Panama as the Real Estate World Champion: Titled Property, Rights of Possession, and Due Diligence to Protect Your Purchase

Introduction: Why Title Verification Is the Most Important Step in Panama

Panama may have lost its first game in the FIFA World Cup, but the tournament is just starting. We are proud of our country’s national soccer team, which now has a second chance after qualifying for the first time in 2018. 

There's a competition in which Panama wins every championship, and this is real estate, especially when combined with residency. Nevertheless, venturing into real estate in a foreign market is never easy; that's why investors need an expert, or better yet, a team of experts to rely on. 

Particularly since the establishment of the Qualified Investor Visa, Panama has become the champion, attracting investors from all over the world. Many of them come looking for more than ROI: they want to fully relocate and establish a home. 

Given the increasing interest in local markets, Mundo decided to write a piece on titled property, Panama, and how due diligence becomes vital.

Horror Stories That Proper Due Diligence Would Have Prevented

Losing the investment

When the money reaches the seller's account and the deed is transferred to your name, the deal is closed. Anything you haven't considered before can come back to bite you.

It doesn’t matter that the title establishes you as the owner; this will be irrelevant if the previous title wasn’t transferred by the right owner or all the corresponding owners. 

This can happen if the land is in succession and there's an heir who still has rights. Every real estate transfer is only possible if all the owners agree, so if the process isn’t clean, someone can try to claim the real estate back. 

Inheritance of considerable debt

If the land has pending liens, debts, or encumbrances that you didn't know about, they will become your burden. Creditors won't hesitate to start legal action against you and force you either to pay off or foreclose. 

Inability to use the property or to use it as desired

The land may be in regions that have government restrictions or restrictions of different kinds, like the obligation (or prohibition) to use the property for a specific purpose. It may, for instance, allow third parties to use part of your land. 

This is clearly seen in the right of possession, in which the buyer obtains the right to use the unit while somebody else, generally the government, holds the actual ownership.

Such an approach is not necessarily bad, as long as you know what you are getting into. You could run a business based on tourism, entertainment, or provide activities and recreation to the public for a fee. Yet, this should be a decision and not an unpleasant surprise.

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Understanding Ownership Classifications in Panama

Titled Property: The World Cup Trophy for Real Estate Investors

For every buyer, the tournament is won when they have their title registered in the local registry. In Panama, as in most civil law countries, a duly registered title is in and of itself proof of its marketability. 

Rights of Possession (ROP): What You Actually Own

The ROP is a system in which the government grants land under concession. The buyer is allowed to use it as stipulated by law and only through the agreed-upon period. Since you are acquiring rights and not a full title, you will be facing restrictions as to what you can do, how, and for how long. 

Advantages of buying land plots under ROP in Panama

• Prices are considerably lower since the buyer won't be the full owner
• In many cases, property tax doesn't apply for the reason explained above
• Higher availability, as most people prefer the alternative
• Outstanding locations because they are usually coastal zones or areas with rich nature
• Opportunity to run businesses, especially when related to tourism

Disadvantages of buying land plots under ROP in Panama

• The property can't be used as collateral
• The buyer isn't the actual owner
• Although this is quite rare, the government may claim the land back
• Lower resale value, as other buyers usually prefer full titleship
• Can't be bought through a mortgage as banks don't finance such properties
• Boundary uncertainty, as the lines aren't always clearly defined, and surveys may be outdated
• Due to its nature and boundary uncertainty, ROP land can attract squatters or be the scenario for disputes between neighbors

Concession Land: Islands and Coastal Zones

Islands and international borders can't be owned by foreigners, while in coastal zones, they can purchase under ROP, without any difference regarding citizens. Instead of restricting the purchase of land along the coast, the government allows its acquisition and use through a concession, and having the same advantages/disadvantages as with ROP agreements. Again, the coastal zone restriction applies to all buyers, whether foreign or local. 

The Due Diligence Process Step by Step

Public Registry Search: Owner, Liens, and Encumbrances

Being a civil law nation, Panama is quite straightforward regarding property laws and transfer conditions. Still, every buyer, especially if a foreigner, should conduct thorough due diligence. Better yet, they should hire a local lawyer to do it for them. At this stage, it's vital to research the title and find out whether the real estate has pending liens or encumbrances that could eventually cost you your investment.

Due diligence also includes determining if the legal owners are actually who the seller says they are. Even if the person is the owner, they can be omitting the existence of an heir (a brother or a sister, an uncle or an aunt), with rights on the property.

Cadastral Verification and Boundary Surveys

Don't ever settle for what you see with your own eyes. A fence may be built, but it may not indicate the actual boundary of the property and hence its actual dimensions.

Especially when it comes to houses with backyards and land lots, the only way to verify the legal boundary is with the cadastral registry. So go to the city's records and verify the size, the physical dimensions, the characteristics, and the boundaries of the land you want to acquire. 

Checking Property Tax Status and Utility Debts

Due diligence’s scope must go beyond the property itself and encompass all corresponding payments. These can range from property and transfer taxes to utility payments, and must be checked thoroughly because, when accrued, they can add up to a large debt.

Verifying the Seller: Corporations, Foundations, and Powers of Attorney

Proper due diligence on the seller is unavoidable. Whether it's an individual or a company, it's always good to check for the absence of criminal records and the entity's good standing. By making sure you deal with trustworthy and reputable parties, you'll be adding an extra layer of protection to your investment or future home. 

Take a burden off your shoulders: Hire a reliable team 

Unless you are an expert in international real estate law, buying real estate abroad without the right help is extremely difficult. Hiring a team is a must if you want things to run smoothly and, in some countries, it’s even mandatory. The legal aspects of real estate are complicated anywhere in the world, let alone when you are buying abroad and don't understand the language. 

Lawyers or specialized firms are used to guiding investors through Panama’s bureaucracy and making sure the transaction is safe. Most importantly, they will accomplish results much faster than you thanks to their experience.

Advantages of Panama real estate 

Booming market

As time goes by, it is a true pleasure to see Panama growing relentlessly. This economic growth is reflected in the new developments that rise across the cities. Every year, there are new projects being launched both in Panama City and across the provinces, adding variety, style, and value to the whole region.

Although the increasing number of new projects may lead to stagnating appreciation, on the other hand, rental prices rise. Thus, the rental approach constitutes a smart and profitable strategy that, once the apartment is owned, can be adapted to shifting trends. 

Rental and short-term rental

In line with the above, it's worth noting that Panama City is a business hub and tourist destination. Thousands of visitors arrive every year for conferences, events, concerts, and to see landmarks like the Panama Canal, the Cinta Costera, or the Casco Viejo. 

If you prefer this approach, Mundo recommends investing directly in a complex that already has a short-term rental license in place.

Mundo editors' opinion: "What many investors don't know is that any rental shorter than 45 days requires a special license. I strongly advise investors against trying to obtain this license by themselves. Instead, talk to our real estate team, as they can introduce you to outstanding projects that have been granted a short-term rental license since the earliest stages". 

This is the simplest approach, as you know from day one that you're investing in a property that you will be able to rent out. 

Possibility to obtain residency and permanent residency

One of the strongest advantages is the possibility of obtaining residency, better yet, immediate permanent residency. The Qualified Investor Visa stipulates a minimum threshold of $300,000 for real estate investments, granting eligibility to permanent residency in return.

The applicant becomes part of a quite flexible program, allowing them to maintain residency by visiting once every couple of years and selling the property after five years.

Mundo’s approach to residency and real estate 

In Mundo's view, this is the best program for those who want to permanently relocate to Panama, becoming part of a thriving cosmopolitan environment and an active business center. What’s more, the flexibility of the visa allows you to visit sporadically and maintain a perpetual traveler lifestyle, or else alternate between these two choices as your needs and lifestyle change over the years. 

Disclaimer: the information provided in this article is taken from general research; it might be inaccurate or outdated at the time of reading. Up-to-date and case-by-case information is provided only through formal consultations. This article doesn't constitute legal or investment advice. The reader should be aware that every investment has risks and is responsible for assessing the possible risks and potential benefits of the investment. Before buying real estate or applying for investment residency, always consult with certified professionals. 

Conclusion: Panama is the ultimate real estate champion in its region

Panama is making its second attempt tomorrow against Croatia, and it will try to score its first point in the FIFA World Cup ever. At Mundo, we have close connections to Panama because many of our team members live here or have lived here. We also have a physical office and a dedicated lawyer who specializes in Panama residency and Panama processes in general. 

Whether Panama makes it to the second phase or not, we support our national team with passion and admiration. We are proud of them in the same way that we are proud of everything Panama has accomplished by becoming a pivotal economic center in Central America. 

The Buyer’s checklist 

With this buyer's checklist, you know exactly what to look for when pursuing real estate investment abroad. We strongly recommend hiring experts to perform due diligence on any transaction that you intend to do in the country of the canal or in any other nation.

As master brokers for Mercan Group projects and having connections with reputable developers, Mundo is a safe choice for you to realize your real estate dreams.

With us, you can acquire units of the highest standards, in modern complexes designed for comfort, enjoyment, and exclusivity. Most importantly, we work only with developers who have a proven record of construction and delivery, some of them with decades of experience operating in the country. 

Who we are and how we can help you

Mundo is a dedicated publication and a team of experts that specializes in services for the global citizen and perpetual traveler. Across several jurisdictions and with a multilingual team, we can help you register your company, establish a bank account, buy real estate, apply for investment migration, or establish a trust. Whether for one of these or a combination, reach out to us, and we'll provide a consultation tailored to your case.

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