Property Laws in Panama
Find out about the property laws that apply when purchasing a house or apartment in Panama...
Before beginning a search, it is important to study and understand the different types of property in Panama and the steps that go into their purchase.
It is relatively simple to research a land lot or property in Panama. The Public Registry has readily available information on any title property, and should be the first step in assessing a property.
Here are the steps to purchasing a property in Panama:
- Conduct due diligence for the property: Perform a title search with the Public Registry; double-check the cadastral maps; verify that the property is in good standing with both land and utility taxes; and investigate any potential limitations on the property such as liens or encumbrances
- Create a Promise to Purchase Agreement: This agreement, if signed by the property owner, puts the property on hold so that the buyer can investigate and perform their due diligence. It also allows the buyer time to secure financing and to decide on any other details in the final agreement.
- Create a Purchase and Sale Agreement: This standard agreement ensures several aspects of the final transaction. It requires the seller to collect and present good standing certificates for both property and utilities (water and sewage). The seller must also process the capital gains tax and the property transfer taxes. The agreement requires the buyer to pay for any notary and registration costs
- Transfer of Ownership: Upon the registration of the Purchase and Sale Agreement with the public deed, the title transfer is complete. In practice, the owner does not receive payment until the Public Registry Office has recorded the transfer of ownership.
Rights of Possession Properties
In addition to titled properties, there are properties owned by the Government on which the buyer can only gain "right of possession." Many of these land lots are on the beach, on islands or inside special tourism zones. These properties are not in the Public Registry Office.
A "right of possession" is a land-use contract, where the government as owner grants permission for occupation of a piece of land for a certain period of time. In essence, the buyer is leasing the land from the government.
As with everything in Panama, a paper trail is key. If a buyer wants a right of possession property they should ensure that the National Agrarian Reform or the Cadastral Office grants the contract.
Due diligence in this area should ensure, at minimum, the following:
- The right of possession award has been issued by the department of Agrarian Reform in the Ministry of Agriculture or by the Cadastral Office
- The document awarded includes a complete and thorough accounting of the property, both by measurements and by other details
- There exists an approved and complete blueprint for the property
- Any desired construction has been approved. If a house is to be built on the property, for example, plans should be pre-approved with the local and national governments
- The length of the possession award should be guaranteed for the desired amount of time.
Panama is much like the rest of the world in its recognition of "squatters rights," and, as such, it is necessary to be extra careful when buying rural land. Make sure that there is absolutely no evidence that anyone besides the owner is living on a land lot before considering purchase.
If there is evidence of another resident on the land lot, do not proceed with the purchase. The risk of legal complications is too high. If this is not an option, instruct a lawyer to cover every legal liability with paperwork. Especially make sure that nobody living on the land lot will make claim to the potential purchase.
Restrictions on Foreign Buyers
While most property for sale has no restrictions, there are some cases where restrictions for foreign buyers apply:
- Foreign ownership of property within 10 Km of an international border is forbidden
- Untitled land must be owned by a citizen of Panama for a minimum of two years before it can be sold on to a foreign buyer. After the two-year period, the land can be titled* and resold without restriction. (*Some land can never be titled.)
- Beachfront and oceanfront land is subject to public access restrictions. There is no firm enforcement of these laws, and the restrictions vary depending on whether the property is on an island or the mainland. To be safe, avoid anything within 20 meters of the high tide line
- All beaches and waters in Panama are considered public and cannot be bought or sold
There are other restrictions that may or may not apply to a buyer. On top of that, the laws in Panama continue to change in relation to real estate. Instruct a lawyer to conduct due diligence research in relation to this before following through on a contract.
Other Relevant Laws
There are several other laws that have to do with real estate in Panama, and it is worthwhile studying them to know how the market works.
Panama Real Estate Law Article 1-5
In 1998, the Investment Stability Law was created to encourage foreign investment. The State promotes and protects investments within the country, in all areas of economic activity established in the law, and in any enterprise or contractual form in accordance with national legislation.
Foreign investors, and the enterprises in which they participate, have the same rights and duties as national investors and enterprises, with no other limitation than those established in the Political Constitution and the law, including those that refer to the freedom of trade and industry, and export and import.
Furthermore, the freedom to dispose of the profits obtained in their investments, the freedom to repatriate their capital, dividends, interest and profits produced by their investments and the freedom to commercialize their production is guaranteed to these investors. Property rights for investors have no limitations other than those established by the Political Constitution and the law.
Panama Real Estate Law 45 - Article 77
This law allows the real estate investor to recover their deposit or down payment as long as they have not yet taken possession of the premises. If the dwelling is not yet complete and is lacking a certificate of occupancy taking possession would not be possible. This legislation came into effect soon after the failure of the Ice Tower project when the Government of Panama received numerous complaints from people who had invested in Ice Tower.
The law is designed to protect consumers from the questionable practices of sellers of property who put restrictive clauses in what is best translated as an adhesion contract. An adhesion contract is one that "sticks" or keeps consumers to it with severe penalties if they try to exit the business arrangement, even if the developer is seriously behind schedule.
The law sets aside penalties in the agreement that would go against the consumer. It also applies to other goods and services as long as they were never delivered. The consumer can therefore affect a full refund if they unilaterally elect to back out of the agreement.
Panama Real Estate Law 45 - Article 79
This is another article that is designed to bear down on the real estate developer in Panama. It creates a guarantee scenario regarding books, flyers, videos, ads, and other promotional material used or distributed by the developer. Their promotional material becomes evidence which can be used to collect damages from the developer if there is misrepresentation of any sort.
If handover dates cannot be met, the buyer is generally free to depart from the agreement without penalty. If there is a substantial change of specifications, the consumer can demand proportionate discounts.