The Complete Guide to Buying or Building a Home in Panama
Many people dream of owning property and a home in a tropical Latin American country such as Panama. I am one of these people.
*NOTE* — This article is specific to buying an existing home or buying property to build a new house in Panama. Still, most of this content would be transferrable to any country in Latin America.
One of my main goals is to save up and eventually move to a country in Latin America. Things may change for my partner Marcia and me in the next few years but for argument’s sake, let’s say it’s two years from now, we have saved some money, we’re ready to go, and we’ve decided to buy or build a house in Panama.
We chose Panama because it’s a popular choice for many ex-pats and retirees, proximity to the US and Canada, warm climate, and decent economy. There is a big city, smaller towns, farmland, and tiny beachside villages. Panama has a predominantly hot and humid environment except for a rainy season, like Vancouver.
As a bonus for us, my sister and brother-in-law live there! They add an extra incentive we realized is vital to us in our search for a new country: community. (See my piece about finding community when you decide to move).
Also, Panama has dozens of laws specifically for protecting foreign investments, not to mention that the Panamanian constitution guarantees private property. We take personal property for granted in North America, and it is not always a sure thing in other countries. In Panama, however, It is legal for ex-pats to own property, and thousands do.
While I will focus on Panamanian laws and customs, theoretically, you can broadly apply the processes outlined in this article to most Latin American countries.
Where to start?
The most recommended way for a foreigner to own property is to purchase it through a Panamanian corporation that you and your Panamanian lawyer would open. This option will also allow for asset protection and make income tax easier. Also, it’s how everyone does it. You can certainly put the property in your name if you wish, but why go against the grain?
While corporate structure for land ownership has changed in the last ten years and land prices are not as reasonable (but hey, what is?), property taxes are still relatively inexpensive compared to most North America, not to mention a lower cost of living.
A Word of Caution
It’s Not as Easy as it Looks on the Internet.
Most people see a photo of someone on a beautiful beach or dream of having palm trees in their backyard and think, “I can do that.”
As with many dreams, the internet makes a dream of foreign home ownership sound more accessible than it is. While the process might be simple on paper, it is essential to remember that some people out there just want to take your money. As with anything in life: beware of scammers.
Watch Out For Scammers and “Lawyers”
Becoming a lawyer is not the same process, nor does it require the same schooling as North America. You will want to make sure you find a reputable lawyer who knows what they are doing.
Since there is an opportunity to be scammed over the phone or on the internet, you will probably want to go down to Panama and speak with a lawyer face to face to make sure they are what they say. Some people have been taken by only doing internet research or making deals over email or phone.
If something looks too good to be true, it probably is. The best way to get around being scammed is to spend some time in the place you want to buy. Don’t just check out a few websites; make a couple of calls; fly down and talk to some people. And get to know the locals.
Get To Know the Locals
My brother-in-law Scot and my sister Katie have lived in Panama for over ten years. Scot told me one of the top reasons they live comfortably after transitioning from renting to buying was that they took the time to get to know the locals.
Take some time and learn the language and customs of where you are moving. Scot and Katie say that speaking Spanish, taking care of the locals by employing them for odd jobs, and participating (or at least offering to participate) in the community has allowed them to build a much safer and more pleasant life for themselves.
Having the locals know who you are and, more importantly, what you are all about, can be the difference between a serene, happy community and one with distrust and hostility.
Locals might be sceptical of ex-pats until they get to know you and what you will bring to the community. Once you are accepted in the community, it will bring to light a whole new sense of peace and togetherness that you were missing from being the wealthy ex-pat on the hill.
What if I Want to Buy a Pre-Existing Home?
Buying a ready-made home in Panama is a popular option (building a new home will be covered later in the article) for many ex-pats.
Many people from North America retire down in Panama, looking for a condo in the city or near a larger town like Boquete. There are even special mortgage rates for people of a certain age and on a fixed income (aka a pension).
Some advantages of buying a built home include:
- The property will probably be closer to more popular beaches or towns.
- What you see is what you get/fewer hidden costs.
- The value will be easier to estimate.
- Financing will be quicker and more straightforward.
- Faster timeline: ~ six weeks.
- There may already be amenities such as a pool or garden, which have high installation costs.
There is Lots of Information to Know
If you want to peruse a good site with a ton of legal information, “Panama Offshore Services” is beneficial:
There is tons of info on that site that can also answer questions about:
- Initial Fees and Taxes (the Panamanian government charges 2% property title transfer tax)
- Paying for closing costs (each party pays their own and are about 2% of the sale value)
- How long the process takes (about six weeks)
- Legal Fees (estimated 2–3% of transactional value)
- Do the documents need to be in Spanish (no). However, they should be!
- How much the downpayment is (10%)
- Property taxes (fixed 2.1% for property valued at $75,000 US or more)
- Capital gains taxes (3%)
- More taxes (self-employment, inheritance, etc.)
- Financing and mortgage information (sources, documents needed, etc.)
- Property appraisals, inspections, insurance, etc.
- Information for developers
As you can see, there is a bunch of information. (I have provided the quick answers in brackets but make sure you read the fine print). It is straightforward to understand on paper, but make sure that you get a lawyer to cross the t’s and dot the i’s and ensure there are no surprises.
What if I Want to Build My Dream Home?
Another popular option is to build your own house, or rather, have someone construct it for you.
You will want to use a Panamanian architect and builder because they have the experience of building houses that withstand heat, rain, and earthquakes (which happen but not very often).
How Much Does it Cost?
According to an article in “Living In Panama”, there will be different costs per square foot, depending on what type of house you want to build. For example:
- A Basic DIY house — $35-$45 / sq ft
- A Basic Panamanian Style House — $50-$56 / sq ft
- A ‘Living In Panama’ Style House — $56-$80 / sq ft
- An Average Western Style House — $70-$120 / sq ft or more
Get used to the $/sq ft measurement as sizes (and therefore prices) of houses will vary, but the cost to build will be about the same. For example, a 2000 sq ft home is priced at $200,000, and a 1000 sq ft house is priced at $100,000. Both cost $100/sq ft to build.
When the article talks about a ‘typical’ Panamanian home, you should try to imagine a one-floor, concrete block and tin roof style. These types of homes are probably not the stuff of “ex-pat Panamanian dream house.” Even the last style mentioned at ~$100/sq ft is an average western-style house. So a 2000 square foot house, which is about average size, is still going to cost you at least USD 200,000. This is not a ‘cheap’ alternative.
It’s Not as Cheap as You Think
Building a house in Panama, or any other non-first world country, will not be inexpensive just because pineapples cost $1.50. Cheaper food and beer doesn’t necessarily mean cheaper homes.
When I was in Panama a few years back, my brother-in-law told me about ex-pats who came down from the States mostly just looking for a ‘cheaper’ way of life in a beautiful climate. Scot said that what they found was not as simple as they thought. Things still cost money in Panama.
Sure, personal items like food and clothing are cheaper, but building a home is different. When ex-pats come down and start building their dream home, they are quickly schooled in finding out that it is not that much cheaper to build a house in Panama than in North America, if at all,
The taxes and the buying of available items (like food) are lower than in North America, but not so much the costs of building a home.
Right of Possession
Here is something quite essential to be aware of: Right of Possession (ROP).
ROP is a critical term that people need to be mindful of when purchasing a property. According to Panama-offshore-services.com, Right of Possession is where people can “possess government-owned land so that they can make improvements on it,” and “ROP’s can be sold to third parties including foreigners.”
Here is where the issue is: ROP’s are not recorded with Panama’s Public Deeds as land titles are. They are recorded in any number of other places such as:
- The Ministry of Agricultural Agrarian Reform Office
- The Directorate General of the Surveyor
- Regional Real Property Tax Offices (Catastro)
- The local Mayor’s Office
- Local Justices of the Peace (Corregidor)
However, recent laws allow you to convert an ROP into a titled property, which can then be recorded in the national Public Registry. Back in the day, this process could take 3–5 years. Ouch.
There is a friend down in Torio, Panama, with a beautiful beach-front property who just got it titled after 11 years and a lot of money spent. Nowadays, “they” say it should take between 6 months to a year. But the process will probably take longer than that. It always does.
And to convert an ROP into a titled property, there are many hoops to jump through. You can find all the info here, under “Panama Rights of Possession.” The process is a lot more expensive than it used to be, but what isn’t?
A lot of ex-pats have been hoodwinked by the ROP legality. People come down and “buy” a piece of land only to realize they don’t own the rights to it. Then they found out how long and expensive the process is and decide they can’t afford it. They have this beautiful property that they can’t afford to get titled. They obviously don’t want to leave for fear of squatters, who will be very difficult to remove. Don’t let this be you.
One option you have that my sister and Scot did was pay a premium for land already titled. While this sounds like the best deal, it costs more money. Like anything else, you get what you pay for.
If you want to find the perfect beachfront property to build a house upon and have all the rights to it, plan for lots of time and money to be spent as well as jumping through many hoops to make it happen.
It sounds like a lot, but paradise has its price.
Speaking of Prices
You will want to find out how much everything is supposed to cost before buying it.
You could ask for a price at the Land Title Registry, and someone will tell you it costs $300,000. Then you will go back a year later it will be $100,000. This action is not on purpose, and this story is not uncommon. It’s just the way it is down there.
There is a formula somewhere for figuring out the price you are supposed to pay, but if you don’t ask around and ask what a fair price is, they will try to screw you.
Prices can be a moving target for foreigners.
If you don’t know the price, most Panamanians will tell you a higher one. For example, if you don’t already know the cab ride is $1.50, the cabbie will tell you it’s $5. But if you know the price is $1.50 and give him $1.50, the cabbie will probably just take it (sometimes they get aggressive and demand more money, but you can tell them you want to see a cop, and they will take you to one. This situation happened to us in Panama City, and Scot got us the $1.50 price we deserved).
The same idea applies to everything else, including houses and permits and such. Scot had a recent example where he needed a building permit for their casita. The Panamanian permit guy wanted $400 for it and said that Scot could “just pay him now, and it will be easier.” Scot politely said, “Nah, that’s ok. Why don’t we just go down to the office and figure it out.” The permit’s actual cost was around $80.
It may not make sense or be good business, but this is not your country. You have to play by Panama rules, and when you don’t know the rules, you pay much more.
Expenses of Building A New House
Location is a cost factor (just like anywhere else), but a more significant reason for the difference in costs is the finishes.
By finishes, I am talking about the different items and final touches that individualize your house, such as:
As you can imagine, there will be many differences in each of those finishing costs. When budgeting, It is best to have an idea of a) how much you want to spend total, b) how much you want to spend per square foot or meter, and c) what finishing areas you want to spend or save on.
Finishes are mostly considered a luxury in Panama and are generally not used too much, and are not fabricated locally. That means you will have to import most of the finishes you desire for your new home. The finishes could cost up to five times as much as they do in North America.
Labour is another cost overrun that you should expect.
In Panama and other Latin American countries, the workers are not as skilled as labourers in North America. While you can go the more expensive route and pay for the best, the best will still take more time than you think — plan for overages in labour.
You Might Need To Pay Rent and a Mortgage For Awhile
Having to rent a home while your own home is being built is another con for making your own house.
If you want the dream house in the dream climate, there will be sacrifices, but I promise it will be worth it in the end.
My sister Katie, and brother-in-law Scot, rented a lovely two-level house for many years while saving money for their new place. However, when they found a property and decided to build a new home, they still needed a place to live while it was being built. This process could be anywhere from six months to a few years, depending on your budget and how much you want to develop yourself.
Living in one place and building another means paying one rent, one mortgage and double the bills each month that your house construction takes.
Rent Before You Buy
“Make sure you rent before you buy” is a cliche, but cliches are cliches for a reason: they work, and they’re true.
Whether you decide to build a new house or buy an existing one, you must rent near where you want to live before you buy.
The idea of renting before buying is a good idea anywhere globally, but an incredibly excellent concept in Panama. There are just too many scam stories involving people who fell in love with a place and made a snappy, impulse decision to buy.
I (and Katie and Scot) cannot stress how important this is:
You should rent where you’re thinking of buying for at least six months.
There are many good reasons to rent first, and here are just a few:
- You will get to know the area and the people and become known yourself. If you can’t make it six months with your neighbours, the weather, or the food, you won’t make it 30 years.
- You can meet people and ask questions about prices, making it less likely you will get ripped off. Many people simply do internet research and rush into a purchase, and get scammed along the way. A reasonably large industry in Panama (and other Latin American countries) is dedicated to ripping off unsuspecting ex-pats.
- You need to allow your perspective to change, aka wait until the “honeymoon” phase is over, to make your decision. The honeymoon phase usually lasts about six to twelve months. After that period, you will know whether you want to live there for sure or if you are just temporarily enthralled with the beauty of the place.
- A few different micro-climates in Panama will become apparent when you rent first. They can change mile to mile and affect where you want to purchase your land.
Building a house takes time. There will also be inevitable delays that will turn into dollars keep adding up.
Longer renting means more time paying two rents/mortgages at the same time. Especially in Panama and other Latin American countries, there will be delays in labour, materials, weather, permits, lawyers, government, whatever. The point is: expect delays.
What Are the Advantages of Building Your Own Home?
I know we talked a lot about prices and all the downsides a lot, so now let’s talk about the good stuff. There are several advantages to building your place versus buying an existing property:
- There are no transfer taxes
- Tax benefits (claiming depreciation)
- Build a more energy-efficient home than the older ones
- Fewer initial and near-term repairs
- Build to your specifications
- Strengthens your feeling of ownership
Katie and Scot did their research, knew the town, the area, and the people very well, and ultimately decided to buy a piece of land and build their place.
Constructing a new home was the right choice for them.
Scot is one of the most hands-on, mechanically inclined people I know, and Katie is not afraid of a little (a lot of) hard work, so choosing to build rather than buy was more manageable to them than most.
The Rental-Income Advantage
While there are pros and cons to the building vs built ideas, the factor that seals the deal for building on your property is what I call the Rental-Income Advantage.
The Rental-Income Advantage when buying a property is that you can create the house you want, build another one, and then rent that puppy out!
While you could rent out the house you live in, that would mean you have to pay for somewhere else to live that you don’t own.
When you can live in your house, rent out a second home also on your property, and pay off your mortgage, you’ve got the best-case scenario.
The rental property idea is an incredibly intriguing option for younger buyers, more so than older ones. Seniors who are retired and have their finances set are probably not interested in the costs and headaches of having a rental property. For others, though, putting a rental on your property is an excellent way to offset the housing costs and eventually use it as a source of income.
In addition to renting before buying, Katie and Scot also made the smart move of building a rental casita on their property. While its primary purpose will be to house our mom when she comes to visit, they can also rent the casita out to provide an income for the rest of the time.
Oh, and by the way, you can collect up to USD 11,000 tax-free. Ka-ching!
I would venture that more and more people will opt for the laptop lifestyle in the future, which means that any rental spot will be hotter than a Panamanian summer, not only when travelling resumes but for the foreseeable future.
What about mortgages?
Whether you’re buying a property to build on or buying a ready-made house, you are going to need a mortgage.
A mortgage in Panama is going to be a little different than one in North America in the following ways:
- Panama prefers 15-year mortgages instead of the more common 30-year ones up north.
- Foreigners usually need a 30% down payment, which is more than citizens need.
- You’ll have a 6.25% interest rate on the remainder and fixed mortgage payments.
- In North America, it’s all about the credit history; in Panama, it’s about your ability to pay and the property’s loan to value ratio.
- The process is tedious and extensive. Foreigners need more documentation than Panamanians, including:
Bank mortgage application
Entire passport photocopy
An additional photo ID (driver’s license)
Recent utility bill
2 Original bank references
2 Commercial or professional references
Bank statements for the last 24 months
Income tax returns for the previous two years
Letter explaining your sources of income and reason for purchasing the property
Immigration status proof
Property appraisal from a bank-approved appraiser
Receipt of the purchase contract and down payment
These documents need to be authenticated by an “Apostille” or the Panamanian consulate. You also need life insurance with the bank as the beneficiary and fire insurance for at least 80% of the home’s value.
Be Aware of Late Payments and “Specific Branch” Clauses
Ensure you don’t make any late payments as there could be a 2% interest rate hike. Also, watch for “specific branch” clauses that may not allow auto-debiting from your account. Some banks may also require you to have a bank account for at least six months before applying for a mortgage.
If all this seems daunting, that’s because it is. The best advice I can give is to contact a knowledgeable and trustworthy real estate lawyer who will get you through the gauntlet of paperwork.
*Hot Tip* — Make bi-weekly payments instead of monthly. That means 26 payments per year or 13 monthly payments instead of 12. This action will save years off your mortgage and 27% in interest payments on a 15-year mortgage!
As with any significant purchase, and especially a home that you could potentially see yourself and your family living in for many years, there are many decisions to make.
However, if you decide to buy or build a house in beautiful Panama, you can take comfort that the process is quite common and relatively straightforward.
- Rent before you buy and get to know the locals
- Ask questions and understand your prices
- Decide if you want a pre-existing home or a property to build on
- Find a reputable lawyer
- Get all your paperwork in order before starting
- If possible, make bi-weekly payments on your mortgage instead of monthly
- Expect and plan for delays and cost overruns
- Enjoy your new home!
Thanks for reading! Leave any questions you may have in the comments section, and I will do my best to answer them as soon as possible.
A big thank you to my brother-in-law, Scot King, for all the information and knowledge he contributed to this article.
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