Financing Through The Developer
One of the more popular, and certainly the easiest, ways to finance the purchase of your new residence in Panama is to work with developer financing. This allows you the ability to move quickly on a great opportunity without a large cash outlay. This practice is well established and has been in play for many years. Until recently financing through a developer tended to carry a higher interest rate than what normally could be secured through a bank or other financial institution.
Today, however, given the new flexibility of programs through the Panamanian government and the desire to attract foreign investment to restart the economy after COVID-19, developers may put together packages with much better rates. The standard is anywhere from 7-8% but there are currently offerings as low as less than one percent, given the down payment, the size of the residence and the type of property being purchased.
Buying A Two-Bedroom With Developer Financing
Before factoring any special considerations, it’s important to know how a standard project financed with the developer might look. Let’s assume a price point at around $3,000 per square meter or $279 per square foot on a luxury two-bedroom residence with 1,100 square feet overlooking the Pacific Ocean. Loaded with amenities, this residence would normally include multiple swimming pools, 24/7 security and concierge services, a gymnasium, multiple social areas and stunning views from every unit. The price for this unit would, generally cost much more in comparison to properties in Florida, California or along either of the coasts, but it’s still not inexpensive.
Given those parameters, the total price for the unit would be around $306,579. With a 30% down payment of $91,973, the balance would be $214,603, and the monthly mortgage payment, around $1,700. Remember to consider any Homeowners Association dues or other expenses to figure how to make developer financing work for you on a similar unit. Generally speaking, if the interest rate is 7-8%, borrowers would want to secure lower rates after an initial period with the developer.
Larger Units; Better Terms
However, if a buyer is considering purchasing a larger unit with a bigger price tag, the numbers could work differently with developer financing. Imagine a two-bedroom unit with approximately 1,300 square feet of space with stunning views overlooking Panama Bay, large balconies, and a long list of amenities. The price for this unit might be somewhere between $420,000 and $450,000. With a 30% downpayment of $127,500 and a balance of $297,500, the developer could provide terms as low as one percent. This would bring the monthly payments to around $1,200 and considerably much more favorable than the smaller unit which could only secure the higher financing point.
What Makes The Difference?
There are many reasons a developer decides on what interest percentage point to price various units and those considerations change frequently. Much of how things can be priced depending on what cycle the building is in–pre-sale, pre-construction, construction, or ready to deliver. Buildings that have been on the market for a longer period of time tend to have less inventory, have already been turned over to the Homeowners Association, and carrying a desire by the builder to completely move the inventory off the books.
Large, highly respected real estate developers in Panama are a small club and different developers have generally carved a niche. For example, Empresas Bern is a leading player in Costa del Este so at any given time a variety of buildings, under the Empresas Bern umbrella may be anywhere from new architectural renderings to well-established communities. While it’s possible to get a great deal getting in on the ground floor, it is also advisable to snap up one of the last units in an established building. They may all be in Costa del Este and built by the same respected developer, but what that developer can offer may vary wildly.
Other factors that may come into play include when a developer decides to release certain units that have been held out of market, if the bank has provided unusual positive financing terms with the developer which can be passed along to the public, if a building has sold especially well and inflated the profit margin and how the end-user might interface with the community. For example, if an investor wishes to only purchase units for short-term rental and such units are needed to balance the community need, a more positive package may be achieved. Know what the market needs and how that might spin well for your personal list of boxes.
It is important to know that generally speaking developer financing does not only go from either one to eight percent, but there are additional stops along the scale such as a 4% package or 6.5%. Terms generally are for no more than 10 years and unless you have secured a price point and financing that is better than what is being offered by financial institutions, you will want to move into other financing options.
Don’t Fall In Love
The advice to never actually fall in love with a property, but rather keep telling yourself there is always something else just around the corner if the terms are not great is especially true in Panama. Knowing the current market cycle is vital to capitalize on changing factors. Simply ask and your real estate professional should be able to tell you what’s going on and if not, consider finding one that is better informed about the various market factors.
Since the pandemic and the Panamanian government’s desire to attract foreign investment, developers have not gotten a lot of incentives, but they have benefited from certain initiatives such as the streamlining of securing permits and other shortcuts to get employees back on the job. Any streamlining generally provides a better price for buyers.
Remember The Add Ons!
Most real estate in Panama continues to enjoy multi-year tax abatements which makes it attractive to snap up properties and hold them to build equity without having to pay property tax. Homeowners Association dues should be considered and generally, in Panama, they run somewhere around $200 to $250 per month. Water should be included, but not your other utilities and or cable and internet.
Developer financing is a great way to secure the property of your dreams but probably shouldn’t be considered long-term. It may even be the best way to finance for at least 10-years if a deal can be structured based on the down payment, the cost of the property, and how the building has performed in the market. When buildings sell rapidly, developers are more likely to provide a better interest rate.
Today, there are a lot of moving parts in Panamanian real estate, but along with your highly trained and knowledgeable sales professional, become educated as to the details of the current cycle and how it might best benefit you. Don’t love that piece of property unless you know it’s going to love you back. For additional information, don’t hesitate to contact our highly trained sales team!