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Panama: Rights of Possession: Rights to a Headache - Gail Geerling, Success in Central America

Rights of Possession: Rights to a Headache

“Is this for real?! Caribbean property for this price?! Even in this market, it sounds too good to be true!”

Guess what, folks? It probably is.

In Panama, quite a number of properties with rights of possession are being sold on the open market- many of them on the Caribbean side of the country or in limited Pacific coastal areas. These properties are commonly referred to as “ROP land”, and may be offered with some type of already completed construction such as a home or a hotel.

Sellers assure anyone inquiring that these properties are a good investment. They will occasionally say such things as, “After we’ve sold it to you, you can easily get it titled, and you’ll make a lot more when you resell it.”

The question is: If it’s so easy to take the property to title, why hasn’t the seller done so?

ROP land could be compared to leased land available in certain areas of the first world, such as London. Some flats in London are leased, as opposed to freehold- in other words, the buyer purchases the right to use the flat for a certain number of years. In these cases, there is usually no option to purchase title to the property, whereas it’s almost always possible to title ROP land in Panama. So should a buyer take the chance?

Yes, it is possible to simply purchase the possessory rights, and use the land and whatever is constructed upon it, indefinitely. It is also possible to take ROP land to title. However, there are no guarantees and no safety nets. Regulations and red tape - including the amount of time and money required - often frustrate buyers who, in the end, remain only with the possessory rights due to unfamiliarity with the system.

Even when a buyer purchases just possessory rights with no intention of taking the property to full title, it can sometimes be extremely difficult to get to the true answer of whether or not the possessory rights are valid. Often they are not registered, or there is more than one person with a claim to the property - whether legitimate or not. Be assured new claimants will come out of the woodwork as soon as they hear of a new owner.

It has also happened recently that some buyers have been in the middle of the titling process, only to be blindsided by a change in the titling law. Although the current titling law would be considered by many to be much more straightforward and fair, those who had already started their titling process under assumptions that became outdated overnight would argue otherwise.

Therefore, the advice I usually give foreign buyers regarding ROP land is RUN, don't walk - and don't look back!

It can potentially be fine. I myself own a stake in two tracts of ROP land. But for most people it has become a nightmare of uncertainty, as the ROP laws have changed in Panama no less than 3 times in the last ten years. Each time there is a change in the law, a different set of requirements is needed to take it to title...and of course it takes time for it all to shake out with legal opinions, test cases, etc.

Meanwhile, in my mind there are four requirements one must meet in order to go into an ROP purchase:

1) The money you invest is money you can afford to lose if the law changes. (ROP is a real punt.)
2) You are fluent in Spanish.
3) You plan on living in Panama full-time in order to keep an eye on the way the wind is blowing.
4) Your exit strategy is clearly defined before the purchase. (Will someone else buy your ROP property when you are ready to sell? Can you use normal channels for property sales?)

If you meet all four- most people don't- then ROP could, possibly, work for you. If you are missing even one of the above items, then put on your running shoes.

Gail Geerling

Gail has lived nearly fifteen years in Central America, managing and consulting for real estate development projects in Belize, the Bay Islands of Honduras, Nicaragua and Panama. Her ‘Success in Central America’ program teaches some of the most valuable insights gleaned during her time in the region, giving her clients the ability to choose a clear direction forward and follow through to their own success.

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