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Real Estate Law 2 of 2006: Island and Concession Real Estate

Panama real estate law distinguishes between two kinds of property:

  • titled property
  • public or state owned property

Titled property is that property whose ownership, area, value, boundaries and details are recorded in the Public Registry of Panama. The Property section of the Public Registry contains a record system of all titled property in the Republic.

Public or state owned property includes all lands and territories owned by the Republic of Panama. These lands can be used in several ways:

  • By an individual or company once administrative concession has been granted.
  • For agricultural purposes once Right of Possession certification has been granted by the Ministry of Agriculture.  Law 2 of the year 2006 acknowledges recognized Right of Possession land as possible subject for concession.

Concessions

Concessions are lease agreements with pre-established time frames and lease amounts, between the Ministry of Economics and Finance (MEF) by way of the Cadastral Office and individuals or corporations.

Law 2 defines the following characteristics for concessions located within the tourism zones defined by Ministry of Tourism. These characteristics apply to all lands, including islands, coast, and other properties of the State within the defined tourism zones.

  • Longer concession periods are granted to investors for use of state-owned land depending on the size of the investment and the potential for employment.
  • An accelerated procedure will be applied to the procurement of concession on land to be used for tourism projects.
  • All improvements and construction on the concessioned land may be titled and recorded in the Public Registry.
  • Law 2 of 2006 creates a Ventana Unica or Express Window within the Cadastral office of the Ministry of Economy and Finance (MEF) which is the authority in charge of receiving all applications, as well as processing all approvals and authorizations required for concessions. This department will have representatives from all entities whose approval is necessary to start a project. In order to expedite the start up, once the developer presents all requirements; the Ventanilla Unica department may issue provisional requirements for permanent concession.
  • To obtain a concession created by this law, the following requirements must be made available to the Ministry of Economics and Finance:
    • Preliminary master plan
    • Budget
    • Development program
    • Evidence of financial capability
    • Certificate from the IPAT (Panamanian Institute of Tourism) stating that the project is located within a tourism development zone.
    • Approved Environmental Impact and Social Impact Study.
    • Certificate of Registration with the Tourism Enterprise Registry of the IPAT

Direct Purchase of Island Property

Islands, whose ownership until now, as per the Panamanian Constitution, was limited to nationals, have always been an area of interest for tourism related investments.

Law No. 2 of 2006 provides the following incentives to foreign, national individuals and/or corporations interested in purchasing island territory for developing a tourism project:

  • Island Territory may be sold for tourism related purposes, provided the purpose of the investment and number of jobs to be created as a result is confirmed.
  • No more than 50% of an island can be sold to foreigners or foreign interests in a corporation. The sale of the island territory must be submitted for public bidding. However, projects with right of possession already initiated or in place on an island before the enactment of Law 2 of 2006 may request direct sale of the island property.
  • Individuals or corporations legally occupying island territory will have the right to obtain a concession, and be able to transfer it to a third party.

The contract for purchase of an island territory should contain the following:

  • Description and specifications of the land.
  • Value of the land for sale.
  • Estimated amount and details of the investment, including utilities and infrastructure.
  • Environmental Impact and Social Study and Mitigation Plan
  • Complete description of the public domain and assets located within the island property
  • A bond of at least 10% of the value of the contract which will be valid during the term of the project.


All projects within these island regions must comply with the territorial zoning, master plan to be prepared by government authorities. Until this master plan and territorial zoning is approved, each project may submit its own zoning plan which will be processed and approved through the Ventanilla Unica.

The same Ventanilla Unica within the Cadastral office of the MEF will be in charge of receiving all applications, as well as processing all approvals and authorizations required for direct purchase of island territories.

Restrictions:

Due to the nature of islands, and for the purpose of sovereign protection, the following restrictions have been placed for these special tourism areas:

  • The lands in question cannot be located within 10 km of national borders.
  • The lands in question cannot have been designated as areas of historical or national heritage.
  • The lands in question cannot have been dedicated to the conservation of the environment.
  • The lands in question cannot be part of an Indian Reservation.

The sale of these special tourism areas cannot exceed 50% of the total territory of the island on which it is located; furthermore, ownership cannot be transferred to another State. Tourism projects pursuant to Law 2 cannot exceed 30% of the total territory of an island.

In order to conserve nature, the following restrictions have been set for certain areas:

  • The construction over coral formations is forbidden as well as any activity that may cause the death or destruction of their ecosystem.
  • The cutting, use or commerce of mangroves, their products, parts or derived products is forbidden, except for tourism projects after the approval of the respective Environment Impact Study.

As a final note regarding limitations, concession and sale of beachfront property may only be granted up to 22 meters from the high tide mark. The area of 10 meters from the high tide mark is considered beachfront and cannot be granted concession under any circumstances. The area of 12 meters from the beachfront can be granted concession as a coastal easement.

Special Situations

Law 2 of 2006 also covers a special procedure for individuals living in an area, who have kept permanent and uninterrupted possession of national island property for at least 2 years before the enactment of the law 2 of 2006, and can prove that they have used said property for their own home or agricultural purposes.

These persons will be granted a concession of 90 years without having to participate in a public bidding process, not having to comply with the requirement of posting bond, and being exempt from payment of concession lease.

Also set forth by law 2 of 2006 is the obligation of concessionaires and investors to hire non-skilled local personnel from the area during the construction of the project in question.

2nd Home and Vacation Housing

In an further effort to promote residential tourism investments in Panama, Law 2 of 2006 also provides incentives for “Vacation or Permanent Residential Units”. The purpose of this incentive is to promote the development of vacation and retirement homes, which may be built over concession areas on islands, or coastlands, provided they are located within a tourism development zone as defined by the government, and only one parcel per petitioner. Moreover, these projects will benefit from the incentives of Law 8 of 1994. Enabling regulations will be enacted to provide rules for the size of the parcel, costs of construction and improvements thereon.