Panamanian real estate law

Panama is diverse both geographically and culturally. Property buyers wishing to invest in Panama could choose from  Caribbean and Pacific waterfront and beachfront, island, highland, mountain, rainforest and agricultural property options.

Prices are affordable and on par with well-known locations 10 to 20 years ago, which is why, there are always excellent deals to be found.

Buying real estate in Panama is very similar to the way it is managed in other countries. Most properties have titles or can be titled, title insurance can be bought, traditional mortgages are available and Panama has foreign investor protection laws that guarantee the standard rights of land ownership. Major banks such as HSBC, Lloyds, and Citibank have established franchises as well in order to provide total financial services.

Since Panama’s separation from Colombia in 1903, Panamanian real estate has been attractive to foreign investors. This is due, in part, to Panama’s dollar-based economy, which offers low inflation and no foreign exchange risk, and also to a Civil Code that is applicable to both nationals and foreigners alike.

Real estate law

Panama’s Constitution under Article 44 guarantees and protects ownership of real property and/or private investment in it. Article 44 reads: “... Private Property is guaranteed as long as it is acquired in accordance with the law by natural person or legal entity.”

Highlights

In Panama, real estate ownership is determined in 2 ways: title and rights of possession. All real estate property titles are registered at the Registro Público (Public Registry). It is at the Public Regis that an attorney extracts public deeds and all amendments to public deeds in order to ensure the legalities of the sale of a property.

When a property is not titled, and is referred to as Propiedad de Derecho Possessorio (rights to possess), attorneys obtain the information on the property from the Agricultural Reform Department. This department regulates government land in rural areas where ownership rights are granted to citizens or entities which have proven use of the land.

The Propiedad de Derecho Possessorio system was initiated by land reforms in 1971 to encourage homesteading on unclaimed, untitled land. Rights of possession are constitutionally protected and cannot be mortgaged. Derecho Possessorio can categorised as:

1. The occupant of government land can claim the occupied piece of land after a length of time and officially obtain the "right of use" for an indeterminate period. Derecho Possessorio can pass from one generation to another and this right can be sold.

2. Idle private land can be claimed by the people who have worked the land. That Land must be occupied and worked by third parties for an extended period of a minimum of 5 years. This legal process requires proof of use, probes and witnesses.

With the exception of town itself in the islands, most of the land traded is by right of possession. By law, all beaches are public; neither nationals nor foreigners may own beaches or the shores of rivers or lakes. Beach front properties must provide right of way beginning at the highest tide to the property line. Builders and investors generally rent the land for 20-30 years, via the Ministry of Finance. Tourism incentives law expands this period for up to 40 years.

Natural or legal entities, and/or nationals whose capital in whole or in part is derived from foreign sources, cannot own real property within 10 kilometres of national borders under Article 286 of the Constitution. This restriction can extend to some island property.

Tax Incentives to Financial Institutions

Mortgage Banks are granted tax incentives if they issue loans to buyers of residential units when they meet the following criteria:

• It is the buyer`s first purchase.
• It is a residential unit with a purchase price between $25,000.00 and $62,500.00.
• The mortgage`s duration does not exceed 15 years.
• Condominiums

Law No. 13 (1993) has benefited the City of Panama with new designs and construction on housing, commercial offices, clinics and shopping centers. Incorporating a condominium is a fairly simple procedure that takes about four months.

Condo owners are regulated under Law No. 13. Generally, one of the five licensed mortgage banks (Banco General, Banvivienda, Primer Banco de Ahorros (Pribanco), Caja de Ahorros and/or Banco Hipotecario) offer mortgages for condos in Panama, though several of the more than 80 General License Commercial Banks in Panama also provide long term loans.

Article 3 of Law No. 13 specifies that the owner of real property can transfer, mortgage, or use his/her property in all types of legal acts, between living persons or by cause of death.

Tourism Law

In June 1994, Congress enacted Law No. 8 which allows investors, both foreign and local, to obtain tax breaks for up to 20 years under certain circumstances. Benefits are granted to developers upon approval.

Some of the tax incentives include:

• No import duties for 20 years with the introduction of any material, vessels, automobile and/or equipment used to build and furnish public lodging establishments.
• No real property tax for 20 years.
• Exoneration from any tax or assessment on its capital.
• No fee for landing on piers, airport (etc).
• No income tax on any interest earned by creditors (etc).
• An annual rate of 10% will be allowed for real property depreciation, not including the cost of the land.

Direct Purchase of Islands

Islands, whose ownership until recently, as per the Panamanian Constitution, was limited to nationals, have always been an area of interest for tourism-related investments.

Law No. 2 of 2006 provides the following benefits to foreign, nationals and/or corporations interested in purchasing island territory for developing a tourism project:

Islands may be disposed of for tourism related activities, provided the purpose of the investment and number of jobs to be created as a result is confirmed.

No more than 50% of an island can be sold to foreigners or foreign interests in a corporation. The sale of the island territory must be submitted for public bidding.

However, projects with right of possession already initiated or in place on an island before the enactment of Law 2 of 2006 may request direct sale of the island property. Individuals or corporations legally occupying island territory will have the right to obtain a concession, and be able to transfer it to a third party.

The contract for purchase of an island territory should contain the following:

• Description and specifications of the land.
• Value of the land for sale.
• Estimated amount and details of the investment, including utilities and infrastructure.
• Environmental Impact and Social Study and Mitigation Plan
• Complete description of the public domain and assets located within the island property
• A bond of at least 10% of the value of the contract which will be valid during the term of the project.

All projects within the island regions must conform to the territorial zoning & master plan to be prepared by government authorities. Until the master plan and territorial zoning is approved, each project may submit its own zoning plan which will be processed and approved through the Ventanilla Unica.

The same Ventanilla Unica within the Cadastral office of the MEF will be in charge of receiving all applications, as well as processing all approvals and authorizations required for direct purchase of island territories.

Restrictions

Due to the nature of islands, and for the purpose of sovereign protection, the following restrictions have been placed for on them:

• The lands in question cannot be located within 10 km of national borders.
• The lands in question cannot have been designated as areas of historical or national heritage.
• The lands in question cannot have been dedicated to the conservation of the environment.
• The lands in question cannot be part of an Indian Reservation.
• The sale of these special tourism areas cannot exceed 50% of the total territory of the island on which it is located; furthermore, ownership cannot be transferred to another State. Tourism projects pursuant to Law 2 cannot exceed 30% of the total territory of an island.

Second Home & Vacation Housing

In a further effort to promote residential tourism investments in Panama, Law 2 of 2006 also provides incentives for “Vacation or Permanent Residential Units”.

The purpose of this incentive is to promote the development of vacation and retirement homes, which may be built over concession areas on islands, or coastlands, provided they are located within a tourism development zone as defined by the government, and only one parcel per petitioner.

Moreover, these projects will benefit from the incentives of Law 8 of 1994. Enabling regulations will be enacted to provide rules for the size of the parcel, costs of construction and improvements thereon.

(Source: www.panamareals.com,www.panamarealtor.com)

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