Buying Property in Paraguay

Paraguay, with its developing economy and welcoming stance towards foreign investment, presents an appealing prospect for individuals considering international property acquisition. The potential for affordable real estate in a country actively seeking foreign capital can be a significant draw. However, venturing into an overseas property market necessitates meticulous preparation and a thorough understanding of local practices. This guide aims to equip prospective buyers with essential precautions and steps to take before purchasing property in Paraguay, ensuring a smoother and more secure investment journey.

The Cornerstone: Engaging a Trusted “Escribano” (Notary)

In Paraguay, the role of the “escribano” (notary public) is not merely advisory but a fundamental requirement for any real estate transaction. The legal framework mandates the involvement of an “escribana” to formalize the purchase, making the selection of a trustworthy and competent professional paramount. Historically, the figure of the “escribano” held a significant position in Spanish municipalities, acting as a combined clerk of court and notary public. This historical context underscores the legal weight and authority associated with this role, suggesting a long-standing tradition of legal oversight in property matters.

In modern Paraguay, the “escribano” plays a central role in the process of registering property. Their responsibilities extend beyond simply notarizing documents; they are integral to ensuring the legal transfer of ownership. This includes drafting and authenticating the transfer deed, obtaining necessary certificates from various government agencies, and ultimately ensuring the registration of the property in the public registry. Notably, the purchaser in Paraguay typically has the prerogative to select the “escribano”. This ability to choose allows the buyer to prioritize trust and seek recommendations, ensuring an independent professional oversees this critical aspect of the transaction and acts in their best interest. While the law does not mandate the engagement of a separate lawyer, it is strongly recommended that buyers consider seeking independent legal representation for added comfort and protection. A lawyer can provide additional scrutiny of contracts, identify potential hidden risks, and offer comprehensive legal advice tailored to the buyer’s specific situation. Given the “escribano’s” pivotal role, it is crucial for prospective buyers to seek recommendations for reputable professionals from trusted sources within Paraguay. While online groups can be a starting point, it is essential to verify credentials, experience, and seek multiple opinions to ensure you are working with a competent and ethical “escribano”.

Navigating the Legal Landscape: Essential Due Diligence

Thorough due diligence and legal checks are indispensable when considering a property purchase in Paraguay.

Title Verification and Public Registries

Verifying the title of the property before making any significant commitments is paramount. Conducting this check early in the process can prevent considerable waste of time and financial resources on properties that may have underlying legal issues. The “escribano” plays a crucial role in this process by checking for any existing “sucesión” (probate) or “embargo” (liens/seizures) against the property. This ensures that the property is legally clear of encumbrances and is not involved in any unresolved inheritance matters that could impede the sale. Obtaining a Public Registries Certificate is also a highly recommended step for the buyer’s own protection. This certificate provides official confirmation from the government registry regarding the property’s legal status, including ownership details and any registered encumbrances. The Public Registry of Property certificate serves as the formal record of the notarial deed that transfers ownership, making the transaction legally effective. Paraguay is currently undergoing efforts to modernize its property management system through the creation of a National Unified Registry. This initiative aims to consolidate the functions of key institutions involved in property registration, which is expected to streamline procedures, reduce processing times, and enhance the overall security of real estate transactions. To personally check the title, one can visit the Public Registry or the National Cadastre Directorate. It is important to note that these two entities are in the process of merging, which might lead to temporary complexities in accessing information. A report of non-ownership of assets can also be requested from the Public Records to gain a broader understanding of the seller’s property holdings. Upon completion of the transaction, the buyer should receive a notarized property title, which typically includes a site plan with geographical data, certificates from the municipality and the land registry office, the notarized purchase agreement, and official payment receipts. Cadastral data, including land borders, size, and potentially ownership information, is managed by the National Cadastral Service and can be accessed online through their official portal and downloadable map files. While these online resources can be helpful for initial research, they should not replace the thorough legal verification conducted by an “escribano.” Another crucial document to be aware of is the Non-Encumbrance and Free Disposability of Assets certificate, obtained from the General Direction, which specifically confirms that the property is free of any liens or restrictions that would prevent its sale.

Understanding “Sucesión” and Potential Encumbrances

“Sucesión” in the context of Paraguayan property law refers to probate court, and it is vital that the “escribano” verifies that the property title is not currently under this status. Buyers should also be aware of the potential risk of purchasing property with undisclosed legal issues. The experience of an individual in Brazil who bought a property with a seemingly clean title only to face a lawsuit shortly after closing serves as a cautionary tale. While this example is from Brazil, it highlights the importance of conducting thorough checks beyond just official certificates in Latin American property transactions. Inheritance laws in Paraguay are primarily governed by the Civil Code and the Civil and Commercial Procedure Code, and the inheritance of real property located within Paraguay is subject exclusively to Paraguayan law, regardless of the deceased’s nationality or place of residence. Paraguayan law also recognizes the concept of “mandatory heirs” who are legally entitled to a specific portion of the deceased’s estate, known as the “legítima”. If the property being purchased is part of an inheritance, it is crucial to ensure that the rights of all mandatory heirs have been properly addressed and that they have consented to the sale to avoid potential future legal challenges to the ownership. Expats should be particularly aware of cross-border asset distribution and tax implications in their home country regarding inheritance. Drafting a bilingual will and establishing trusts can be effective estate planning strategies for expats.

The Importance of Legal Counsel

Engaging a Paraguayan legal expert specializing in real estate law is strongly recommended to review all documentation and contracts before making any significant payments. Seeking legal advice from professionals in both your home country (if applicable) and Paraguay can provide a comprehensive understanding of the transaction under both legal systems. It is also advisable to choose your own lawyer and avoid using one recommended by the seller to ensure unbiased representation. Common issues in real estate transactions can include unclear property titles, boundary disputes, and unrecorded liens, all of which an experienced lawyer can help identify and navigate. Furthermore, legal counsel can assist in addressing potential problems such as false papers, existing mortgages, unpaid property taxes, and complexities related to financing the purchase. Given that the legal system in Paraguay has faced criticisms regarding corruption, having independent legal representation is even more critical to safeguard your investment and ensure your rights are protected throughout the process.

Decoding the Real Estate Market and Agents

Navigating the Paraguayan real estate market effectively requires awareness of certain nuances and careful consideration when dealing with real estate agents.

Avoiding the “Gringo Tax” and Negotiating Fair Prices

Prospective buyers should be aware of the potential for “gringo prices,” where realtors and middlemen might attempt to inflate property prices for foreigners. To mitigate this, conducting self-investigation and seeking insights from trusted local individuals can help in understanding the fair market value of properties. Refusing to engage with inflated prices can also contribute to preventing unwarranted gentrification. Negotiation is a standard practice in Paraguayan real estate, and buyers should always attempt to negotiate the listed price. On properties that have remained on the market for an extended period, exploring the strategy of offering a significantly lower price, such as 60-70% of the asking price, might be worthwhile.

Understanding Real Estate Agent Commissions

In Paraguay, the standard practice is that the buyer generally does not pay a commission to the real estate agent. Therefore, if an agent tries to charge a commission to the buyer, it deviates from the norm. Typically, real estate agent fees are the responsibility of the seller, and can range around 5%. However, it’s crucial to clarify commission arrangements upfront to avoid misunderstandings.

Selecting a Reputable and Experienced Agent

It is important to exercise caution when selecting a real estate agent in Paraguay, as the profession is not formally licensed, and there are individuals who may not operate with the highest ethical standards. Engaging a professional real estate agent with a proven track record and a commitment to prioritizing the buyer’s needs over a quick sale is advisable. Seeking agents who also conduct appraisals for banks might be beneficial, as this suggests a more rigorous understanding of property values. Verifying the agent’s credentials and being wary of websites that lack basic contact information, such as a physical address, is also prudent. Look for agents who are experts in the specific type of property and location you are interested in. Consider using well-known agencies like Century 21 or Sotheby’s International Realty, which may offer a higher level of professionalism. Online platforms like Properstar can also be a starting point for finding agents. It’s always wise to seek recommendations and verify the agent’s reputation through multiple sources.

Exploring Off-Market Properties

Buyers should be aware that not all available properties are listed online. Engaging with real estate agents who have established local networks can provide access to “first dips” on properties before they are publicly advertised. Agents often have connections and share listings among themselves, potentially uncovering opportunities that might not be readily apparent through online searches.

Be Wary of Direct Deals After Realtor Introduction

There is a risk that a property owner might attempt to bypass the real estate agent who introduced a potential buyer and try to negotiate the deal directly to avoid paying commission. This is unethical and can lead to complications. It’s advisable to maintain transparent communication with your agent and honor their role in the process.

Financial Preparedness: Key Considerations for Buyers

Prospective property owners in Paraguay need to be financially prepared for various aspects of the transaction. This includes understanding different types of purchases, such as those made “en pozo.”

“En Pozo” Purchases

“En pozo” purchases refer to projects that are in planning or under construction and require doing due diligence on the developer and project.

Payment Preferences and the Need for “Factura”

It is not uncommon for sellers in Paraguay to prefer cash payments for real estate transactions. Regardless of the payment method, it is crucial to always request a “factura,” which is a legal invoice, for every payment made. This document serves as essential proof of payment for your records and for tax purposes. Exercise caution when dealing with large cash payments and ensure all transactions are properly documented.

The Role of Escrow Accounts

Buyers should consider the option of opening an escrow account at the “Escribania” to hold funds during the property transaction. This arrangement provides a level of security for both the buyer and the seller, as the funds are released only upon the successful completion of all agreed-upon conditions, such as the clear transfer of the property title.

Managing Large Cash Transfers

Individuals planning to bring substantial amounts of cash into Paraguay should be aware of the regulations. Bringing more than $10,000 USD in cash without proper declaration can lead to its seizure by the government. This is particularly important for those intending to use cash to purchase property or vehicles.

Understanding Financing Options

While traditional bank financing options for foreign buyers in Paraguay might be limited, other financing avenues might exist. Owner financing, especially for properties that are still under construction (“en pozo”), could be a possibility. In some cases, developers might offer interest-free financing options, sometimes with the possibility of renting out the property after its completion. However, buyers should be cautious of non-transparent financing arrangements where loan funds are not directly controlled by the buyer.

Accounting for Taxes and Property Fees

Beyond the purchase price, buyers must budget for various taxes and fees. The Transfer Tax (Impuesto a la Transferencia de Inmuebles – ITI) is generally 3% of the property’s registered or transaction value, typically paid by the buyer. Value Added Tax (VAT) at 10% usually applies to the first sale of new properties, while resales by individuals are often exempt. An annual property tax (Impuesto Inmobiliario) is levied based on the cadastral value, often around 1% or less. Be aware of potential real estate surtaxes on specific property types. Notary fees can range from 0.75% to 2% of the property value, plus 10% VAT, and are typically paid by the seller. The buyer usually covers the registration fee at the Public Registry, which is a relatively small fixed amount. A Municipal Tax on Transfers, ranging from 0.2% to 0.3% depending on location, is also applicable. Additionally, a Judiciary Tax of around 0.74% of the property value might apply. Always ask for a detailed breakdown of all costs from your “escribano” and legal counsel.

Understanding Market Dynamics and Potential Pitfalls

A comprehensive understanding of the Paraguayan real estate market includes being aware of potential challenges and market dynamics.

Concerns about a Real Estate Bubble

There have been discussions and concerns raised about a potential real estate bubble in Paraguay, particularly regarding high-end properties that might be oversupplied and experiencing low liquidity. It has also been suggested that property prices, especially in certain areas like Asunción, might be inflated with the intention of targeting foreign buyers or due to money laundering activities.

Long-Term Appreciation and Market Volatility

While real estate is often considered a long-term appreciating asset, buyers in Paraguay should be mindful of potential price volatility. Rental yields in Asunción might be lower than expected for an emerging market due to an oversupply of properties bought for capital preservation rather than rental income.

The Influence of Foreign Capital

The Paraguayan real estate market’s reliance on foreign investment capital, particularly from neighboring countries like Argentina and Brazil, could pose a risk during economic downturns in those nations, potentially leading to a decrease in investment and impacting property values. One user mentioned “the great taking” as a factor to consider, but without further context, its specific relevance to the Paraguayan real estate market remains unclear.

Other Important Considerations

Several other important factors should be taken into account by those looking to purchase property in Paraguay.

Due Diligence for “En Pozo” and Farm Purchases

When considering properties under construction (“en pozo”), it’s highly recommended to investigate the developer’s track record. Look into other projects they have completed—were they finished on time? How is the building quality of normal units (not just the model ones)? You might consider finding someone who lives in one of their previous buildings or even taking an Airbnb for a night or two to experience the quality firsthand. For farm properties, physically visiting the area is essential. Spend time there, get a feel for the community, and interact with the local people. A friend of mine loved one farm property but she did not get a good feeling from many of the people in the area. At another property, neighbors were great. This personal interaction can provide invaluable insight.

Overcoming the Language Barrier

While many Paraguayans may be open to communicating in English, it is not universally spoken. Therefore, fluency in Spanish or Portuguese, or having a trusted friend or translator who is, is highly recommended, especially when dealing with legal and financial aspects of the property transaction.

Residency Requirements and Benefits

Although it might be possible for foreigners to purchase land in Paraguay without being residents, having residency and a Paraguayan identification card (“cédula”) might be necessary for certain processes, such as opening a local bank account. Paraguay offers various pathways to obtain residency, including temporary and permanent options, as well as residency through investment. Notably, Paraguay operates on a territorial tax system, meaning that tax residents generally do not pay taxes on income earned outside of the country, which can be a significant benefit for international property owners.

The Importance of Patience

The process of finalizing the property purchase, including obtaining the title and all necessary documents, can often take up to three or more months. It is crucial not to rush this process and to allow sufficient time for all legal and administrative procedures to be completed correctly.

Potential Problems with Utility Transfers

While Paraguay has abundant hydroelectric power, the infrastructure for distribution, particularly for water and electricity, can face challenges. Power outages can occur, especially during peak seasons or due to weather events. Water supply can also be affected by power interruptions. When purchasing property, it’s advisable to inquire about the reliability of utility services in the specific location and understand the process for transferring or setting up accounts with the relevant providers. Be prepared for potential delays or bureaucratic hurdles during this process.

Specifying Fixtures and Chattels in the Purchase Agreement

To avoid disputes after closing, it is crucial to clearly define in the purchase agreement which items are included with the property. In real estate, a fixture is generally considered an item permanently attached to the property, such as light fixtures, built-in appliances, and plumbing fixtures. A chattel is personal property that is not permanently attached and can be removed, such as furniture or appliances that are not built-in. To avoid misunderstandings, create a detailed list of all items intended to be included in the sale, such as specific appliances, light fixtures, window coverings, and even garden features. Explicitly mentioning items like “water heater,” “cabinetry,” “toilets,” and “sinks” can prevent potential disagreements. Taking photographs of the included items can also be a helpful way to document the agreement.

Actionable Next Steps for Aspiring Property Owners

To navigate the process of purchasing property in Paraguay effectively, prospective buyers should consider the following steps:

• Identify Property Type and Location: Determine the specific type of property you are interested in (e.g., apartment, house, land) and the preferred location within Paraguay, as market conditions can vary significantly. If considering an “en pozo” project, research the developer’s history.
• Seek Professional Recommendations: Obtain recommendations for reputable “escribanos” and real estate agents from trusted sources within Paraguay. While online research can be a starting point, always verify credentials and seek multiple opinions.
• Conduct On-the-Ground Due Diligence: Plan a trip to Paraguay to conduct thorough on-the-ground due diligence, including physically inspecting the property and its surrounding area. For land purchases, consider getting the soil quality tested and spend time getting to know the local community. For “en pozo” projects, try to assess the quality of the developer’s previous work.
• Consult a Legal Expert: Engage a Paraguayan legal expert specializing in real estate to review all documentation and contracts meticulously before making any substantial payments.
• Develop a Financial Plan: Create a clear financial plan for the purchase, taking into account payment methods, potential fees, and currency exchange rates. Be prepared for the possibility of cash payments and always request a “factura” for every transaction. Consider the benefits of using an escrow account for added security.
• Inquire About Utilities: Before finalizing the purchase, gather information about the utility providers for the property, the process for transferring services, and the typical costs involved.
• Document Included Items: Create a comprehensive list of all fixtures and any chattels that will be included in the property sale and ensure these are clearly stated in the purchase agreement.

Investing Wisely in Paraguayan Real Estate

Purchasing property in Paraguay presents both opportunities and potential challenges for foreign buyers. By taking thorough precautions, engaging trusted professionals such as a reputable “escribano” and an independent lawyer, and diligently preparing for the legal, financial, and market-related aspects of the transaction, buyers can navigate the process more confidently. Understanding the local market dynamics, being aware of potential pitfalls like the “gringo tax” and the possibility of a real estate bubble, and respecting the local customs and legal framework are all crucial steps towards a successful and secure property investment in Paraguay. This includes specific due diligence for properties purchased “en pozo” or rural land. While the allure of affordable property and a welcoming environment is strong, a cautious and well-informed approach is essential to ensure a positive outcome.

Key Valuable Tables:

Estimated Property Purchase Costs in Paraguay

Summary of Due Diligence Checks