Sammy Wolcovinsky, a native of Panama owns a real estate company, Flat Free Realty in Panama. Prior to founding the company, his family worked as financial advisors of Charles Schwab in Panama where they managed over 150 millions dollars and in 2006 sold the company.
This an interview I had with Sammy.
LW: How do you get real estate financing in Panama?
Most people in Panama finance properties through Panamanian private banks. Due to the increased demand of mortgage from foreigners, other Latin Americans or those from the United States some banks and private companies from the US started to come to Panama and offer mortgages, but now with the financial crisis in the states all these companies stopped giving out mortgages. Basically right now if you need to get a mortgage you will have to do it through a Panamanian bank. Usually what happens here in Panama, there are two things…if you are going to buy a resale property you will have to pay a deposit to the seller so he holds the property for you and you will then have to get a mortgage, but if you are going to buy a property that is not done yet (pre-construction) you will have to pay 30 percent to the developer and when the building is ready you will pay the remaining 70 percent. At that time is when you will need to get a mortgage and normally it is through a Panamanian bank.
LW: What kind of interest rates are we looking at?
In Panama, interest rates are not fixed by the government. They fluctuate depending on many economic factors. Over the last 20 years the rates have fallen from 12 percent and right now the market rate is between 7 to 7.5 percent.
LW: Is that a fixed rate or adjustable rate?
In Panama most of the banks do not offer fixed rate mortgages, but rather adjustable rate mortgages, usually fixed for the first year and after that they adjust every 3-6 months. Most of the mortgages are 30 year adjustable rates.
LW: What dictates the fluctuation of the rates after the fixed term?
The banks adjust the rate based on LIBOR or London Interbank Offered Rate.
LW: What kind of documentation do foreign investors need to get a loan in Panama?
Thanks to the increased demand the process of obtaining a mortgage loan for foreigners has been simplified over the years. The actual process of applying for a mortgage requires that a client provides documents proving who they are, their credit status and the total income and assets that they have. But every bank will have a specific list of requirements, but basically the more you show the banks the easier it is for them to understand the risk involved. The basic documentation that you need if you live outside of panama is:
- Legible copies of your passport
- Letter from your employer if you are not self employed
- The last two years of tax returns
- Bank reference letters
- Bank statements from all existing accounts for the last six months
- Government issued I.D.
- Business and personal reference letters
- Purchase contract
- Completed and signed application form
Banks in Panama are very conservative and they ask you for a lot of things in order to give out a mortgage. With all the things that are happening in the world, things are starting to slow down in Panama, but I don’t think that we are going to suffer like the the US because there has been more controls and regulation.
LW: Do people use title insurance in Panama?
That’s a good questions…Yes, people use title insurance, right now they do, but four years ago title insurance did not exist. Let me explain, Panama has a very sophisticated public registry with a specific department that oversees the registration of all the properties in all the 9 provinces in Panama so when you are going to buy a property everyone usually uses a lawyer to certify that the property has a clean title. However, when more Americans and people from Venezuela started investing in Panama they wanted an extra layer of security so at that time insurance brokers got together with insurance companies and now you can buy title insurance in Panama. But if you ask me if the majority of people buy title insurance I would say no, most people in Panama don’t use title insurance. Panamanian law is set up to protect foreign and local investors, however if you want to have more piece of mind title policy costs are minimal and you can buy them through any national and international insurance company in Panama.
LW: What kind of due diligence is important when buying property in Panama?
What I recommend first is that you hire a lawyer so they can go to the public registry and see if the property you are buying has a clean title, most people know that. In Panama you can buy property with title or property without title. If you buy a property that doesn’t have a title there is a process with the government where they will give you the title, but it could take 6-12 months. I always recommend that if you are going to come down to pamana that you only buy properties with title.
LW: What other tips do you have for people considering buying real estate in Panama?
Panama has a lot of advantages, it is a safe country and we operate on the dollar. Since 2005 prices has increased substantially some properties have gone up in value 40-50%. So if you are going to come down and buy real estate either you are going to buy real estate to live or buy and resell. You have to be very careful where you are buying and first you should find a well known broker in Panama. Since Panama is a hot market people are buying properties all over the country and sometimes they buy properties and they pay too much for them. For example in La Avenida Balboa four years ago you could buy a property for 900 USD per square meter now you are going to find properties in Avenida Balboa which is ocean front starting at 3,500 USD per square meter so you have to be aware of where you are buying.