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Special EU & EURO Warning – December 14, 2011Offshore Jurisdiction Comparison 
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Introduction - More trouble in paradise with the new projects that have not yet been built. The latest rift is regarding the 20-year tax exemption. The tax exemption required the housing to be constructed before a deadline date passes. Well the developers for various reasons such as not getting enough sales, correct permits and approvals, have failed to meet these deadlines and thus the projects does not qualify for the 20 year tax exemption. This means all those that plunked their money down and waited a year or two or longer will not be getting their 20-year tax exemption. Of course this reduces the value of the property and the potential for flipping is greatly reduced. So the lawsuits are getting filed.
These cases are not the easiest to make but the developers are not going to be very comfortable defending against these actions either. They will have to explain any promises made, any deadlines proposed and why they were not met and much will be based on the written agreements that were signed. I would not be surprised to see a lot of these cases settle.
Education Implications – DO NOT BUY CONDOS THAT ARE NOT COMPLETE. Think trouble. What if they do not complete at all, how do you get your money back and when? If you are tied up for a year or two and the project fails is the market price going to be higher? Of course it will be higher. What if the project comes out being built like awful? Things don’t work right, don’t look right, and don’t feel right. Does the written agreement the developer is asking you to sign favor the developer over you? Do you understand the meaning of signing such a document in Panama? Did you have a lawyer represent you that is independent of the realtor or developer? If the project does not complete does the corporate entity you gave your deposit to have sufficient assets to cover refunds? Good question, huh.
Market Implications – This is going to bring about more announced failures to complete condo projects in Panama. The failure to meet the deadline for the tax exemption will cause more investors to request refunds thus reducing the amount of presold units even further. This will destroy any hopes of moving forward with the project and cause the developer to cease investing money into marketing and that brings us to wind up time. There is a lot of failure to complete projects out there possibly that just have not yet been formally announced. A developer may cling to hopes of completion and the resulting fortunes to be made but the tax emption deadline is a reality shock that is hard to work around for even the most enthusiastic developer.
Of course the justification for not abandoning will be to try and get the legislature to extend the deadline. Will they do so who knows? There was and is a lot of opposition to these tax exemptions. We will have to wait and see but we would not ever suggest basing any investment decision on something the legislature may or may not do.
Summary – Smart money will buy an older existing Panama condo. They were built better in years past. Many had the 20-year tax exemption so if they are 10 years old you still have ten years left on the tax exemption. Remember if you are a pensionado you get a property tax exemption on your primary residence anyway no matter how old or new it is. On an older unit you will know all about your hot water, noise level, wind, leaks, parking, views, etc. Go in and turn on a light and flush the toilet before you buy. If you cannot do these things do not buy.
We have not been seeing flippers making any money on the new construction condos. They may be out there somewhere but we have not seen them. We don’t even know anyone who knows someone who has realized profits this way. We do give a green light to fixer upper condos. Repairs are cheap in Panama and you get a chance to customize the house some this way. Never sign anything without having a lawyer that represents you and you alone review the documents.
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*Offshore Legal Associates Law Firm.We have no legal ties or associations with any other law firm or corporation with similar or like sounding names anywhere and should not be so confused with any other entity having a similar or like sounding name.
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