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Panama Real Estate Practices
Overview There are no restrictions on foreigners purchasing property in Panama, and doing so does not require any particular residency or citizenship. However, foreigners cannot acquire land within 10 kilometers of the country border and on islands that have not been declared a special development area.
By law, all real estate agents must be licensed. Panama real estate agents work in much the same way in all of the provinces.
The majority of Panamanian real estate agents are Realtors® - i.e. are members of the Panama Realtors Association (ACOBIR). Although, the Panama Realtors Association is planning to establish a Multiple Listing Service (MLS); there is currently no official MLS in Panama.
A Registry Land Titles (Torrens) System is established and maintained through legislation. While the Land Titles System provides a certified, accurate land record and guarantees title; the Registry system requires buyers to search titles based on a history of conveyances and satisfy themselves. Regardless of the system used, the information is computerized and publicly accessible.
Real Estate Practices Realtor commissions range usually between 3% to 5% of the selling price, although this varies depending on the location or development. In Panama, the general rule is that the real estate commission is paid by the Seller. The buyer must pay the expenses including the registration of title and lawyers’ fees.
The Realtor will draft the Contract of Purchase and Sale (the Offer), and do the negotiating between buyer and seller via the seller's Realtor. Typically, they then provide the contracts to the lawyer/notary who handles the legal aspects of the transfer of title. Along with the offer, the buyer brings a deposit to show good faith to the seller. The seller's agent is obligated to bring all offers to the seller's attention. If the offer is accepted and all the conditions are met, the offer becomes binding between the buyer and seller.
Mortgages are commonly used to purchase real property in Panama. Mortgages are available primarily from banks and lending institutions and the typical maximum term is 20 years. At the end of the term, the outstanding balance is due, but is usually renegotiated for a further term at the then current rate of interest.
Usually, the interest payments are worked into the mortgage payments. Mortgage financing to foreigners cover between 60% to 70% of the purchase price or appraised market value, whichever is lower.
Banks generally require that the borrower(s) contracts a life insurance policy for the amount of the loan, endorsed to the Bank, and a fire insurance policy with catastrophic extension for the amount of the loan, endorsed to the Bank. The insurance must be underwritten in Panama.
The closing process typically occurs in less than 60 days following execution of the contract of sale property. Although there is no legal requirement to do so, the closing usually occurs through both the buyer's and seller's legal counsel.
Capital gains is payable when title is transferred. When they transfer title, the seller of the property must pay a 10% definite rate over his profit at closing. However, if the seller is in the real estate business, he can include all his profits of the year in his Income Tax returns based on a fixed 30% rate. When the transaction involves the purchase of the shares of a corporation, there is a fixed rate of 10% over profit; nevertheless, the buyer must withhold 5% from the total sale price of the shares and report this to the Tax Administration to ensure advance payment is made.
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