(Live and Invest Overseas) Have pre-construction offers been tempting you? With prices starting from US$87,000 on Balboa Avenue… from US$160,000 in the nearby beach town of Coronado… and from US$315,000 in the elite neighborhood of Costa Del Este, Panama City—truly a City of Condos—has attractive options to suit all budgets.
The main advantage of pre-construction (or “off plan”) purchasing is, of course, the lower price.
The obvious downside, if you’re in a hurry to use your property personally, is the wait. Not just for the completion of your own unit… but, also, depending on how early you come to the table, the appearance of the swimming pool, the gym, the laundry service, and everything you’ve been promised, on paper, to make your life comfortable in your new foothold.
Before you think about buying a pre-construction condo in Panama, here are some important issues to be aware of:
Selling Before Completion
Most, if not all, pre-construction contracts contain clauses that restrict your rights, as the buyer, to resell the condo unit before construction is complete without the developer’s written consent. This clause is usually to prevent you from under-cutting the developer’s prices.
Developers also include “subjective” clauses like the possibility of a sales price increase of up to 5%, due to rising construction costs or materials. Expect this clause to be enforced every time.
Liability For Construction Damages
Developers’ contracts often limit their liability for construction damages to one year from the occupation permit issuance. However, Panama’s Civil Code Article 1343 holds construction companies liable for “structural” damages for the first 10 years. So, the one-year limit can only apply to “non-structural” damages.
Is Your Pre-construction Contract Legit?
Panama courts have held some pre-construction contracts null and void for violating Panama’s Consumer Protection law by having “abusive” clauses, which restrict buyers’ consumer rights. This is why it’s important that you do your due diligence and engage the services of a reputable Panamanian real estate lawyer.
“Ooops… But I’m Not In Panama Right Now!”
Another problematic clause for buyers is the requirement of having to pay the balance in full, when the fire department issues the occupation permit. This, of course, may occur when you are out of the country…and with little notice to you. To get around this, you can get a bank’s “Promise to Pay” letter, guaranteeing payment to the developer.
“But, Why Am I Not On Top?”
If you have your eye on a penthouse, the pre-construction contract should specifically state the “top floor,” rather than naming the 20th floor that you see on the plans. The developer may add more floors leaving the 20th floor below the penthouse level. Yes, it happens…
A competent real estate lawyer should include in any pre-construction contract a “purchaser’s protection clause,” in case the mortgage application is not approved by the bank. Without this clause, you lose your down payment (typically 30% of the purchase price).
Bottom line: Take time with your pre-construction contract. As with any property purchase overseas, don’t commit to buy any pre-construction property without consulting a local real estate lawyer.
If you’d like a recommendation for a local real estate attorney—or details on current pre-construction opportunities in the city—please get in touch with our Panama property experts here.