Hello there! We are Panacrypto, a leading real estate agency in Panama. Our team has been navigating the Panama real estate market since the early days of 2010. Business is booming: demand remains high, and with reliable, trustworthy information about Panamanian real estate being hard to come by, we are fortunate to be in a strong position. All the stars seem to be aligned for us in the real estate business here.
Introduction: Navigating Panama’s Real Estate Market
This guide provides an insider’s perspective on the Panama real estate market, written from our firsthand experiences. It’s meant to serve as friendly advice to those considering making a purchase here. Think of it as an exposé of how the market works down here, taken with a grain of salt, as our words are not challenged by real estate associations, competing agencies, or tourism board directors.
We use this piece to share our experiences over the past decade because we’ve seen things here that would never fly in the US. We have dealt with just about every type of situation when it comes to real estate in Panama. This is written in the first person because we believe in authenticity and sharing our unfiltered experiences. We might get flack (even rage) for writing this, but these things need to be said publicly.
In this guide, we offer a glimpse into how we entered the world of Panama real estate, from our early days as enthusiastic travelers to building a successful real estate business. Our motivations for putting these experiences down on paper (and online) will become clear, but first and foremost, we want to ensure that you, as a reader and potential investor, are well-prepared.
The last thing this country needs is for you, as a buyer, to get cheated or hustled in your pursuit of property here and then go home and tell your friends what happened. Not good for you and not good for Panama. Despite all we’ve seen and experienced, we still believe in Panama as a place to live and invest. This country is wonderful but not for the faint of heart.
The Panama real estate market is a national gold mine, and what we describe in this report will make it clear that it is not as glitzy or glamorous as you might think, and certainly unlike any other market in the world. The international investment community has only recently discovered Panama, which means the market remains fairly naïve; regulation, multiple listing services, and ethical principles have not yet become standard practice. Caveat Emptor. This exposé has been on the drawing board for some time now, and we decided there’s no better time to release it than at the height of one of the most talked-about and competitive real estate markets in the world: Panama. We hope it will provide an insightful look into the inner workings of a beast we have ridden for the better part of a decade, for better or worse, through thick and thin.
About Panacrypto – Your Expert Real Estate Advisors
Before getting into the “meat and potatoes,” we should probably tell you a bit about ourselves. Feel free to skip to the good parts if you don’t really care, but in the interest of building a bit of credibility, we’ll fill you in on the team behind Panacrypto.
Our journey started with a passion for travel and exploration, eventually leading us to Panama. The allure of Panama, with its promise as the “next Costa Rica,” drew us in. We transitioned from successful careers in the Europe, leaving behind comfortable lives to pursue new opportunities in this vibrant country. We embraced the adventure, diving headfirst into the cryptocurrency and real estate market, and haven’t looked back since. Originally intended to be a marketplace solely for investments with cryptocurrencies, we saw the opportunity to take on the conventional real estate market. The many unlicensed brokers and agencies that just want to close the deal no matter what combined with a generally difficult bureaucracy when it comes to the government and banking industry really motivated us to roll up our sleeves and help investors no matter what currency they want to use.
Over the years, we’ve built a considerable team of Panamanian real estate experts and we’ve seen it all – from the initial excitement of new beginnings to the complexities and challenges that come with navigating a foreign market. We’ve built Panacrypto from the ground up, driven by a commitment to transparency, integrity, and a deep love for Panama. This guide is our way of sharing the wealth of knowledge we’ve accumulated, ensuring that your journey into the Panama real estate market is as smooth and rewarding as possible.
Why Are We Writing this Report?
While we’d love to say that our time and energy spent over months writing this report is simply a gift to new buyers, it’s not necessarily all that philanthropic. One reason we decided to document our time in the industry was for ourselves. Years from now, it will be interesting to look back on a time and a country that was booming along so many dimensions. Documenting our experiences has been a way to find a safe harbor where we could express without censorship our time in the Panama real estate world.
As Lois Guarino, author of “Writing Your Authentic Self,” says, a journal should be “a record of internal life… A place where… you can commune with rarely explored parts of yourself and where those parts can answer back. It is this dialogue carried on over an extended period that has the potential to bear surprising insights, support truth-telling, and foster courage.”
And that’s where the second implication of this report became clear. In writing this journal and concentrating on specific issues, we realized the information might be useful to outsiders looking for guidance in a foreign market. So, we decided to organize it into sections based on our experiences.
The amount of misinformation and suspicious activity we’ve seen while selling real estate in Panama is disturbing. Hopefully, this report will help alleviate some of that tension and clear up misconceptions about the market here in Panama.
In our job, we have come across some very talented and savvy real estate agents. We have also been burned, stabbed in the back, lied to, and otherwise mistreated in countless ways. We’re not naming names because that would be damaging and is not the intent. Nonetheless, reflecting on our experiences, we feel documenting what happened and why is crucial. This type of information needs to be public to educate and protect buyers.
Panama has tremendous potential as a country: as a new home for expats from North America, as the playground for Central and South America’s rich and famous, and as a world-class tourist destination and thriving place to start or grow a business. We don’t want any dishonest real estate deals turning anyone off to this country, so we figured the best thing to do would be to write and publish a guide advising people about what to look out for from somebody who’s been on both sides of the game.
The Challenges of Real Estate in Panama: An Insider’s View
Purchasing real estate in a foreign country is all about trust. Most people who come down here know very little about what is available, what a fair price is, and what they need to watch out for. These factors play a huge role in the power, be it good or bad, of a Panama real estate agent.
We have seen many agents, lawyers, and even bankers misinform clients knowingly simply because they can. We’ve seen developers publish false sales numbers, agents sell apartments in projects going under, and fellow professionals take care of clients “like family” while they are here in Panama, only to never return a single phone call once the first deposit is made. This isn’t good for the people on the short end of the stick, and it’s certainly not good for Panama.
The Panama real estate market is rife with misinformation, and we have witnessed this firsthand. Our primary advice is to always question the source. However, if you generally trust your agent, ensure that any secondary source you consult for cross-checks does not register you with any projects. Doing so would inadvertently exclude your original agent from the transaction for that specific property.
Useful Tip: Don’t always assume that your agent’s word is gold. Don’t be afraid to double-check with another realtor, a developer, or someone else who may be in the know.
Examples of common misleading tactics include:
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- “This is the last two-bedroom unit I have left!”: Often, it might be the last two-bedroom unit on a particular floor or with a specific view, but there could be more available at different prices or conditions.
- “Tomorrow the price is going up $200 per square meter!”: This could be true in our fast-moving market, but it’s always worth verifying. A good agent can often secure the old price for you if you act promptly.
- Construction Promises: When a developer promises to start construction in the next few months with a completion timeline, plan on at least two years. Delays are common, and you need to be prepared for them.
- False Representation: Be cautious of individuals claiming to represent property owners when they may not have direct contact with the owner.
It’s crucial to deal with an agent who has direct and honest communication with developer. Always verify the availability and details of a property with the developer or a reliable source.
Navigating Panama’s Real Estate Market Dynamics
As we’ve mentioned, there are some very smart and talented people in this market. There are a number of Panamanian agents who have risen to the top through hard work, determination, and all the other factors that make one successful in selling real estate. There are also some very savvy foreigners who have moved to Panama at the right time and are now enjoying unprecedented amounts of success selling the market to an ever-expanding clientele from all over the world. Property is still reasonably cheap, the cost of living is a fraction of what it is in most parts of the developed world, and the climate beats the heck out of five months of winter.
We chose Panama for all of the reasons listed above, but there are some people who have come down here because they are running from something or have something to hide. These are the smooth-talking scam artists who are trolling the casinos and the airports looking to latch on to the unsuspecting buyer. For the most part, these folks are fairly easy to spot because what they are offering just seems too good to be true. Trust us, they are around every corner. You’ll also run into folks who, even if they are not cunning and deceitful, could screw up a cannonball. These are the bumbling idiots who may have been able to sell Panama about four years ago before anyone had any idea about a fair asking price or a standard operating procedure and who are still floating around feeding off the scraps. Watch out for them too because they’re not so easy to spot. More on these folks and their tactics later.
In our previous lives, we preferred to work with suppliers and clients who returned our phone calls or emails promptly. Given the sheer volume of inquiries combined with the inherent mañana, mañana attitude of Panama, sometimes we don’t receive an answer for a day or two, and we have learned to be patient. This is Panama, and things NEVER happen as quickly as you expect them to. Don’t expect to get voicemails returned (ever), and good luck getting an email response.
Most business is done in person here, which is why we focus heavily on providing the best online-support to you, so that you don’t have to be wasting your time hustling from one place to another personally.
If you are here though, and dealing with either a government entity or a bank, plan on at least four hours, no matter how seemingly mundane or easy the task may at first appear. There’s always another form to fill out or another $2.00 processing charge to pay.
Remember too that in this booming market, the housewives have come out to sell, which means sometimes you have agents showing up two hours late, getting lost looking at properties, speaking very little English, or trying to push one particular property even though it’s not at all what you are looking for. This inevitably adds to the confusion, delay, and inefficiency, but it’s all part of the market here, so be prepared. Here again is where we at Panacrypto saw an opportunity in hiring well-spoken agents (in English & Spanish) and prioritize being on time or if not possible, communicating effectively to avoid wasting your time.
Most of the large real estate agencies are a one-stop-shop offering legal, banking, and financial contacts out of one office. Get with the wrong firm, and you’ll lose your shirt in more ways than one. Sure, your agent can show you some great property, and you may even end up closing the sale with him, but as far as after-the-sale support, forget about it.
Useful Tip: Keep an eye out for agents who add exorbitant commissions. Anything over 5% + tax is considered out of line in the city. In the interior, agencies may charge between 5-10% depending on the property location and final price.
Back to us as the rookie salespeople… We recall a time we were looking at an absolutely stunning piece of property – in fact, exactly what our clients and we had been searching for. We were in a field about 130km from the city, as this farmer was telling us and our client that what we were looking at was his land. He was showing us a piece of paper that he claimed was a title and insisting that the neighbors sold their farm for $50/sq meter. Our clients were hot to buy, and we were hot to close our first deal, so we shook on it and left with the understanding that we would review the terms of the contract and forward the deposit monies. Two weeks later, we delivered the $2000 deposit check, and one week after, the contract was executed. Cha-Ching, right? Not so much…
One thing that struck us as a bit strange after our first sale was that this man, who was selling a 2.5HEC piece for $150000, had to borrow our cell phone because he was out of minutes and hopped on the bus after our meeting. Red flag numbers one and two…
It turns out that this guy was NOT the owner of the property, and this piece of land was NOT titled but rather in the “process of being titled” (right of possession), which can last anywhere from two months to two years plus. Fortunately, we had formed a relationship with a very diligent and seasoned attorney who eventually advised us (and our client) to walk away from the sale. Luckily for us, the contract was worded in such a way that our client could get out without losing anything. Otherwise, that could have been a very bad situation.
The Takeaway: Make sure you are dealing with the owner or owner’s agent and get a lawyer involved as early in the game as possible.
It’s one thing to buy in your native country, where you are familiar with all the laws, restrictions, and pitfalls of your local market. Switch gears and put yourself in a foreign country, and you are in a whole new ballgame. Keep in mind too that Panama has its own set of ethics, a very complicated bureaucracy, and a culture of “juega vivo” that is like nothing most of our clients have ever seen. This “juega vivo“ mentality encourages a culture of taking advantage – and not necessarily just taking advantage of foreigners.
Nowhere else is the bureaucratic system more visible than at the bank, especially when trying to set up a corporate account or obtain financing. In a land famed for its banks and a serious banking industry hub, one would think that opening a new account would be as simple as it is in the United States. Walk in with a check, show some ID, and voila!
Not the case in Panama. Anyone wishing to open a new bank account must have two letters of reference (which are a joke but an absolute requirement), a Panamanian sponsor, and two forms of ID. And that’s just to open a savings account! I had the pleasure of talking with most of Panama’s top law-firms and even they charge large amounts of money just for the CHANCE of opening a business or personal bank account, while knowing that it’s more a like a bet instead of knowing it’ll work for sure. We laugh when foreigners expect to walk into a bank, be seen immediately, and leave within the hour having set up a bank and pre-qualified for a mortgage. Nothing happens quickly here, so plan on at least half a day when you are either dealing with the banks or the government.
Useful Tip: Most banks and government offices open at 7:30 am or at the latest 8:00. Get there early, and you’ll get out early. Get there after 9, and you’ll find yourself on the wrong end of a line that doesn’t move. That said, it becomes that much more important to be working with someone who will call you back, help you dot your I’s and cross your T’s, and act in your best interest when you leave Panama with unfinished business. Make sure “your guy” will not forget about you when you leave – because sometimes here, hasta luego really means “out of sight, out of mind.”
Uncovering Corruption in Panama’s Real Estate Market
In this section, we address some of the more complex and challenging aspects of the Panama real estate market, providing you with valuable insights to navigate this environment effectively.
The Panama real estate market, like many others, has its share of challenges. One of the most significant issues is the prevalence of unethical practices, such as money laundering and financial misconduct. While neither we nor our firm engage in such activities, we are aware that they exist within the industry. We have heard reports of entire buildings being purchased with cash, empty hotels falsely claiming full occupancy, and agents engaging in deceptive practices to secure sales. These are not unique to Panama but are present here and can pose risks to buyers and investors.
In addition, the social dynamics of Panama can sometimes blur the lines between professional and personal interactions. For instance, some clients, particularly those new to Panama, may be drawn to the country’s vibrant nightlife and social scene. While we strive to maintain a professional approach, it’s important to be aware that others in the industry may not always adhere to the same standards.
Furthermore, the phrase “cash is king” often rings true in Panama. While we adhere to ethical practices, it’s important to be cautious and aware that cash transactions can sometimes mask underlying issues. For example, we’ve encountered instances where properties were sold by individuals who did not have the legal authority to do so, or where the true value of a property was misrepresented to an unsuspecting buyer.
Panama attracts a diverse range of clients for various reasons: married individuals looking for a second home, single professionals seeking a change from their daily grind, families wanting to experience life in a different culture, and entrepreneurs eager to explore new opportunities. This diversity adds to the richness of the market but also requires a nuanced understanding of different motivations and needs.
At Panacrypto, we are committed to transparency, integrity, and professionalism. We navigate these challenges with a firm commitment to ethical practices and always prioritize the best interests of our clients. By providing you with this information, we aim to equip you with the knowledge needed to make informed decisions and avoid potential pitfalls in the Panama real estate market.
Important Investment Questions Often Avoided by Agents
After welcoming numerous clients to Panama and spending significant time with them, either on the road looking at properties or in the office discussing contracts, we like to think we’ve identified a few commonalities between the experienced buyers and the rookies.
It might be helpful to know the questions that, for us, distinguish a qualified buyer from a tire kicker who is only going to waste our time. Here’s a list of questions that we get and what we think when we hear them:
- Tell me a little bit about yourself?
Panama is currently experiencing a gold rush, which means that hordes of people, both honest and devious, are flocking to the isthmus. The number of shady characters who have arrived in Panama because they aren’t welcome elsewhere in the world is frightening. So, it’s always a good idea to get a grasp of who your agent is, where they come from, and how they arrived in Panama. The rookie investor who just jumps right into the deal without getting to know us usually represents a trigger-happy tendency: someone more interested in buying something fast than doing enough due diligence to figure out who’ll be representing them. - How many sales have you made in the last six months?
Yes, it sounds a little personal, but knowing the record of a sales agent means knowing their productivity and accessibility. Top agents are always highly sought after for their hard work, honesty, and knowledge. It makes sense to go with an agent who has made a good number of sales in the recent past and isn’t looking for a sucker to break their slump. - Who do you represent?
This is a great question a seasoned investor will ask anywhere in the world, but in Panama, it is especially important given that credentials are easy to come by and regulations for those who sell real estate are not enforced. The right answer should ALWAYS be you, the buyer. In order to have a completely fair and honest buying process, it wouldn’t make sense to discuss negotiations with someone linked to the seller. The inexperienced Panama investor might forget to ask this and thus go into a deal with no one really on their side. - Do you have a support staff?
Because there are so many nuances associated with buying and selling real estate in Panama, oftentimes the amount of work for a deal is simply too much for one agent to handle. The best agents in Panama are partnered with good assistants and specialized professionals who can help them get the small (but important) stuff done. Tasks such as forming corporations, coordinating bank documents, and dissecting contracts are on the short list of things that need to happen to close a sale. This allows the agent to focus on you, the buyer, while their team is busy hammering out the kinks that inevitably appear in every sale. A first-time or naïve investor might bypass this question and assume their agent can handle the process head-on. Every agent needs a good team, so if your agent is on their own, make sure they’ve got some sort of support network to complete the sale. - What separates you from the competition?
Business is good here – people are coming from all over the world to buy property in Panama for a number of reasons. In the last two years, we have seen the number of real estate agencies triple. A good question we like to hear is “What makes you different from the competition?” because it allows us to explain the service that our firm offers, the skills we bring to the table, and our personal philosophy of business. It allows us to explain why the company we work for is top-notch, why developers call us to represent them. It’s the inexperienced buyers who tend to skip this question and go with the first friendly real estate agent they find. In the end, it may not be the “nice guy” that gets the job done for you. The people that are successful in this industry and get referrals and repeat business are the agents that are going to negotiate with the seller on your behalf, stay on the case for you, and make sure your best interests are protected in any situation – whether it is with the bank, the seller, or a developer. - Where would YOU invest right now?
We like this question because it allows us to be honest and reveal where we are currently investing. It also represents a balanced point of view from the buyer in realizing that the best value investment in Panama may not necessarily be what they were envisioning. If a better investment exists than the one currently being considered, the wise investor always finds it with this inquiry. At the other end of the scale, a novice investor in Panama might forego this question because they have their head set on something different (which might not be the best bang for its buck or may be based on faulty sources of information).
Bad Questions:
On the other hand, there are some red flags too: questions we get from clients on occasion that reek of inexperience. When we hear these questions, it usually signifies the end of the relationship on our end.
- What’s the cheapest thing you have?
OK, so maybe you’re interested in a small-scale investment. Or maybe you’d like to get your feet wet with something that has a relatively low cost of entry. But asking this question certainly tells us you are a tire kicker, and in our experience, it’s these clients who are the most difficult to work for. A true investor in Panama, even if interested in something below $100,000, won’t demand “the cheapest thing on the market” as they know that probably means poor craftsmanship, materials, location, etc. There is nothing wrong with stating your price range, but please don’t just ask for “something cheap.” - Where would YOU invest right now?
We’ve listed this one in both sections for a reason. You and we are different, and this is not our money that we are talking about. It is our job to find out enough about your investment strategy to make recommendations and suggest properties based on your personal strategy and investment philosophy. We plan on staying in Panama for a long time. With that said, we can afford a buy-and-hold. If you are looking for a short-term flip, then we are not comparing apples to apples. - Can I double my money in one year and then flip?
If we knew exactly what the market was going to do in one year, we would be driving a much nicer car than our good old FourRunner. With that said, we can tell you that hindsight is 20/20, and we’ve watched our clients double their money in six months. At the time, we advised them that a particular investment could show promising returns, but in the end, no one can predict the future.
The Rental Myth
It might be helpful to provide an approach we often see taken by real estate agents that buyers regularly don’t question as much as they should. Hotel occupancy in Panama is high. Both the city and various beach and mountain towns do indeed experience high rates of occupancy, but this fact, especially when proclaimed by real estate agents, can sometimes be misleading. We’ve heard agents say to their clients, “Oh, you’ll have no trouble renting this out for most of the year at X amount of dollars.”
In fact, when we were relatively new to the market, we believed and assured people of the same thing. Times have changed, though, and we’ve come to realize the truth.
First of all, make sure to have a good property management company lined up before you sign on the dotted line. Also, keep in mind that in this dynamic market, it is difficult to predict where rental rates are going as supply increases. Granted, this country is experiencing significant growth in the travel and leisure sector, but nothing is ever set in stone. Long story short: do your homework (or get your agent to do it for you) and check online at places like comprealquile.com or even Encuentra24 for current rental rates before jumping into a rental property.
Competing in Panama’s Real Estate Market
So, what should you expect when you land in Panama?
The onslaught of promotion will probably begin on your flight down here, from the in-flight literature to the chatty neighbor in the seat beside you. When you reach Panama’s Tocumen International Airport, you’ll find hundreds of magazines with beautiful buildings on the cover, filled with advertisements, hook-em-in prices, and promises of “your dream home.”
Once in Panama, you’ll probably be approached by a number of people, both locals and foreigners, asking if you’re here for investment purposes. If you answer yes, chances are they are either selling something or have a friend who is. Fight off the sensation of feeling special having made an “amazing contact in Panama just minutes after you reached your hotel.”
Useful Tip: Take a deep breath and stick to your plan. If you don’t have a plan, find an agent. Not someone with a property that they are trying to sell, but rather someone who can find you what you are looking for.
During your tour of the city or outlying areas, you’ll come across a second slew of shameless promotion: billboards, flyers, magazines, newspapers, and TV ads. Huge signs on job sites, some of which have grown dirty and rusted, promoting projects that are still years from completion and others promoting projects that may never get started.
So, let’s say you’ve withstood this barrage of information and advertising and are still willing to consider buying real estate in Panama. What do you do?
Most visitors contact someone, whether it’s a real estate agency or a developer. Because the majority of developers in Panama don’t focus on sales (hiring agencies to do it for them instead), we suggest finding a good agent and never getting involved directly with the developers. Avoid the temptation of the shiny developer offices and beautiful people working the front desk. You’re not going to get a significant discount purchasing directly from the developer, and in fact, you may end up paying more. Your best bet is to contact an agent.
The first thing to know about Panama real estate agents is that not all agents have a license. This is a double-edged sword: the obvious downside is that it’s not traditionally sound to do business with a professional who doesn’t have a license. This concept is certainly not a misconception but more of a general rule in business because we all assume that licenses usually require tests, and passing a test usually requires some body of accumulated knowledge or level of expertise.
What this has created is a unique situation in that the most qualified person to show you property and help you with your real estate search may not be a licensed real estate agent. In fact, some of Panama’s most competent and connected real estate salespeople (advisors) are foreigners and don’t have licenses themselves. These are usually the people who have been working in this market for years and have the experience and wherewithal to guide you through the pitfalls and headaches that you will most certainly encounter. These are the people who can advise you in your native language and get a true understanding of your property needs.
The theory of the law is meant to protect Panamanians from losing jobs to foreigners. What this has translated into, however, is a bunch of licensed Panamanian housewives running around trying to close deals with no real knowledge of the market. All they see is what is directly in front of them, as opposed to a 5,000-foot view; they do not have that macro understanding of the market and the effects of scarcity, oversupply, pricing pressures, and the ability to identify true market opportunities. They lack that “big picture” approach that is important in real estate, especially investment-focused real estate. Granted, they may do a great job finding you a two-bedroom pre-construction condo in San Francisco – because, in all honesty, you could throw a stone from Avenida Balboa and hit seven of them. It doesn’t take a genius to pick up a real estate magazine and make a phone call on behalf of a client to close a sale. However, if you are looking for solid and financially sound investment advice, a licensed Panamanian agent is not automatically your best bet. Not to say they do not exist, but the whole license thing is worth only as much weight as the agent who is carrying it.
Insider’s Guide to Panama’s Real Estate Agencies
So, how do you go about finding a good agent? Good agents find the good deals. The internet has created a market of its own, and prices can be inflated based on “what my neighbor is doing.” Good agencies dedicate enough resources to finding existing properties and have an entire department focused on actively acquiring new listings, keeping these listings up to date, and maintaining some sort of master database of properties sorted by various criteria.
Land is another facet of the real estate business here in Panama, and good agencies usually have their scouts in the interior of the country, scouring the beaches, mountains, and small towns in search of raw, undeveloped land. Keep in mind most agencies do not focus on this side of the business because it is very labor-intensive and requires strong local relationships with landowners.
The master brokers operating in Panama are the agencies that have good relationships with a number of developers, brokers, and specialized agents (the land guys). Oftentimes developers will choose to form an exclusive arrangement with a master brokerage and pass along all of the sales and marketing responsibilities to that brokerage firm. Developers realize that the master broker will have relationships with a number of other small real estate agencies both inside and outside of the country. This “catch all” type brokerage house is usually the best type of firm to work with if you don’t know exactly what you want. While we do not cover the entire country yet, we are have quite the substantial network in the Boquete and Bocas areas.
Critical Considerations When Choosing a Real Estate Developer in Panama
There are about ten big developers in Panama and about a hundred other “one-hit wonders” who are doing their first project in Panama and may be getting in over their heads. Big does not necessarily mean best, though, because some of our worst experiences have been with the “big boys.”
Preconstruction is based on trust: you see the slick designs and all of the fancy graphic renderings of what the building is GOING to look like, but the fact remains that all of this is based solely on promises and a TRUST that the developer will deliver on what they have promised. If you sign a contract with the wrong developer, you are going to have problems.
We have seen horror stories over the last few years of clients being over-promised and under-delivered. We have seen clients that have waited for five years for a project that was slated for completion in two, and we have seen other clients that were told they would have to pay an additional $20,000 because the developer “underestimated the rising cost of materials” or was “unable to continue in good faith with the terms of the pre-sale contract.” Other projects come to a grinding halt because the developer broke ties with their builder.
Useful Tip: Align yourself with the right developer, and you won’t have any problems. Find an agent that can give you a complete developer bio, and Google the developer yourself to see what comes up.
What other projects has this developer done? This is an obvious question, but too many real estate agents will glaze over the fact that this is the developer’s first project here in Panama, and they have literally no point of reference for other projects anywhere else in the world. This is a yellow flag… be cautious!
Just because a firm is doing their first project in Panama doesn’t necessarily mean that the project is going to be a disaster or will never come to fruition. It’s just an indication that further research needs to be done, and your realtor should be in a position to tell you about the entire development team (builder, architect, site engineer, etc.).
Make sure someone on that team has a track record in Panama because you DO NOT want to work with a bunch of hot-shot developers, builders, and engineers ALL from outside of the country. Foreign-run projects are usually a recipe for disaster because connections in this country within the bureaucracy can either make or break a project.
Be wary when an agent tells you “this is one of the most well-known developers in Panama.” What are they known for? Lousy projects? We would say “established” is probably one of the most important criteria for determining a developer with a proven track record of similar projects. Just because the developer has built four gas stations in Rio Bajo doesn’t mean they have the expertise to build a 60-story high-rise in downtown Panama City.
We always like to give our clients some indication of what percentage of the building is sold because, in all likelihood, the developer has some magic number in mind upon which, once they reach it, they’ll start construction. Most of the time, the developer usually wants to have at least 30% of the building sold before starting the site work and laying the foundation. Sometimes it’s as much as 50-60%, so it’s very important to ask your salesperson how much of the building is sold and what benchmarks have yet to be met.
There are those rare projects that are so well-financed that the start of construction is a firm date that will be strictly adhered to and set in stone regardless of the amount of pre-sales. However, that does not mean that after great hoopla and an on-time start, the project may not come to a screeching halt because sales have been poor.
The builder is one of the most important parts of any development team, and oftentimes the developer subcontracts the work to an outside building firm. Nine times out of ten, the company doing the building is Panamanian.
Useful Tip: Make sure that the project you end up investing in is being completed by a building firm with a solid track record.
Take that extra hour and have your realtor drive you across town to show you another building that has been completed so you can get a look and feel for the craftsmanship and quality of work that this builder has done. The way we figure it, if the developer doesn’t put their best foot forward with a model apartment, what will the rest of the building look like?
Things to look for in a model apartment or existing building:
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- Lines, seams, and symmetry: Start with the bathrooms. Does the door close flush with the floor and wall? Is the toilet and lavatory set properly and plumbed professionally? How do the walls line up with the roof?
- Doors, floors, and countertops: Do they close and seal? Are tiles caulked, doors solid, and counters/cabinets set evenly?
- Existing building: Has the building stood the test of time, or are tiles falling off the roof, paint peeling from the walls, and doors coming off their hinges? In an existing property, always check the water pressure too.
Be wary of purchasing directly from the developer because 1) you probably won’t get a better price, and 2) you definitely need someone on your side should things go wrong.
Avoiding Common Contract Pitfalls in Panama
So you’ve found that perfect place here in Panama. Most of the time, some sort of deposit is required to hold the unit, usually between $1,000 and $10,000. By putting money down before signing, you’re holding your property and locking in a price.
The best place to start is by finding yourself a good lawyer, preferably someone here in Panama who is already familiar with the project, location, or developer with whom you are signing your life away.
How do you know you have a good attorney? Connections are huge in Panama, perhaps more so than wit or talent. We always refer our clients to the same three or four lawyers whom we know can get the job done simply because, as it seems, everyone owes these guys a favor or two. While it might seem logical to go for the biggest and the best firm, these firms are often overbooked and less able to give you great customer service. We prefer to refer our clients to the smaller firms because they will find that the personal relationship and commitment are much stronger with these smaller agencies. Prices with the smaller firms are also much lower, so it’s a win-win.
Legally binding contracts must be in Spanish here in Panama, so what you will usually find is a contract in Spanish with a side-by-side exact English translation attached. If your contract is only in Spanish, someone like us should be able to get you a translated version.
In the event of a pre-construction promise-to-purchase contract directly from the developer, make sure that the seller in the contract owns the property or represents the developer in some way. This verification can be handled by your lawyer with a simple inquiry to the Public Registry. Also, keep an eye out for a materials escalation clause because you, as the new buyer, will be responsible for this.
Those contract traps and how to avoid the pitfalls:
Having come across a number of contracts during our days here, we have come to identify a few red flags. The following are clauses we have encountered, sometimes the hard way, which we believe are of the utmost importance for an agent in Panama to focus on:
1. Materials escalation clause: This clause is a fact of life and not a dirty trick used by developers to squeeze that extra penny out of you. Actually, it is a dirty trick, but everyone’s doing it, especially in today’s inflationary times. It’s contained in every single pre-construction contract, with the exception of those that are within six months of being completed or in the event of a resale where the previous buyer has negotiated its removal.
Useful Tip: If you see a materials escalation clause in a contract for a building that is going to be completed within six months, push the seller to get it removed. How much can the cost of materials reasonably go up over six months?
But there are also ways to have this clause removed even if your pre-construction contract extends beyond the six-month completion period.
First of all, know that the maximum possible rise in your price should be 10%. If we see anything even approaching this number, we always make sure it gets capped at 5%. What we usually tell our clients is that because this clause is fairly standard wording, we need to do something that will set you, the buyer, apart from the pack. One obvious tactic would be to purchase more than one unit. If you are not in a position to purchase multiple units, don’t worry.
Another bargaining chip is to put down more than the required amount of money or at least accelerate the down payment timeline (thus showing your interest and seriousness). Most projects require a total of 30-40% down before the unit is delivered. A typical down payment schedule is the following:
- 10% upon signing (less the deposit monies)
- 10% when construction starts
- 10% three to six months after the start of construction
In the case of a unit that is more than one year into construction, the developer will often ask for the full 40% down upon signing the contract. Some developers are eager to get a sale and will drop the escalation clause just for asking. At the same time, we are always on guard when more money is requested down, as it can indicate the builder is a) running out of money, b) behind schedule, or c) low on sales.
We always recommend our clients keep in mind that developers here are usually in the power seat: they often start buildings with very little down themselves, instead waiting until a certain percentage is sold to begin construction. What does this mean? Low risk on behalf of the developer CAN (but not always does) represent a lack of commitment. This is why, as noted before, we always recommend dealing exclusively with reputable developers. People like us who have years of experience know these guys like the back of our hand. But as a new buyer, chances are these names will be new to you. In such cases, find an agent who can give you the green light before you start to fall in love with a unit and its flashy developer.
2. Maintenance Charges clause: Pretty much worthless. Actually, you can count on the developer holding this maintenance charge (which is usually a flat fee or a per square meter charge) for no more than one year after they deliver the building. After one year, the developer’s obligation to manage the property terminates (and they relinquish liability regarding any defects in construction). That’s when the professional property management firms step in, and the fees can go up.
3. Cancellation clauses: Be wary if anywhere in the contract you see wording such as: “The seller has the option to cancel this contract at any point, at which point all deposit monies will be refunded.” We have seen this happen, especially in a market of rising prices where the developer feels like they can break with the original buyer and turn around and sell the same property for double.
This type of clause is not cool anywhere in the world, but it does happen here in Panama regularly; perhaps the result of such a new market. As a representative of the buyer, we always make sure that our clients are covered in the event that the project does actually fail. Some developers offer a return on all deposit monies plus an extra 2-6% interest. If we don’t see any of this protective wording in the contract, we make sure it gets put in before anyone signs.
4. Non-transferability clause: Some developers include a clause that prohibits the buyer from re-selling his property before he/she takes possession. Sometimes it will state “within six months of occupancy”; other times, you have to get written approval from the developer. What does that mean? It means that they are going to try to collect commission, which comes directly off of your bottom line if you try to resell your unit before it is completed.
Conclusion: Key Takeaways for Real Estate Investment in Panama
We’ll keep this short and sweet because, as George Berns said, “The secret of a good sermon is to have a good beginning and a good ending and to have the two as close together as possible.”
Panama is amazing! The cost of living is low, the people are wonderful, and real estate is still affordable for what you are getting. There are thousands of people moving here every month, and this country has welcomed them with open arms. Panama’s long history has always been one of tolerance: religious, political, racial tolerance – you name it. Also, the genuine tolerance of foreigners living in their country.
Unfortunately, this tolerance has been extended into the real estate world, and to date, no one has stepped up and called out some of the games that are being played and the tricks that are being used.
The real estate market in Panama has made and will continue to make smart investors a lot of money. The negative stuff we mentioned in this report is not meant to dissuade anyone from coming down to Panama because, in our humble opinion, the benefits far outweigh the risks. Just find the right partner, and you’ll do fine. Know what pitfalls to avoid, know the tricks people will use, and know we are here to help if you need us.
Nothing makes us happier than a satisfied customer who will go home and tell all their friends how wonderful their experience purchasing real estate in Panama was. Like we said earlier, we are writing this report so you – the prospective buyer – can be clued in to what we, the real estate experts, have seen in our time here in Panama.
We’re not going anywhere, and we will probably be at work while you are sitting in your office reading this guide. So, if you like what you saw here, give us a call, even if it’s just to chat about non-transferability clauses.
