Blood on the Streets Part II

( continued from Part I ) 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.

Part 12: 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: \n [email protected]