Blessed with a breathtaking location straddling the Caribbean Sea and the Pacific Ocean, Panama is a country unlike any other. Lush rainforests and pristine shorelines create a paradise that many people only dream of living in.
From the earliest migrations of human settlers to its rise as a commercial hub in the modern age, Panama has always been a bridge for the exchange of ideas and culture — instrumental in its booming economy and sustainable real estate development.
In this part of the western hemisphere, you’ll find great opportunities to own property in a one-of-a-kind setting. Whether you’re buying a condo, villa, or any beachfront property in Panama, it’s important to be equipped with essential tips that will help you navigate the local market.
Familiarize yourself with the best locations for condos around Panama
If there’s one thing Panama doesn’t lack, it’s astonishing locations that provide a scenic backdrop for your preferred lifestyle. Consider some of the top locations in the country where you’ll find the best real estate:
Bocas del Toro – In the northwestern portion of the country is where you’ll find the Bocas del Toro archipelago, the quintessential island paradise facing the Caribbean Sea. Not only is the area a popular tourist destination, but it’s also sought-after among foreigners and domestic buyers who wish to purchase a vacation home for leisure or retirement purposes. Whether it’s a luxury condo on a secluded island or a generous villa surrounded by excellent amenities, there are several property types to choose from.
Panama City – The economic and cultural epicenter of Panama frequently attracts property investors from various parts of the world. With new infrastructure and real estate developments, Panama City offers a wide selection of properties and lucrative business opportunities. In the outskirts of the city lie carefully preserved rainforests and natural habitats — a veritable outdoor playground for adventure seekers. At its core, Panama City offers an interesting blend of old and new, as well as urban and rural.
Taboga Island – On the Pacific side lies Taboga Island, famously referred to as the Island of Flowers due to its diverse species of flora. Discerning buyers who value a higher degree of seclusion and easy access to several water activities (scuba diving, snorkeling) will feel right at home. What’s more, Taboga is known to have a tight-knit expat community among its approximately 2,000 inhabitants.
Know the basics of purchasing property in Panama
Buying land, a condo, or house, in Panama can be done in two ways:
- Purchase of property with a clean title
- Purchase of possession rights (mostly applicable to cases involving the purchase of government-owned land)
When you’re buying property in Panama the entire process usually takes around six to eight weeks. However, depending on a range of factors and issues (e.g., extended negotiations, title problems) some transactions may last several more months. Below are the typical steps buyers need to consider:
- Meeting of buyer and seller to agree on purchase terms
- Furnishing the necessary documentation to conduct the title search and other due diligence tasks
- Drafting and review of contract or purchase agreement prior to closing
- Down payment is made via escrow account
- Last tranche of payment, legal fees, and other pertinent costs after the final phase of title search.
- Buyer and seller meet at closing to sign the final draft of the contract
- Contract registration with the public registry prior to title transfer
- Receipt of the final deed and preparation of final documents for the buyer
To ensure you fully grasp all the real estate requirements to buy property in Panama, it’s important to work with a trustworthy local broker. These professionals not only give you access to some of the best listings and explain the pros and cons of a particular property, but they’ll also help you negotiate a fair deal with sellers.
In addition, a broker can also connect you with a reputable real estate attorney, who can aid with a title search, as well as compliance with other legal requirements.
Be thorough during the title search
As mentioned in the previous section, the purchase of titled property is one of the ways to buy a condo or house in Panama. You may notice that several real estate resources concerning Panama strongly emphasize the importance of the title search. This is because no financial institution in the country currently offers title insurance — an essential part of protecting against liens and defects that may be attached to a property.
Here are some key steps to remember during your title search:
Do a preliminary search by visiting the Public Registry Office, which has information on all titled properties throughout Panama’s nine provinces.
Perform rigorous due diligence on the property. Carefully examine cadastral maps, good standing on the payment of utility bills, and any special characteristics and impediments that clearly identify the unit or lot.
When entering into a purchase and sale agreement, it’s crucial to add an indemnification clause to protect the buyer from potential hidden title defects that may be uncovered later on.
Transfer of ownership is confirmed once the public deed (which describes the ownership change) is registered in the Public Registry Office.
You can benefit from tax perks in Panama real estate
If you’re planning to make your new condo or home in Panama your primary residence, you may be eligible for reduced tax rates. The country allows varying degrees of tax exemption for properties designated as tributary family patrimony or primary residence:
- The initial $120,000 of the property’s value is exempt from the computation of the tax rate.
- The remaining value of the property, as long as it’s between $120,001 and $700,000, will then be subject to a 0.5% annual tax rate.
- If the remaining value of the property goes above $700,000, a 0.7% tax rate will be applied.
Buyers can utilize these tax benefits, regardless if they are single persons or have families. Habitual use or occupation of the residential property is the only key factor that must be established.
A handful of fees add up to the total cost of the transaction
Closing costs in Panama normally take up around 7% to 9% of the total cost of the real estate transaction. The buyer is responsible for approximately 2%, which covers registration fees, notary fees, and payment of legal services — usually amounting to several hundred dollars.
The seller is legally required to pay the transfer tax of 2% imposed by the government, and capital gains tax when required by Panama law. Additionally, about 5%, and sometimes up to 10%, of the proceeds of the sale go to the agent or broker’s commission (normally payable by the seller).
To find out more about closing costs and additional legal fees that come with a property purchase in Panama, you can speak with your broker or lawyer in Panama. If you’ve yet to hire one, get in touch with experienced and client-driven professionals from Red Frog Beach Resort.
There are financing perks for first-time buyers and retirees
Those who are purchasing property in Panama for the first time, to be used as their primary residency, can access discounted mortgage rates. Panama’s Preferential Interest Law mandates a mortgage subsidy for all first-time buyers, including foreign residents of Panama. The government will shoulder 2% of the bank interest for prices ranging from $120,000 to $150,000 and 1.5% for property prices ranging from $150,000 to $180,000.
However, there are several conditions that must be met before first-time buyers can benefit from these discounted rates. Take note of the following:
- Property bought must be a new construction
- Property must be used for residential purposes
- Financing must not exceed 95% of the property’s appraised value
- The amount financed must be between $35,000 and $120,000 after down payment
- Loan term must run for 15 years or less
- Property must be titled
There is also an array of incentives for foreign retirees looking to settle down in Panama. To be eligible, you can apply for a Panama retirement visa (colloquially referred to as the Pensionado Visa). There’s no minimum or maximum age requirement to apply. All you need to prove is that you’re a recipient of a lifetime pension of at least $1,000 per month.
Below are some of the benefits that Pensionado Visa holders can take advantage of:
- 1% discount on home mortgage
- 50% reduction on closing costs for home loan
- Up to $10,000 one-time duty tax exemption for all household goods
- 25% discount on home utility bills
- Duty exemption on imported vehicles once every two years
In addition, you can use an existing 401K or IRA to finance your property purchase in Panama. The amount from these savings can go towards the down payment or full payment when buying a condo or house in Panama. Consult your broker or your real estate lawyer on the best financial institutions that can assist you in this matter.
Pay attention to the fine print in pre-construction contracts
If you’re buying a condo in Panama, you can choose either pre-construction or an existing building. Buyers often scour the market for pre-construction condo units to take advantage of more favorable prices and special introductory rates.
That said, it’s important to familiarize yourself with several major stipulations in Panama’s pre-construction contracts to fully understand what you’re buying into. Consider the following examples:
Pre-construction contracts normally contain specific provisions that restrict the buyer’s right to resell the condo unit before construction is finished. This prevents buyers from selling their units at a discount, which would undercut the developer’s own sales efforts.
There is also the possibility of paying slightly more on your condo purchase if there is an increase in construction costs. A pre-construction contract usually includes these stipulations to ensure the developer can meet its deliverables even when raw materials and other inputs become more costly.
Buyers can hold the developer or construction company liable for any structural damage uncovered during the first 10 years. Additionally, there is also a one-year liability for cosmetic or non-structural damages.
Before signing a purchase agreement, especially a pre-construction contract, it’s paramount to first consult a local real estate attorney. If there are any terms or conditions within the contract that imply or invoke a restriction on buyers’ rights, you can contest the document in a Panamanian court.
Setting up a private interest foundation is often recommended
While you can purchase property in Panama as a private individual, many foreign buyers opt to set up a private interest foundation first. Many prospective buyers do this as part of a larger asset protection strategy. Legally speaking, the foundation becomes the holder of the property and protects the trustees from frivolous and time-consuming lawsuits.
However, in light of the recent US investigations into offshore entities and bank accounts, it’s important to highlight that US citizens are required to report interests in any foreign corporation, trust, or private interest foundation to US tax institutions.
By its nature, a private entity foundation isn’t profit-seeking (unlike a corporation), but it must still have registered officers or directors. Prospective buyers can assign their spouses and other family members as officers who are the legal representatives of the foundation. The basic requirements to form a private entity foundation are:
- Name and purpose of the foundation
- Names of the registered officers
- Address of the foundation
- Appointment of a registered agent
- Patrimony or the estate
There are certain buyers, however, who plan on purchasing a slate of properties in Panama for business purposes. In that case, it will be more appropriate to establish a Panamanian corporation — although such an entity will be subject to additional tax obligations.
Panama’s laws around private foundations and real estate are often subject to change. For instance, the previous perk (prior to 2007) of avoiding capital gains and transfer tax for foundations and corporations is no longer enforceable. Consult your broker and attorney to keep abreast of the latest developments in Panama real estate.
There’s virtually no language barrier
When investing in Panama real estate, some first-time property buyers express concern about a language barrier, as well as additional expenses for translation services to bridge the communication gap.
Fortunately, English is the second most spoken language in the country. Locals in urban areas are easy to communicate with due to their high English proficiency. And while rural residents may not be as well-versed, they can generally arrive at an understanding using English due to their frequent interactions with tourists. In any case, your broker or agent will be more than happy to clear up any confusion or misunderstanding with a potential seller.
As far as contracts are concerned, buyers and sellers may draft and sign one written in English. However, if a dispute arises between the two parties, Panamanian law requires the contract to be translated into Spanish before a court examines the merits of the issue.
Lastly, the standard practice in Panama is to draft an English and a Spanish version from the outset. The English version will be provided to the buyer during negotiations.
Explore Panama real estate with Red Frog Beach Resort
Red Frog Beach Resort offers a plethora of luxury condos and other beachfront properties in one of the most coveted locations in the Caribbean. The stunning Bocas Del Toro Archipelago is not only a gateway to upscale island living but also an entry point into Panama’s vibrant culture and way of life.
Red Frog Beach Resort is a recipient of numerous awards and notable recognitions, including the TripAdvisor Travelers’ Choice Award for 2019 and 2020, a Green Globe Certification, and the Central and South America Property Awards. Additionally, the resort is frequently featured in various shows and publications like HGTV House Hunters, E! News, Forbes, World Property Journal, and The Washington Post.
Choose from an array of stellar property investments in this award-winning resort — from the Blue Pearl Island Suites to the Private Villas Community. Top-tier amenities and services round out your luxury lifestyle at Red Frog Beach Resort.
If you wish to learn more about available listings, or the resort’s distinct environment, feel free to get in touch with us by phone at 281.892.1344 (US) or 507.6951.6518 (Panama). Alternatively, you can send an email inquiry to realestate(at)redfrogbeach(dotted)com.