Blood on the Streets
Introduction
My name is Kent Davis and I have been selling real estate in Panama for almost two years and quite frankly, business is good. Demand is high, supply is low, and good information about real estate in this country is very much absent from the market, which puts me as the real estate agent in a powerful position: in terms of selling real estate, all the stars appear to be aligned.
What follows is my take on what is going on in this crazy environment, written as a warning to those considering making a purchase here, from someone in the trenches. Take this with a grain of salt, because nowhere in this document are my words challenged: not by real estate associations, competing agencies, or tourism board directors. I am using this piece as an outlet to present my own opinions about the experiences that I have had in the course of my 9 to 5 because I have seen things here that would never fly in the US, and I have dealt with just about every type there is to deal with when it comes to real estate in Panama. This is written in first person, mainly because I'm not a journalist and don't know how to write any other way.
I am sure I'll get a lot of flack (even rage) for writing this, but these things need to be said, publically. After all that I have seen, done, and had done to me, I still believe in Panama both as a place to live and as a place to invest. This country is a wonderful place to be, but it is not for the faint of heart.
In these pieces I detail my history in the Panama real estate world; from my first contact with Panama as an enthusiastic traveler, to my current success as a real estate agent. My motivations for writing this report will become clear, but first and foremost let me say this: I am writing this report to make sure that you as a reader and a potential investor go into this country prepared. The last thing that this country needs is for you as a buyer to get screwed, cheated, or otherwise hustled in your pursuit of property here in Panama, and then go home and tell your friends what happened. Not good for you and not good for Panama.
The Panama real estate market is a national gold mine and what I describe in this report will make it clear to you the reader that it is not nearly as glitzy or as glamorous as you think, and certainly unlike any other market in the world. The international investment community has only recently discovered Panama, and for this reason the market remains fairly naïve; regulation, multiple listing services, and ethical principals have not yet become standard practice, and it is not evident if any of these will be developed anytime soon. Buyer beware.
This report has been on the drawing board for some time now, but I decided when better to release it than at the height of one of the most talked about and competitive real estate markets in the world: Panama. I hope it to be an insightful meditation on the inner-workings of a beast that I have ridden now for almost two years for better or worse, through thick and thin.
About Me
Before getting into the “meat and potatoes” of this report, I should probably tell you a bit about myself. Feel free to skip to the good parts if you don’t really care, but in the interest of building a bit of credibility, I’ll fill you in on the guy behind the keyboard.
I was born in Honolulu, Hawaii into a good Roman Catholic household. I ended up attending high school in Virginia and later pursuing a degree in Marketing at James Madison University in Virginia. After college, I was fortunate enough to be recruited by one of the largest wholesale distributors of construction materials in the world, Hajoca Corporation where I spent the next five years working in places like Cleveland, Richmond, and ultimately Atlanta. I ran the commercial plumbing supply business from 2001-2006, and I loved my job. At the peak of my career in the US, I was making a healthy six figure income and I was on top of the world.
Then one day in 2005, a surfing buddy of mine called up having just returned from an epic Central American surf tour. “Dude, you gotta check out Panama! I'm telling you man, that place is so YOU". That piqued my interest and I began looking into it, and the more I discovered about the country, the better it started to look.
Of course, Costa Rica was on everyone’s radar in the 90’s, but to me it seemed like it had reached its peak, and that’s why Panama seemed like an attractive place – sort of like “ The next Costa Rica”.
One cold February morning, I pulled the trigger. I quit my job, sold my car, and broke up with my girlfriend. Well, it didn’t actually happen that quickly and I wont bore you with the details. But it all ended up with me here in my new Urban Jungle: Panama! I absolutely love this country and could write a novel about all of the amazing people that I have met and beautiful things that I have seen, but we'll save that for the email to Mom.
Why I am writing this Report?
While I would love to say that my time and energy spent over months writing this report was simply my gift to new buyers, it's not necessarily all that philanthropic.
One reason I decided to sit down and document my time in the industry was for myself. I decided that years from now, it will be interesting to look back on a time and a country that was booming in every single way. So in documenting my journal-like experiences, I attempted to find a safe harbor where I could express, without censorship, my time in the Panama real estate world.
An author I like, Lois Guarino who wrote Writing Your Authentic Self, said 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 of time, that has the potential to bear surprising insights, support truth-telling, and foster courage." Smart dude.
And that's where the second implication of this report became clear. In writing this journal and concentrating on specific issues, I decided the information might be useful to outsiders looking to find some guidance in a foreign market so I decided to organize it into sections based on my ramblings. The amount of misinformation and suspicious activity I've seen while selling real estate in Panama is disturbing, so hopefully this report will help alleviate some of that tension and clear up some misconceptions and fallacies about the market here in Panama.
In the course of my job, I have come across some very talented and savvy real estate agents in this country. I have also been burned, stabbed in the back, lied to and otherwise screwed every which way from Sunday. I am not going to name any specific names, because that would be truly damaging and not the intent. However, upon reflecting on my experience I feel like I am able to document what happened and why, and I think that type of information needs to be made public, if anything to educate and protect the buyer.
Panama as a country has tremendous potential: as a new home for expats from North America, as the play ground for Central and South America’s rich and famous, and as a world class tourist destination and thriving place to start or expand a business. I don’t want some dishonest real estate deal turning anyone off to this country, so I figured the best thing to do would be to write a book and explain to people what to look out for. From somebody that's been on both sides of the game.
The Lies in Panama Real Estate
Purchasing real estate especially in a foreign country is all about trust. Most of the people that come down here know very little about what is available, what a fair price is, and what they need to watch out for, and these factors play a huge role in the power, be it good or bad, of a Panama real estate agent.
I have seen many agents, lawyers, and even bankers misinform clients knowingly, simply because they can. I’ve seen developers publish false sales numbers, I’ve seen agents sell apartments in projects that were going under, and I’ve seen my fellow professionals aid clients “like family” while they are here in Panama and never return a single phone call once the first deposit is made. Like I said, its not good for the people that are at the short end of the stick, and its certainly not good for Panama.
This market is full of misinformation and I have seen it first hand, so my first piece of advice is to question the source.
Useful Tip: Don’t always assume that your guy’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.
"This is the last two bedroom unit I have left!"
"Tomorrow the price is going up $200 per square meter!"
"As a matter of fact, I just had someone cancel on that unit, but you have to reserve it NOW!"
I used to use these tactics, and I always had some very flimsy piece of information to support my cause: "I have only one two bedroom unit left!" What I didn’t know at the time is that I had one two bedroom left on the 4th floor facing the ocean for under $200,000, but there were still a bunch of two bedroom units left (not necessarily at that price, or on that floor, with that view), but there was still more than one left. And all I needed to do was get clarity from the developer by asking them point blank, instead of relying on their published price sheets. What I did not know at the time but know now is that developers often release units in stages, and if you have a client that's looking for, say, a two bedroom unit and there does not appear to be one available on the current price list, odds are the developer is sitting on a few choice units to sell at a premium later. Again, its something you have to experience (or read about ) to know. So ask!
Useful Tip: Don’t always assume that your guy’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.
Nothing wrong with putting your agent on the spot, and it is an easy phone call to the developer to verify availability.
How about this one: “ The price is going up next week!" Actually, in this market that could very well be the case, but don’t let that affect your decision. If you are really thinking about purchasing a unit in said development, odds are your agent (if he’s good ) can get you in at the old price. Just make sure that when the price actually DOES go up, you are in a position to make a move and either put in an offer at the old price or accept the new price.
Promises: I usually tell my friends down here that the movie is starting at 8pm when it is actually scheduled for 8:30. We are lucky to make the previews. Know why? Because Panamanians have absolutely no concept of time. But it's not impossible to deal with. When that developer tells you that they are going to start construction in the next three months and should be completed with the project in 12-18 months, plan on AT LEAST two years. And this goes for small contractors as well, tenfold. They’ll show up two hours late and then be MIA for two weeks. How do you avoid that? You don’t, you just plan on it and take a deep breath because you know that you are paying a fraction of the price it would cost you back home. And then you go get a delicious $2.00 lunch at one of your favorite restaurants here.
Useful Tip: Don’t always assume that your guy’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.
False representation: Scam alert! Everybody here in Panama these days seems to have a piece of property that they are selling. Of course it’s titled! Full unobstructed ocean views! $2.00 a meter with road access! Under $100,000 in El Cangrejo! Nine times out of ten, you are not talking to the actual owner and are probably not getting the full story. Again: question the source. You’re not down here to make friends with your agent, and don’t forget that we don’t get paid unless we make the sale. Don’t be afraid to ask the tough questions!
Having a good agent means you are dealing directly with the person running the show. I cannot tell you how many times in the beginning that I went to show a client a piece of property in the Caribbean or Pacific coasts only to find out (after the fact ) that the gentleman claiming to be the owner was only actually 'representing the owner'.
My Competition
Increased competition in any industry generally leads to more choices, better prices, and stepped-up service for both buyers and sellers alike. And with the rise of the real estate industry in Panama, competition has certainly increased ten-fold. But the market is far from mature, and the effects of competition in Panama are not as healthy as one might think. Competition usually brings innovation, but at times this market seems to be trapped in the backwards thinking and antiquated systems of a third world country.
One of the reasons for so much of the deceit and misinformation regarding real estate in Panama comes from the fact that we have no industry-standard multiple listing service, or MLS. Instead of writing a chapter on how this affects you as a buyer though, I’ve decided to lay out what it means to me as an agent: so that you in turn can get a different perspective and perhaps understand better what you’ll be up against.
The majority of my clients who arrive in Panama are already familiar with an MLS which for those that do not know is essentially a giant digital warehouse in which properties from across the country are stored. The typical MLS system is a database of information that allows agents across said country to collaborate and buyers to compare and contrast. Information is consolidated and organized in such a way that it's as easy as selecting from a list that includes: a neighborhood, price range, size, amenities, etc. If you're reading this, you probably already know how an MLS works, so I wont get into it.
In Panama, that giant warehouse doesn’t exist. Instead, we have hundreds of small, competing warehouses known as real estate agencies. Each real estate agency in Panama has their own inventory of properties, some of which overlap with other agencies. Not unlike a tiny version of the really early MLS system in the USA, here in Panama each agency has someone who compiles information regarding sales and new property listings, then posts that information for the rest of the agency employees to see: so that everyone knows the new product, and so that no one is selling property that’s already been sold. But keep in mind that all of this is done internally, and very few competing companies share their listings.
I can only imagine how useful a MLS service would be as a real estate agent. To think, after defining my clients’ needs, I could easily identify available property and present said property to them in a reliable and well organized format. Ha! That'd be the day!! At this point its only a dream, because the concept of "sharing commission" makes everyone nervous, even though no one is seeing the big picture clearly enough to realize that we would all be 20 times more efficient and thus able to close 20 times as many sales...
Not having an MLS severely restricts the portfolio of many agents so if you the client comes in looking for something like, say, waterfront valley property, chances are that agent will have nothing. As you might imagine, this restrains the agent’s flexibility in terms of what they can offer, thus encouraging them to push a different product. Any good company that's earned their stripes should be able to offer their clients both wide variety AND niche products.
Imagine sitting down for a nice dinner at a fancy restaurant in Italy, having craved mushroom risotto for weeks before your trip. What if the waiter not only told you he did not have access to mushroom risotto, that no one else in town would have mushroom risotto, and furthermore mercilessly tried to persuade you into ordering the steak fajitas.
“ I didn’t come to Italy to eat steak fajitas,” you might say. “I came to eat mushroom risotto! Give me my mushroom risotto!” It’s the same with real estate in Panama: if you’re not dealing with the right agent, you are not going to have access to the widest variety of property and will only be shown the limited number of properties that they have.
The lack of an MLS also limits each agency’s (and accordingly each agent’s) access to buyers, meaning if I had the most spectacular piece of property on the market, I wouldn’t necessarily be able to find the best buyer for it because my reach was only as far as my marketing tools spanned. This applies to niche real estate like mountain property or beachfront property and it dissuades most agents from becoming specialized in a specific region or property type because there’s no direct or steady feed of buyers.
As a rookie a agent, my job used to be extremely hard because I had to search like a gopher for that risotto and in the process avoid resorting to a steak fajitas fix all property which the client probably wont like. While I personally am a fan of referring clients if I don’t have what they want, most agents in the City are not, which leads me to my last point.
Not having an MLS in Panama makes my job difficult and makes me less effective as a salesman because I am not encouraged to communicate or interact with other real estate agents. The MLS system ensures referral commissions from agent to agent and the United States judicial system is pretty reliable if worse comes to worst. That protection does not exist here and for that reason collaboration is pretty much unheard of. Cooperation amongst agents (or lack thereof ) is a cultural thing, and most agents are so worried that I may steal their listing that they are afraid to tell me enough information about the property that they “ have “ , such that I am never able to pre screen apartments and end up spinning my wheels looking at terrible properties, with the agents, with no owner present. Get with a big agency and your problem is solved, because they have enough pre screened properties and direct contacts with the owners that you’ll end up having a true representation of the market.
Keep in mind also that the various sites you’ll see online that claim to be an MLS basically just mean to say “we’ve got a lot of listings.” Websites and agents use this tactic because it’s what foreigners know. Most of the time, the listings are outdated and probably already sold, but they remain online as a teaser property to get clients interested and give the appearance that the firm has more listings than they actually have.
Does it sound Wild Wild West-ish? Does it seem like it’s easy for you to get scammed or confused by a market you’re not used to? Does the lack of an MLS make getting what you truly want, a mushroom risotto, an incredibly arduous and depressing task?
Trust me, I feel your pain and I am here to help you.
The Playing Field, The Players, and the Games they Play
Like I have said over and over, 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 of the other factors that makes one successful 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, 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 5 months of winter. Panama’s an easy sell, but buyer beware.
I chose Panama for all of these reasons listed above, but there are some people that have come down here because they are running from something, or have something to hide. These are the smooth talking scam artists that 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 me, they are around every corner. You’ll also run into the folks that, even if they are not cunning and deceitful, could screw up a cannonball. These are the bumbling idiots that 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 that are still floating around feeding off of the scraps. Watch out for them too, because they’re not so easy to spot. More on these folks and their tactics later.
In my previous life, I preferred to work with suppliers and clients that returned my phone call or my email promptly. Given the sheer volume of inquiries combined with the inherent manana manana attitude of Panama, sometimes I don’t receive an answer for a day or two and I 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, and it may be worth your while to just head on down to so-and-so’s office instead of leaving countless messages. If you are 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, and what this means is that 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 its not at all what you are looking for. Forget about directly asking the owner any questions. Why? Because there is no MLS, and the selling agent feels that they must protect their inventory and fears that you (or the agent representing you) could go around them and buy directly from the owner. This inevitably adds to the confusion, delay, and inefficiency, but its all a part of the market here, so be prepared.
Working as an independent free lance agent also put a lot of pressure on me because the best 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 than one way. Sure your guy 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.
Back to me for a second, or at least me two months in…
So here I was, eager to please, full of answers, and driving around this city like a deer in the headlights- chasing the dream. I let developers feed me lines, pump me with false information, and otherwise play my clients and I for a fool. I failed to advise my clients properly and I basically approached my new gig as if I were a pistol toting gun slinger in the wild west, shooting from the hip. But for the record: I never lied to any of my clients, I never stole from my clients, and I never knowingly cheated anyone out of anything. That’s not how I operate because I knew better than to do any of that before I ever came to Panama. However, I had let myself fall into the world of hype.
I was naïve enough to take everything at face value and question nothing, especially if I knew that it was the answer that my clients wanted to hear. On properties with individual sellers (usually locals ) I increased the price to include a healthy commission for myself, which ( I found out later ) is not ethical.
Useful Tip: keep an eye out for agents who add exorbitant commissions. Anything over 6% is considered out of line.
Back to me, the rookie salesman…
Well, here we are, looking at an absolutely stunning piece of property- in fact exactly what my clients and I had been searching for. We are in a field about 130km from the city, as this farmer is telling me and my client that what we are looking at is his his land. He’s showing me a piece of paper that he claims is a title and insisting that the neighbors sold their farm for $50/meter. My clients are hot to buy and I am hot to close my first land deal so we shake on it and leave with the understanding that we would be reviewing the terms of the contract and be forwarding the deposit monies. Two weeks later, we delivered the $2,000 deposit check and one week after the contract was executed. Cha Ching right? Not so much...
One thing that struck me as a bit strange after my first sale is that this man, who was selling a 2.5HEC piece for $150,000 had to borrow my 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. Good thing I had formed a relationship with a very diligent and seasoned attorney, who eventually advised me (and my clients ) to walk away from the sale.
Fortunately for us, the contract was worded in such a way that my clients could get out having only lost their deposit monies. Otherwise, that could have been a very bad situation. What to take away from this little tale of rookie salesman and over eager client: make sure you are dealing with the owner or owner's agent, and make sure to get a lawyer involved as early in the game as possible.
It’s one thing to be buying in your native country, where you are familiar with all of the laws, restrictions, and pitfalls of your local market. Switch gears and put yourself in a foreign country and its a whole new ballgame...
Panama is a country that has its own set of ethics, a very complicated bureaucracy, and a culture of "juega vivo" that it is like nothing my clients have ever seen (at least those that have never done business in South or Central America). This “juega vivo “ mentality encourages a culture of taking advantage -- and not necessarily just taking advantage of foreigners.
No where else is the beuroctractic system more visible than at the bank, especially when trying to set up a corporate account or obtain financing. In a land of banks and the banking industry, one would think that opening up 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 up 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 up a savings account! I 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 7:30am 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 that is going to call you back, going to help you dot your I's and cross your T's, and basically act in your best interest when you leave Panama with unfinished business. Make sure “your guy” is not going to forget about you when you leave- because sometimes here its “out of sight, out of mind.”
The Ugly Side of Panama Real Estate
This is the part of the book that I was looking forward to writing the most. This is where I am going to tell you about the money laundering, whore mongering, and profiteering world of realtors in Panama.
Back before I met and fell in love with my girlfriend, I would often stay out all night with clients. These were the first-timers in Panama; the single guys who had never been to a country with so many beautiful Latin women just begging to be taken away by their prince charming. Granted, most of said women were from Colombia and they didn’t exactly have their suitcases packed. Actually, most of these girls were on the clock, and at one point I had about 10 beautiful women I could call that were always looking to dance the night away with a wealthy gringo investor on a business holiday. Why? Because there is no bond like the bond of love, and if this is how my clients wanted to remember Panama: a sultry Latina who was ready to party 24 hours a day, then by God I was prepared to do whatever it took to make that connection. It was that universal bonding experience that brought us together, sort of like a rite of passage that any first timer in Panama had to do to truly experience the wild side of life in Panama. I was the guy who would make the party happen, and then I usually got the heck out of there but you can bet I was around to take the happy couple out to lunch the next day and help translate during the awkward second date. There wasn’t usually a third date, but my clients got what they were looking for and it ended up being a win-win.
Cash is king in Panama, and although myself or my firm never willingly accepted laundered money, I know that it happens in this industry. I have heard stories of entire buildings being purchased with cash. Hotel scheme rumors run rampant: tales of empty hotels turning away potential clients and cooking the books to make it look like they were at 100% occupancy. I’ve seen elaborate schemes involving agents driving around with clients prepared to pay cash on the spot from an unsuspecting farmer who has no idea the true value of his property only to turn around and sell that property without even telling their agency. Im sure it happens around the world, and its happening in Panama.
Another interesting facet of the real estate industry in Panama and one that has brought an interesting element into the country is the notion of offshore corporations. In fact, Panama is the second largest offshore country in the world, second only to Hong Kong. I usually encourage all of my clients to form a corporation, mostly for taxation benefits, but the privacy laws are no joke: an anonymous corporation is just that -- anonymous.
That means that I can own a huge portfolio of properties under the shroud of a corporation and no one has any idea who truly owns the properties.
With offshore corporations comes the notion of asset protection, which essentially means hiding as much money as you can from people like creditors, ex-wives, and the IRS. Some folks are in the middle of a divorce and want to get their money out of the country and others are involved in cash related businesses (not all of which are entirely legal) and need a country that is safe to park their money.
Other clients come here to get away from it all. The married men that may have girlfriends in Panama, the single ladies that are tired of their 9 to 5. Business is all about trust and relationships, and some of these people really open up almost to the point of awkwardness. I have had grown men babbling drunk, literally in tears confessing their deepest secrets and misgivings in life after having just met me. “Easy there tiger, I just sell real estate”. I would say my closing ratio with these type of clients is close to 100%.
Questions and Answers
So after welcoming a number of clients to Panama and spending significant time with them either on the road looking at properties or in the office discussing contracts, I like to think I’ve identified a few commonalities between the experienced buyers and the rookies.
It might be helpful to know the questions that, for me, distinguish a qualified buyer from a tire kicker who is only going to waste my time. Here’s a list of questions that I get and what I think when I hear them:
1. Tell me a little bit about yourself?
Panama is currently experiencing a gold rush and this means that hoards of people, both honest and devious, are flocking to the isthmus. The amount 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 me usually represents a trigger-happy tendency: and someone who’s more interested in buying something fast than doing enough due diligence to figure out who’ll be representing him.
2. 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: so 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 his/her slump.
3. Who do you represent?
This is the a great question a seasoned investor will ask anywhere in the world, but in Panama it is especially important seeing as though the credentials and regulations for those who sell real estate are simple and 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 be discussing negotiations with someone linked to the seller. The inexperienced Panama investor would forget to ask this and thus go into a deal with no one really on their side.
4. 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, finding comparable properties, and combing through contracts are on the short list of things that need to happen to close a sale. This will allow the agent to focus on you the buyer, while his 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 that his/her agent can take the process head-on. Every agent needs a good team, so if your guy is on his own, make sure he’s got some sort of support network to complete the sale.
5. 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, I have seen the amount of real estate agencies triple. A good question I like to hear is “ What makes you different from the competition”, because it allows me to explain the service that my firm offers, the skills that I bring to the table, and my personal philosophy of business. It allows me to explain why the company I work for is top notch. Why developers call US to represent THEM. People know my firm, and I am proud to say that I work for 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 is going to get 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 developer on your behalf, stay on the case for you, and otherwise make sure that your best interests are protected in any situation- weather it is with the bank, the seller, or a developer.
6. Where would YOU invest right now?
I like this question because it allows me to be honest and reveal where I AM 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. Oppositely, 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 I get from clients on occasion that wreak of inexperience. When I hear these questions, it usually signifies the end of the relationship on my end.
1. What's the cheapest thing you have?
OK, so maybe your 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 me you are a tire kicker and in my experience it's these clients who are the most difficult to work for. A true investor in Panama, even if he/she is interested in something below, say $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.”
2. Where would YOU invest right now?
I’ve listed this one in both sections for a reason. You and I are different, and this is not my money that we are playing with. It is my job to find out enough about your investment strategy to make recommendations and suggest properties based on your personal strategy and investment philosophy. I am a pretty young guy, and I plan on staying in Panama for a long time. With that said, I can afford to buy a piece of property and forget about it for 10-20 years. If your strategy is, say, a short term flip then we are not comparing apples to apples.
3. Can I have a beachfront condo in good condition close to the city under $200,000 ready NOW??
This may not seem like an unreasonable request, but if you knew enough about this market you would realize that the majority of inventory on the beach will not be delivered until next year at the earliest. Its not so much the question that is a red flag, its the reaction to the answer. What I usually tell the client is " I apologize, but unfortunately that is not available right now ". If the client is not willing to compromise a bit i.e. raise their price range, allow for more time, or look further outside of the city, I usually tell them that my firm will not be able to help them and I throw em to the sharks.
4. Can I double my money in one year and then flip?
If I knew exactly what the market was going to do in one year, I would be driving a lot nicer car. With that said, I can tell you that hindsight is 20/20, and I've watched my clients double their money in 6 months. At the time, I advised them that a particular investment could show promising returns, but in the end no one can predict the future. A more reasonable way to phrase this type of question would be " my investment time frame is somewhere in the neighborhood of one year, and then I would like to get out." I can work with that, because it demonstrates a clear investment strategy and gives me some parameters to work with.
The Rental Myth
It might be helpful too to provide the following approach I often see taken by real estate agents which 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.
I have heard many times 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 I was relatively new to the market, I believed and assured people of the same thing. Times have changed though and I’ve come to realize the truth.
Rental rates are high, because at the moment supply is very low and demand is high, so finding a tenant these days is not a problem. However, make sure to have a good property management company (few of which exist in Panama) lined up before you sign the dotted line. And also keep in mind that in this dynamic market it is difficult to predict where rental rates are going as supply increases.
Additionally, it’s important to realize that tourism in Panama is very new also, so take tourism predictions with a grain of salt. 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 http://www.comprealquile.com/ or even Craigs list for current rentals rates before jumping into a rental property, and if you are investing in a vacation property, make sure it is somewhere that people are going to already.
Swimming with the Sharks
First, it might be helpful for me to tell you what you should expect to experience upon arriving 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.”
All of these magazines (and most of the content within) are completely paid advertising. This is not New York Times unbiased information, so take these magazines with a grain of salt with the understanding that almost everything you will read or hear in Panama has a spin.
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.”
Trust me: it happens to everyone. 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 has access to 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. Ivanna Trump beckoning you to see her "Jewel of Panama". Huge signs on job sites, some of which have grown dirty and rusted, promoting projects that are still years from completion, and still others promoting projects that may never even 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?
Well, most visitors contact someone, whether it’s a real estate agency or an actual developer. Because the majority of developers in Panama don’t focus on sales (instead hiring agencies to do it for them), I would suggest finding a good agent and not ever 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 direct 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 of them will 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.
Panamanian law does not require a real estate "advisor" to be licensed. Anyone can show, list and sell property. However, Panamanian law requires a licensed agent or agency to close the sale.
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 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 that 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 expectations.
Because real estate is so new to Panama, it’s understandable that many of the locals who have obtained their licenses are not as well versed as they could be. In fact, most of the agents are still looking at real estate as a get-rich-quick business and a part-time gig, making them green to the market and its intricacies.
And while many foreigner experts in real estate have flown in from Costa Rica, Belize and even European nations to take advantage of the booming market, these foreigners are not permitted licenses until they’ve spent five years in this country and can pass a test that is entirely in Spanish.
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 a 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 Atlapa 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.
Types of Agencies
Good agents can 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 ). Often times, developers will chose to form an exclusive arrangement with a master brokerage and pass along all of the sales and marketing responsibilities to said 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.
Know Thy Developer
There are about 10 big developers in Panama and about 100 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 my 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. I have seen clients that have waited for five years for a project that was slated for completion in two, and I have seen other clients that were told that 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 presale contract”. Align yourself with the right developer and you wont have any problems. Find an agent that can give you a complete developer bio, and Google the developer yourself to see what comes up.
I have seen horror stories over the last few years of clients being over promised and under delivered. Projects taking five years to complete when the developer had committed to three. Other projects come to a grinding halt because the developer broke ties with his builder. Other times, I have even seen developers completely back out of their contractual obligations and refund all deposit monies to my clients.
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 big red flag. Actually, I would say 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 is 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? I 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 that they have the expertise to build a 60-story high-rise in Panama City.
2) Financing- I always like to give my clients some indication about what percentage of the building is sold, because in all likelihood the developer has some magic number whereby 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 its as much as 50-60%, so its very important to ask your sales person 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 presales. 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.
3) Who is the builder? The Builder is one of the most important parts of any development team, and oftentimes the developer sub contracts the work to an outside building firm. Nine times out of ten, the company doing the building is Panamanian. In that rare instance that someone tells you “ They are bringing in one of the best building companies from Country XYZ to do all of the construction, ” buyer beware.
Construction labor in Panama is a very sticky subject, and 99% of the work force is unionized so its virtually impossible to keep any sort of construction on schedule if a foreign builder is doing the work. Not only will there be political headaches and work stoppages due to protesting workers, but in all likelihood the building firm will get so fed up with the bureaucracy and the nuances in Panama (supply availability, language issues, juego vivo, etc ) that they will probably end up picking up shop and heading back to their home country.
Useful Tip: Make sure that the project you end up investing in is being completed by a Panamanian 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 of the craftsmanship and quality of work that this builder has done. Things to look for in a model apartment or existing building:
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 plumed 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?
The way I figure, if the developer doesn’t put their best foot forward with a model apartment, what will the rest of the building look like? In the case of an existing building: Has the building stood the test of time, or are tiles falling off of the roof, paint peeling from the walls, and doors coming off of their hinges? In an existing property, I always check the water pressure too.
Don’t try to buy directly from the developer; because 1) you probably wont get a better price and 2) you definitely need someone on your side should things go wrong.
My Favorite Contract Debacles
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 are basically holding your specific unit and locking in a price. Most developers and real estate agencies that I deal with will hold a unit for 30 days, however some of them like to put added pressure and knock the terms down to four days. Tell them you want 30 or they can shove it. I always suggest that my clients make sure that the deposit money is fully refundable in the event that you decide to back out of the sale.
Useful Tip: Get everything in writing (In Spanish): even email stands up in court in Panama.
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, so I always like to refer my clients to the same three or four lawyers whom I 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 guys are often over booked and less able to give you great customer service. I like to recommend my clients the smaller firms because they will find that the personal relationship and commitment is much stronger with these smaller agencies. Prices with the smaller firms are also much lower so it's a win, win.
A 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 me should be able to get you a translated version. If your agent hands you a contract that is only in English, walk away because either there is something fishy going on or you are dealing with rookies.
There are almost always two parties involved in the contract, the first being the seller and the second being the buyer. I like to make sure that the party listed as the seller is truly the seller. In the case of purchasing a pre-construction unit from an individual seller ( a resale ), make sure that the property is held in corporation ( or else the seller will be hit with 12% taxes and may try to pass this cost on to you ). Also, find out if there is any materials escalation clause because you as the new buyer will be responsible for this. Also, make sure that the property is actually listed with the government as being held under said corporation ( an easy inquiry by your lawyer ).
In the event of a pre-construction promise to purchase contract directly from the developer, make sure that the seller in said contract owns said property or represents the developer in some way. This verification can be handled by your lawyer with a simple inquiry to the Registro Publico.
Having come across a number of contracts during my days here, I have come to identify a few red flags. The following are clauses I have encountered, sometimes the hard way, which I believe are of the utmost importance for an agent in Panama to focus on:
Materials escalation clause: This is 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. If you see a materials escalation clause in a contract for a building that is going to be completed within six months, tell the seller you will not sign until it is removed. How much can the cost of materials reasonably go up over six months?
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. But there are ways to have this clause removed. First of all, know that the maximum possible rise in your price should be 5%. If I see anything more than this, I always make sure it gets capped at 5%. What I usually tell my 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. What does that mean? 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 more than the required amount of money down, or at least accelerate the down payment time line (thus showing your interest and seriousness). Most projects require a total of 30% 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 30% 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, I am always on guard when more money is requested down, seeing as though it can indicate the builder is a) running out of money, b) behind schedule, or c) low on sales.
I always recommend my 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, I always recommend dealing exclusively with reputable developers. People like me, in the business, know these guys like the back of my hand. But as a new buyer, chances are these names will be new to you. In such case, do find an agent who can give you the green light before you start to fall in love with a unit and it's developer.
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.
After the first year, the property administration ( home owners association ) takes bids from private firms and it is up to them to try to find a company that is offering prices at or near the original maintenance fees. That usually doesn’t happen, so budget on paying at least 25-50% more after the first year. That being said, to date there are very few property management firms in Panama, much less quality ones. So take this into account and make sure your agent is giving you proper quotes.
Cancellation clauses: Be vary 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. I 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 doubl.
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, I always make sure that my 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 I don't see any of this protective wording in the contract, I make sure it gets put in before anyone signs.
Non-transferability clause: Some developers include in the wording of their contract a clause that prohibits the buyer from reselling his property. Sometimes this will be "within six months of occupancy", or 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.
How do I help my clients avoid this clause? Purchase the property under corporation! Not only will this save you money in taxes, but, in this case transferring ownership is merely a matter of passing the bearer stocks of the corporation to a new buyer. In the event that you decide to "flip" the property before occupancy, a typical resale contract will be between two individual parties and is a private affair, so the developer or the government does not need to be involved.
Conclusion
I’ll make this short and sweet because nobody likes a speech or book that goes on for too long. This country is amazing! Cost of living is very low, the people are wonderful, and the real estate is still affordable for what you are getting. There are thousands of people moving here every month, and this country has absorbed them with ( for the most part ) open arms. Panama’s long history has always been one of tolerance: Religious tolerance, political tolerance, racial tolerance, and tolerance of foreigners living in 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 I mentioned in this report and not meant to dissuade anyone from coming down to Panama because the benefits (in my humble opinion) 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 Im here to help if you need me.
Nothing makes me happier than a satisfied customer who will go home and tell all his friends how wonderful his experience purchasing real estate in Panama was. Like I said earlier, I am writing this report so you the perspective buyer can be clued in to what I the real estate guy have seen in my time here in Panama. I’m not going anywhere, and I will probably be hard at work while you are sitting in your office reading this boring report. So if you like what you saw here, give me a call, even if it’s just to chat about non-transferability clauses.
Your man in Panama,
Kent Davis
Real Estate Advisor
Email me: kentpd@gmail.com
Panama Equity
http://www.panamaequityrealestate.com/
