When someone is planning to retire in a tropical paradise like Panama, owning a home, investing in land for reforestation, acquiring a beach-front property are only some of the reasons why it is important to learn the rules about purchasing property in the Republic of Panama.
No matter for what purpose the land is being purchased it is important to learn as much as possible regarding the property, including but not limited to limits and boundaries, its encumbrances, registered value, official blueprints, tax burdens and others.
There are different ways to obtain property in the Republic of Panama. In this article, we will consider the two (2) most common alternatives found by foreigners looking to invest in land in the Republic of Panama. First, we will review the purchase of a titled property, which is applicable to land duly recorded and titled in the Public Registry. Next, we will examine the purchase of a possessory right and the implications of the same. This last acquisition method is common to land located in historically protected areas, such as the tropical paradises of Bocas del Toro in the northernmost province of Bocas del Toro and Portobelo located in the Province of Colon, in the Atlantic side of the Isthmus.
The Republic of Panama is blessed with one of the most sophisticated and reliable Public Registry systems in the region. The Public Registry Office keeps record of all titled properties in all nine (9) provinces of the Republic of Panama.
Information regarding titled properties is readily available through the Public Registry and thus it is fairly simple to undertake a preliminary due diligence on a lot or property.
Persons interested in acquiring titled property must follow these steps in order to successfully undertake and minimize the risk of their transaction.
1. Perform a complete due diligence of the property, including a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special characteristic, limitation or encumbrance over the property.
2. Enter into a Promise to Purchase Agreement to secure the property in order to have enough time to properly execute the due diligence regarding the property, obtain financing and arrange details This agreement shall be duly recorded in the Public Registry in order to affect third parties.
3. Enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property.
4. Ownership of any real estate property is confirmed once the public deed containing such an annotation is duly registered. In some cases, payment is not delivered to owner until the proper transfer of ownership is undertaken, while in others, the parties agree to appointing an escrow agent (lawyer or banker) who receives the funds under an escrow agreement which states that payment will be made immediately upon presentation of the deed of transfer of ownership of the property, duly recorded at the Public Registry Office.
It is important to mention that although much of the beach front property in the Republic of Panama is titled, national law prohibits the sale of the immediate beach area, and this may only be assigned by means of a concession granted by the Cadastral Department of the Ministry of Economics and Finance.
Possessory Rights Properties
Not all properties in the Republic of Panama are of private domain and are subject to registry in the Public Registry Office. Many beach front properties, islands and real estate in special tourism zones such as Bocas del Toro, Portobelo are owned and managed by the national or local municipal governments and only "possessory rights" are granted for a determined period of time over these lands.
Possessory rights are basically land use acknowledgments which are essentially recognized based on the occupation and use of a certain area of land over time.
Persons interested in investing in projects located in these restricted areas should be very careful to ensure that the award of the "possessory right", "limited ownership" be duly granted by the pertinent national or local municipal government authorities. In this sense, it is important to verify the following aspects before investing in this type of real estate:
1. That the award of the piece of land is issued by the correct authorities.
2. That the award contains a complete description, including limits, boundaries, encumbrances, and other important details of the land. A complete blueprint shall be drawn and approved.
3. That the the activity to be undertaken by the purchaser is allowed, that is, that the construction or building to be made is acceptable to the national or local government.
4. That the award be extensive for a period of time suitable for the purchaser.
Due to the lack of uniformity regarding the granting entity for possessory rights it is of utmost importance to review each purchase individually and make recommendations specifically for each land option.
Many land developers in these special areas have undertaken the task of procuring the possessory title documents and transfer the ownership of the same by means of the sale of a Panamanian corporation and its assets. Special caution should be taken with these transactions as the Panamanian corporation could have undertaken other businesses besides that related to the property and there is no official registry of the commercial undertakings of the same.
These types of investments are the ones that benefit the most from the purchase of title insurance, which is very traditional and popular in the United States of America. Title insurance has been well received in Panama since it provides assurance of the investment on both the land and the improvements to be made on the same.
Other Alternatives for Purchasing Property in Panama
Purchase of a property by means of the acquisition of a Panamanian corporation which already owns the land is an alternative that may be considered by investors interested in purchasing land, provided that a full due ddiligence is made on the corporation and the seller makes substantial representations assuming full responsibility for the corporation's previous activities.
Other methods for the transfer of property are donations or legacies, which follow a completely different procedure, and most likely will not be an alternative for foreign investors looking to invest and/or retire in Panama.
It is important that before purchasing any kind of property in the Republic of Panama, any investor makes sure to follow these simple steps:
1. Perform a complete due diligence of the property, including a complete title search, review of cadastral maps, verification of tax good standing of the land, verification of good standing in utility bills (water and sewage, electricity, telephone, etc.), as well as verification of any other special characteristic of the property.
2. Enter into a Promise to Purchase Agreement in order to have enough time to properly execute the due diligence regarding the property. For titled properties, this agreement shall be duly recorded in the Public Registry in order to affect third parties.
3. Enter into a Purchase and Sale Agreement. It is important to include an indemnification clause in the event of hidden defects of the property. Payment should not be made to owner/seller until the proper transfer of ownership or possessory right is undertaken.
4. Consider title insurance over the property for the totality of the sum invested. This will ultimately guarantee your investment.
Pardini & Associates has a complete Real Estate team prepared to assist you in the acquisition, sale, lease and planning of any type of property in the Republic of Panama. Our Real Estate team work closely with our Immigration or Tourism specialists, when clients are immigrating to Panama, or they envision a tourism project of any kind.
For more information or advice, please contact us.
Dr. Juan Francisco Pardini
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