What to ask when you are buying a property in Panamá

If you decided to invest in Panama, whatever reason you have and the type of property (i.e., buying a home, buying a property rental, buying a commercial property), you need to know what to ask to accomplish the due diligence.

The parties involved in a transaction are the seller, the buyer, the realtor, and developers in some cases.

Realtors: Charge a commission between 3% to 5%. The seller usually pays this commission. They typically have a standard promise to buy and sell agreement as a first step of the process. However, have your real estate lawyer to check this contract. To complete the transaction will take between two weeks up to two months. Usually, the buyer will put down 10% of the sale price with the rest due when the transaction is completed. In many cases, the seller uses this 10% to pay taxes related to the sale.

Developers: They work with different realtors. They are the one that builds a project, and usually has a legal department that writes the promise to buy and sell contract, the final contract, and prepared the deed.

Seller: Seller is in charge of paying the transfer taxes (2%) ad the capital gains taxes (3%). Capital gain tax is 10%, but with the bill amendment, it is possible to choose the 3% as your final payment. Also, if you do not have any gain, you have to pay this 3%. However, you can claim it back from the government later, but within a frame time. If not, then the tax return is lost. Also, as a seller, you have to provide the following documents:

a) Property taxes clearance certificate

b) Water good standing

c) If selling an apartment, the maintenance fee certificate indicating that no maintenance fee is due.

d) If the property that had been sold, have a mortgage, the seller has to provide the minute from the bank releasing the loan.

e) If the seller is a corporation, foundation, LLC, or any other legal entity, you will need a minute of the board of director or shareholder authorizing the sale, and the entity' franchise tax clearance certificate. If the legal persons are not in good standing with the government, then they cannot register any transaction at the Panama Public Registry.

Buyer: Be sure to ask the seller for the documents mentioned above. Use your own lawyer to warrant the transaction impartiality. Sometimes, the developer provided a lawyer, but how can you be sure that your rights are being protected knowing that the lawyer work for the developer?

Be aware that you can modify the sale-purchase contract, especially if they have any abusive clauses such as exorbitant penalties or clauses outside the law. If you are buying a preconstruction, be sure to check the date of delivery. Double-check if the developer will charge any fee for delivery the property but not the title, allowing you to live in the apartment until the property title is duly registered. Also, be sure that the construction warranties are according to the law. The developers tend to shorten the time for these warranties for their convenience.

If you are paying with a letter of payment, check if the developer will charge any interest or penalty while living in the flat and until the letter of credit is exchangeable.

Review if the developer is calculating the interest rate as per the law. Also, if the term to charge them are the one allows by law.

Ask if the property has any tax exoneration, if so, it is duly recorded and when will expire. I recommend reading our article on the property tax reduction in Panama enforced since last year, https://www.kerycruz.com/en/news/panama-lowers-the-property-tax-rates-and-other-reforms. Once you read our article, you can check if the government is calculating the taxes accurately. Also, ask the realtor if the property had been rented before and how much is the rent price, and if there any construction issue or any recent maintenance project.

If you are buying right of possessions, you need to check:

a) The certification of the mayor's office showing the seller as the holder of the right of possessions.

b) Ask for the file number to verify if the seller already started a titling process, and where they initiated this process because different institutions process different titles [i.e., mayor office, ANATI (Catastro part and Reforma Agraria)]

c) If the seller already started a process, the transaction of purchase should be recorded in the government institutions verifying the titling process.

d) Obtain declaration of the neighbors acknowledging, the seller as the owner of the right of possessions.

e) Survey and plan of the property, with the technical specifications and calculations. You can verify this survey and the plan borders yourself, but the seller will probably want you to pay for that. In that way, you can check that the survey marks are duly placed in the property as per the plan.

Also, if you are buying the corporation instead of the property, the buyer has to retain a 5% transfer taxes.

Costs:

As a buyer, you probably have to pay for the notary fee and the registration fee. The registration fee will depend on the value of the property, and the notary fee will depend on the number of pages of the deed. Usually, Notary charges between 80 to 250 dollars per deed. Also, if you are not in Panama, you may bear the fee to apostille the Power of Attorney for representation in Panama during the sale process.

Sellers usually bear most of the costs. For instance, they must pay the transfer and capital gain taxes, property taxes, and delivery of the property free of any charge, such as maintenance fees and any water fee.

Lawyers can charge you a percentage of the sale prices or can divide their costs per stage. Thus, a lawyer may charge you for drafting the promise to buy and sale contract, or for the revision of this contract. Also, they will charge for the due diligence. The seller's lawyer will charge for calculating, reviewing, and paying the transfer and capital gain taxes, as well as for preparing the minute of purchase, preparation, and registration of the deed, and for updating the property information at the Cadastral office.

If you are buying right of possession, the lawyer will charge for the revision of the contract, due diligence, and the transfer of the holders of the right possessions at the corresponding government office. However, the titling fee is different and goes up to USD 10,000. The titling process is costly and lengthy, and there is no certainty that you will obtain the title because the Estate is the owners of these lands, and have the ultimate decision. Also, if you approve the transfer, you have to pay for the value of the land. The price will depend on the type of land (oceanfront property, 200 meters away from ocean property) and location.

An incentive of buying Panama Real Estates is that you may qualify for a Panama Real Estate Visa. For more information about that Panama Visa Program, visit https://www.kerycruz.com/en/practice-area/immigration/panama-real-estate-investment-visa.

No matter if you are the seller or the buyer, be sure to be advised by a real estate lawyer. Lill Martinez is a certified broker and a licensed lawyer who can assist you during the process of buying or selling properties in Panama.