Insights on Oceanfront Investments

Article by Michael Davidson.                                          September 2025  Issue Vol. 35, No.9

Navigating Real Estate in Latin America: How to Protect Yourself as a Foreign Buyer

Buying property in Latin America offers incredible opportunities—oceanfront villas, mountain estates, and island paradises are often available at a fraction of the cost compared to North America or Europe. Yet, the path to ownership can be fraught with pitfalls for those unfamiliar with the region’s real estate practices. Unlike the U.S. or Canada, most Latin American countries operate under different legal frameworks, and foreign buyers often walk in assuming the same standards of ethics and regulation apply. That assumption can be a costly mistake.

Below, we break down the key issues every foreign investor should know before signing on the dotted line.

1. Understanding the Role of Brokers in Latin America

One of the first shocks to international buyers is the role of real estate brokers. Big international names—Sotheby’s, Engel & Völkers, Century 21, RE/MAX—often have franchise offices throughout Latin America. But being part of a global brand does not guarantee fair treatment. These are independently owned franchises, and oversight varies dramatically.

• No Fiduciary Duty: In most Latin American countries, brokers are not legally obligated to act in the buyer’s best interest. Unlike U.S. brokers, they often represent neither side fully, instead working only to close the deal.

• Inflated Pricing: It is not uncommon for brokers to inflate asking prices—sometimes quoting a higher figure than what the seller is asking—to pad their commission. Buyers may unknowingly pay more than necessary.

• Limits on Authority: Importantly, in most countries brokers are not legally allowed to execute contracts of sale. Their role is limited to marketing and introductions; all legal transactions must pass through an attorney or notary.

Tip: Look for brokers with a track record of transparency. Ask for referrals from past international clients, request written confirmation of commissions, and never rely solely on a broker’s verbal assurances.

2. Always Work with a Reputable Law Firm

If there is one non-negotiable step when buying property in Latin America, it is hiring a respected, independent attorney or law firm—ideally one with experience working with foreign clients.

• Taxes and Fees Vary by Country: Closing costs, property transfer taxes, and annual holding costs are different across Latin America. An attorney can prepare a breakdown so you aren’t surprised at closing.

• Clear Legal Title: The single most important safeguard is ensuring you are buying property with registered legal title. Many properties are sold under “derecho posesorio” (right of possession) rather than fully titled ownership. Right of possession can be challenged by third parties, leaving buyers at risk. Only legally recorded title guarantees secure ownership.

• Title Insurance: Panama is unique in the region because buyers can purchase U.S.-backed title insurance through companies like Stewart Title or First American. While more expensive, it provides peace of mind by insuring against legal disputes over ownership.

Rule of Thumb: Never transfer funds or sign documents without your lawyer’s direct involvement. A reputable attorney will perform due diligence, verify ownership, and register the transaction properly with the government.

3. Common Buyer Mistakes to Avoid

Foreign buyers often assume Latin American transactions mirror U.S. or European practices. Here are the most frequent—and most costly—mistakes:

• Assuming Brokers Are Licensed the Same Way as in the U.S.: Many countries have little to no licensing requirements, and there is no governing board enforcing ethics.

• Skipping Independent Valuations: Always get an appraisal from a licensed third-party surveyor or appraiser, not just the broker’s opinion.

• Not Accounting for Local Law Nuances: For example, in Mexico, foreigners cannot directly own beachfront property in certain “restricted zones” without a bank trust (fideicomiso). In Costa Rica, concessions on maritime zones often come with strict limitations. In Colombia, you must register ownership through a public deed process with the notary and Registry of Public Instruments.

• Failing to Budget for Taxes and Transfer Costs: In Panama, property transfer tax is typically 2% of the property’s registered value or sale price, whichever is higher. In Costa Rica, it’s around 1.5%. In Mexico, notary and acquisition taxes can reach 6% or more depending on the state.

4. Best Practices for Safe and Smart Ownership

Purchasing in Latin America can be smooth and rewarding if you approach it with the right safeguards. Here’s a step-by-step checklist:

1. Hire a Reputable Attorney Early – preferably before engaging seriously with any broker.
2. Conduct Title Search and Due Diligence – confirm whether the property is titled or right of possession.
3. Insist on Transparency in Pricing – ask to see the seller’s asking price in writing.
4. Verify Local Regulations – learn about coastal setbacks, environmental protections, or development restrictions.
5. Secure Title Insurance (if available) – particularly in Panama, where it provides additional security.
6. Plan for Ongoing Costs – property taxes, HOA fees, or maintenance obligations.
7. Register Properly – ensure your ownership is recorded with the public registry in that country to prevent third-party claims.

Country

Panama;

Foreigners have the same property rights as locals. No restrictions on coastal property (except islands/national parks under reserve).

Two types of ownership: (1) Titled property (safe, registered in Public Registry). (2) Right of possession (ROP), which does not grant full ownership and can be disputed. Title insurance available via U.S. insurers (Stewart, First American).

Transfer tax: 2% of registered value or sale price (whichever is higher). Registration and legal fees ~1-1.5%. Annual property tax ranges from 0%-0.7% depending on value (many exemptions for new properties).

Don‘t buy ROP unless you fully understand risks. Always verify zoning, islands have strict 22m coastal setbacks. Title insurance is highly recommended.

Costa Rica;

Foreigners can buy titled property directly, except in the Maritime Zone (200m from high tide). Here, only concessions are allowed (leases from the state, typically 20 years renewable).

Titled property is secure. Concessions require municipal approval and a local Costa Rican partner if the buyer is foreign. Public Registry confirms ownership.

Transfer tax: ~1.5% of registered value. Legal fees ~1-2%. Annual property tax: 0.25% of declared value.

Many beachfront “deals†are concession land, not titled. Ensure boundaries are surveyed — disputes are common. Foreigners often miss concession restrictions (no absolute ownership).

Mexico;

Foreigners cannot directly own property in the Restricted Zone (50km from coast, 100km from borders). Must use a Fideicomiso (bank trust, renewable every 50 years) or set up a Mexican corporation.

Titled property is secure if held properly. Ensure bank trust is properly executed and registered.

Closing costs vary widely, usually 4-7% of purchase price (notary, acquisition tax, bank fees). Annual property tax: very low (often <0.1% of value).

Common issue: poorly drafted fideicomisos. Always confirm bank trust is registered and renewed. Watch for inflated closing  and service charges.

Colombia;

Foreigners may buy property directly with no restrictions. All transactions go through a public deed (escritura pública) before a notary and are registered with the Registry of Public Instruments.

Titled property is recognized and safe. Due diligence must confirm no liens, mortgages, or unresolved inheritance issues.

Transfer tax/registration: ~1.5% of sale price. Notary fees: 0.3-0.5%. Annual property tax: 0.3-1% depending on municipality.

Rural properties sometimes lack clear title. Urban titles usually clean but always verify past ownership chain. Avoid paying large sums before due diligence.

Practical Takeaways

• Panama: Safest for foreign buyers due to title insurance. Avoid ROP unless legally advised.
• Costa Rica: Great market but watch for maritime concession land. Get municipal confirmation.
• Mexico: The fideicomiso is safe if done correctly—just ensure all paperwork is handled by a top-tier notary and bank.
• Colombia: Solid urban opportunities, but extra caution needed in rural areas due to incomplete records.