and are only adjustable. Cash is king.
Evaluate if you should purchase property or rent.
The Reasons Why Those are My Recommendations
It is EASY to buy property in Panama and can take YEARS to sell it.
Many developers have beautiful CAD drawings of housing developments with pools, social areas, lush landscaping. But they are relying on your deposit in order to pay for materials for a model house that isn’t finished. There’s no landscaping, pool or social area. The developer may have even left the country with your money.
The $180,000 beach condo is not going to appreciate to $300,000 in five years. Maybe not even ten years. Some areas have an oversupply of condos and houses.
Rentals are easy enough to find (generally) and you may not want to tie up that much cash that can’t be liquidated quickly.
A few details to consider; I am generally speaking to property values up to $400,000. The luxury real estate market has different factors to consider. Also, some areas like Casco Viejo, parts of Panama City and Playa Venao, are experiencing higher demand and prices reflecting that.
Understanding the Role of Licensed Brokers in Panama
There are some unique aspects about brokers in Panama. It seems everyone you meet is a “broker”. This is because there is a:
Lack of Enforcement: While Panama does require that brokers are licensed and bonded, this does not mean that it actually happens. Virtually anyone can operate as a broker, making it crucial to vet potential brokers thoroughly. The video at the bottom of this article will be worth your time in the value it provides. Look for brokers with a strong reputation, preferably those who are members of established real estate associations like ACOBIR (Asociación Panameña de Corredores y Promotores de Bienes Raíces).
Licensing Requirements: Real estate agents in Panama are required to be licensed by the Technical Board of Real Estate. This board falls under the Ministry of Commerce and Industry and sets the guidelines for obtaining a real estate license. The process includes taking courses and passing a rigorous exam with only a 4% initial pass rate. The test is only in Spanish, so if your broker isn’t bilingual, you have to ask yourself how they obtained their license.
Talk to people who have done business with brokers you’re considering and try to find people who would not do business with them and the reasons for that. The scam artist I trusted was a licensed realtor with Keller Williams. But that does not mean he had integrity or was trustworthy. He altered the financial records to persuade another broker from the US to purchase his regional franchise. Only after the deal went through did this other broker realize what happened.
Check the member list of ACOBIR to see if an agent is listed there. ACOBIR is a non-profit organization of companies and brokers with high standards, ethics and experience.
Additionally, in Panama, a broker commonly may represent both the buyer and seller, known as dual agency. While this can simplify communication, it also requires careful attention to ensure that your interests are adequately represented. If an agent is handling both parties, who do they have a fiduciary obligation to?
The real estate industry in Panama is less regulated than in countries like the United States or Canada. While there are laws in place to govern real estate transactions, the enforcement of these laws and the overall regulatory framework are not as stringent.
Consumer Protection: There are some consumer protection laws in Panama, but enforcement can be inconsistent. Buyers and sellers need to be diligent in protecting their own interests. This means working with reputable brokers and attorneys to ensure that transactions are conducted properly.
Transparency Issues: Transparency in the real estate market is a known issue. Unlike in the U.S. or Canada, where there is often detailed disclosure required by law, Panama’s regulations are less clear-cut. This can lead to situations where buyers or sellers might not have all the information they need to make informed decisions.
When I purchased my house in El Valle, I was shocked at how little paperwork there was! In the US there are pages and pages of disclosures and there were none required here in Panama.
Professional Ethics: While there are ethical standards for real estate firms and brokers in Panama, adherence to these standards can vary widely. The lack of strict enforcement mechanisms can sometimes lead to practices that might be considered unethical in other jurisdictions.
Dispute Resolution: If a dispute arises in a real estate transaction, resolving it can be more challenging in Panama due to the relatively slow and complex legal system. It’s advisable for buyers and sellers to have clear, well-drafted contracts and to work with legal professionals who are familiar with the Panamanian system.
For these reasons, it’s particularly important for anyone involved in real estate transactions in Panama to conduct thorough due diligence and work with reputable professionals.
Make sure you understand the:
Commission Structures. In Panama, real estate commissions are typically 5-6% of the sale price, paid by the seller. This rate can sometimes be negotiated, but it's essential to discuss and agree upon commission terms upfront.
But there’s another way a realtor can earn a commision and it’s known as a NET Listing. In Panama, a NET listing refers to a real estate agreement where the seller sets a minimum price they wish to receive for the property, and the real estate broker can keep any amount above this price as their commission. For example, if a seller wants $200,000 for their property, and the broker sells it for $220,000, the broker keeps the $20,000 difference as their commission. This is one reason why you will see the same property listed for different prices. Each agent can put whatever price they want on a property in the hopes to keep a greater portion of the sales price.
Risks Involved with NET Listings:
Potential Conflict of Interest: The biggest risk with NET listings is that they create a conflict of interest between the seller and the broker. The broker may be incentivized to sell the property at the highest possible price to maximize their commission, which could lead to the agent prioritizing their earnings over the seller’s best interests.
Overpricing Risk: To maximize their commission, an agent might overprice the property. This can result in the property staying on the market longer than necessary, ultimately costing the seller time and potentially leading to a price reduction. Additionally, this broker may not have the funds to invest in advertising on the popular site, Encuentra24. And, they may not be in one of the many trusted broker WhatsApp groups that ethical brokers use to market listed properties.
Ethical Concerns: In some cases, the lack of transparency around the agent’s earnings can raise ethical concerns. Sellers might feel misled if they find out that the agent made a significant profit on the sale that wasn’t disclosed upfront.
The Real Estate Purchasing Process
Due Diligence and Legal Representation One of the most critical steps in buying property in Panama is conducting thorough due diligence. This process includes verifying property titles, checking for any liens or encumbrances, and ensuring that the seller has clear ownership and that all property taxes have been paid up to date. Hiring a reputable lawyer specializing in Panamanian real estate law is non-negotiable. Your lawyer will not only help with due diligence but also draft and review all contracts to ensure they meet legal standards and protect your interests.
Property Taxes and Closing Costs Panama offers various incentives for foreign buyers, including property tax exemptions for certain new constructions. However, it's important to understand the specifics of these exemptions and any associated closing costs, such as legal fees, transfer taxes, and registration fees. Typically, closing costs can range from 2% to 5% of the property's purchase price.
Financing Options While cash transactions are common in Panama, financing options are available. but come at a high cost for foreigners. Panamanian banks may require a substantial down payment (often 30% or more) and proof of income in Panama. Interest rates can be 8-9% and are only adjustable, no fixed rates here. And there’s an age limit. If you’re over 65, sorry, you can’t get a mortgage here in Panama. Some developers offer in-house financing, which can be a viable option but often comes with higher interest rates.
Common Challenges and Considerations
Understanding the Market Panama's real estate market can be quite different from what you're used to. For instance, property prices in Panama City will differ significantly from those in more rural or coastal areas. Many people in the interior will put a ‘se vende’ sign in front of their property but have no clue what the market will pay for that property. They put a price that is higher than other similar recently sold properties in the hopes that one day, they’ll get their price.
Cultural Differences in Negotiation and Communication Negotiating and communicating in a different cultural context can be challenging. Panamanian business culture may be more relaxed and less formal than in North America, which can affect everything from response times to negotiation tactics. Patience and cultural sensitivity are key to navigating these differences successfully. Every offer I’ve put in on a property has either been verbal, in a brief text or a simple email. If you’re working with a broker, they will submit your offer. I was not working with a broker when I bought my house in El Valle and it was very casual.
Future Developments and Infrastructure Consider the potential for future developments and infrastructure projects in the area you're looking to buy. While new developments can increase property values, they can also lead to construction disruptions and changes in the neighborhood's character or block the ocean or mountain view you fell in love with. Researching planned infrastructure projects and urban development plans can help you make a more informed decision.
A Personal Story: Finding the Perfect Mountain Retreat
Let me share a few examples from my 2 year search for property under $300K in El Valle de Anton. El Valle is one of the most expensive locations in Panama because it’s nestled in the crater of a volcano (limited land) and wealthy Panamanians have their weekend estate homes here.
But I fell in love with El Valle as many people do and my budget was limited. This limited what was available. There was a fixer-upper with 3 small rooms to rent out to travelers. The house needed a lot of work but it was priced right, under $200K. The broker didn’t have the keys. The broker didn’t know the history of the house. The broker didn’t know there was a deed restriction preventing the house from being sold! Somehow I was able to find out about the deed restriction on my own and verified the information with an attorney.
Another house I fell in love with was owned by a woman who apparently always has her house for sale and strings people along in the negotiations and ultimately pulls out of the deal. She did this to me once and then drew me back into her web of lies and I went because she gave me her word she was serious this time, that she’d had some personal issues to deal with. And I believed her. But a leopard doesn’t change their spots. She backed out of the deal a second time and I was angry and heartbroken.
I had seen a house listed on Encuentra24 that looked a bit like a treehouse and had a mix of crazy tile patterns, bamboo and metal that made it appear the house was put together by a few kids making a tree house. But I loved the yard with the nice view to the mountains behind the house.
One day as I was driving around on my search for properties for sale, I drove past a driveway and peeked in to discover it was the lot with the great view to the mountains. No one was living in the house and I confess, I trespassed. The house was weird for sure, but it had really good bones, solid concrete foundation and sturdy steel beams.
The neighbors happened to be using their house for the weekend from the city and they gave me the name of the guy who was managing the property.
The rest is history. I bought the house and spent 8 months on a truly amazing renovation project that even I can’t believe I had the courage to do!
Educate Yourself for a Successful Real Estate Experience in Panama
Buying property in Panama can be a rewarding experience, and it's crucial to approach the process with an informed and cautious mindset. By understanding the role of brokers and how to find competent ones, know the legal and financial aspects of purchasing property, and the unique challenges of the Panamanian market, you can navigate the real estate journey with greater confidence.
Whether you're looking for a beachfront condo, a city apartment, or a tranquil mountain retreat, taking the time to research and seek professional guidance will ensure that your investment is sound and your transition to life in Panama is smooth. Remember, the key to a successful real estate purchase is not just finding the right property but also building a strong team of trusted professionals to guide you through the process.
Happy house hunting, and welcome to the vibrant and diverse world of Panama!
