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Buying property in Guatemala: scams and pitfalls

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Everything you need to know is included in our Guatemala Property Pack

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Guatemala's affordability and growth potential are making it an appealing destination for foreign real estate investors.

However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.

Both our property-buying clientele and our local partners have raised several common concerns with us. We've listed them all in our Guatemala Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in Guatemala?

Safety in the Guatemalan property market is intricately linked to its historical context. Land redistribution efforts in the mid-20th century left many properties with unclear titles. In areas like Petén, it's not unheard of for properties to be sold by one party, only to be contested by another claiming ancestral rights. This ambiguity has, unfortunately, led some foreign investors into scams.

Foreigners have the right to own property in Guatemala, but the transaction process can be intricate. An illustrative case involves a European investor in the Lake Atitlán region who, charmed by its beauty, bought a waterfront property. However, an indigenous community later claimed ancestral rights, leading the investor into prolonged legal battles.

Guatemala's legal protections for property buyers, in theory, are robust, but the ground reality can differ. The nation lags in property rights and transparency compared to neighbours like Costa Rica.

A major point of confusion is the difference between the "right of possession" and "title" system. For instance, many properties in Alta Verapaz are sold on possession rights, a less secure arrangement than titled properties.

Navigating property disputes in Guatemala can be a daunting task, given the intricacies of its legal system. Cases in regions like Quetzaltenango can drag on for years, with bureaucratic complexities being a significant hurdle.

Effective due diligence in Guatemala transcends title checks. For instance, in the coastal region of Monterrico, a group of American investors, lured by its beaches, faced substantial losses because they hadn't considered the area's flooding tendencies. Potential buyers are advised to investigate land histories, especially in indigenous-populated regions.

Government regulations have seen reforms in recent years to entice foreign investment. However, real estate remains relatively under-regulated.

Contrasting with Belize, which offers clear pathways for foreign real estate buyers, Guatemala adopts a more laissez-faire stance.

Cultural dynamics can also pose challenges. In places like Chichicastenango, foreign buyers have occasionally encountered resistance for overlooking local traditions or not consulting community leaders during property transactions.

Buying real estate in Guatemala can be risky

An increasing number of foreign investors are showing interest in Guatemala. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.

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Potential real estate buying mistakes in Guatemala

"Ejidos municipales" or communal land

Communal land in Guatemala, known as "ejidos municipales," is collectively owned by the indigenous population, especially in the highlands.

These lands have been granted to the Mayan communities over time for various reasons.

One of the main issues with communal land is that it often lacks proper registration in the National Registry of Land. This means that if you purchase such land, your ownership could be challenged in the future because there may be no legal instrument to confirm the relationship between your rights of possession and the community's rights.

This is particularly pertinent in places like Lake Atitlan, where communal land titles exist but the exact delineation and ownership rights might not be clearly defined or recognized by government registries.

"Rights of Posesión" or squatters' rights

In your pursuit of property in Guatemala, you should be mindful of the unique concept of "Rights of Posesión," also known as squatters' rights.

These rights can be sold and acquired; however, they are less secure than formal property titles, particularly when it comes to raw land.

When a house is involved, the security of possession rights can be higher, as there is visible, uninterrupted ownership.

Nonetheless, holding possession rights does not exclude the holder from complying with other laws, such as obtaining a leasing contract with the government for land close to oceans, lakes, or navigable rivers.

Care must be taken when purchasing property on waterfronts to ensure that the squatters' rights have been legitimately converted into an OCRET contract and that the seller is not attempting to commit fraud

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The risk associated with being an absentee landlord

A unique and alarming challenge you should be aware of is the risk associated with being an absentee landlord in Guatemala.

There have been instances where organized groups, including attorneys and government employees, have targeted properties owned by foreigners, especially those not residing in the country.

These groups have forged documents to transfer property ownership illegally, often targeting empty lots and houses in areas popular with expats, such as Sacatepequez and Izabal.

The victims of these schemes are typically elderly expats living abroad, and there have been extreme cases where property owners were harmed to prevent legal action.

To protect yourself, ensure that you manage your property actively or have a trusted local manager.

Always have a reputable lawyer to verify any legal proceedings or documents concerning your property.

The risk within land title clarity

When purchasing property in Guatemala, you must be particularly cautious about land title clarity.

Due to the lack of a reliable land registry system, you might encounter disputes over ownership or face third-party ownership claims.

This issue is unique to the Guatemalan real estate market and can be especially challenging for foreigners unfamiliar with the local system.

Additionally, be aware of the risk of expropriation by the government, which can occur without prior notice, potentially resulting in the loss of your property without compensation.

Lastly, corruption is a significant concern in Guatemala, and it can affect real estate transactions. Government officials may be involved in fraudulent activities, leading to financial loss or the acquisition of a property that may not be legally clear.

To mitigate these risks, you should work with a trusted local lawyer and perform thorough due diligence.

Get the full checklist for your due diligence in Guatemala

Don't repeat the same mistakes others have made before you. Make sure everything is in order before signing your sales contract.

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The risks related to the OCRET system

You should be aware of the OCRET system when buying property in coastal areas of Guatemala.

OCRET stands for the Office of State Controlled Reserve Areas and is responsible for maintaining environmental stability along Guatemala's coasts and waterways.

Properties in these areas are subject to leasing from the government, rather than outright ownership. Failing to understand the status of such a property could lead you to believe you have bought a property outright when, in fact, you may only have a lease.

It's a situation that has caught out even savvy foreign buyers, as a lease payment for such a property is typically very low—around $75 or $80 per year—and a title search would reveal the true nature of the property ownership.

For instance, in one case, a Canadian couple bought what they thought was their property, only to find out it was actually owned by a Guatemalan corporation and they had merely leased it from OCRET.

Always conduct a thorough title search and consult a reputable lawyer to avoid such pitfalls.

The concept of MLS

Another potential pitfall for you to consider when buying property in Guatemala is the risk associated with the lack of a multiple listing service (MLS).

This system, which is common in countries like the United States and Canada, provides comprehensive information on properties for sale.

In Guatemala, however, property sales are often handled by individual agencies or agents, and a single agency will connect sellers with buyers. This could lead to a situation where you have limited access to the full market picture, possibly resulting in less competitive pricing or missing out on properties that would be a better fit for your needs.

It's recommended that you work with a reputable and established real estate agency to mitigate this risk.

An experienced agent can provide valuable guidance and help navigate the local market nuances.

It's also advisable to seek legal assistance to ensure that all aspects of the transaction are properly handled.

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