Investing in Panama

Why should you be investing in Panama?

Amongst the global and regional economic recession, rising violence and crime, soaring living costs and other instabilities, Panama probably stands out to be the only exception. The country is experiencing an economic boom and increasing prosperities in all its private and public sectors. Not only in the region, globally too, Panama has become one of the most modern countries with thriving trade and economy. The country ranks within top three in Latin America to live in. The capital, Panama City, is most probably the least expensive first world city. A survey carried out by the Corporate Resources Group over 192 cities of the world rated Panama City as one of the best cities to live in. With dazzling structures and skyscrapers, the city resembles many developed cities of U.S. or Japan. Panama with its small population of 3.2 million, booming economy, low living cost, low crime rate, safe and attractive environment, welcoming community and excellent investment opportunities, is becoming the most desired living destination for the retirees. Tourism has seen a remarkable success in Panama. Tourists pay return visits to Panama mesmerized by its natural beauty and fabulous living style. In such visits, they decide to make Panama their second home or their retirement destination. The phenomenon has substantially boosted the real estate business in Panama. Investment in the real estate now in Panama is definitely the ‘stitch in time’.

Some reasons for investing in Panama

A stable currency – Besides its own currency (Balboa), U.S. Dollar is widely used in Panama with little or no fluctuation in exchange rates.

Low living Cost – With abundance of essential commodities in the market and comparatively cheaper price tags, living in Panama is far more affordable than of Western Europe.

Conducive economic climate – Panama’s development trend stems from an open economy. Formidable trade pacts with U.S. and Mexico together with a business-promoting national government have made the economic climate very favorable for foreign investment. Panamanian government values the private businesses by supporting their investments. This led to the creation of world’s second largest free trade area at Colon Duty Free Zone in 1946. The government by its business laws, also offers a set of attractive investment incentives like real estate property ownership by foreign nationals and tax holidays.

Capital Gains Tax – A number of legislations succeeding Cabinet Decree No. 109 of 1970 provided tax advantages to the real estate developers. However, Panama’s tax laws include Capital Gains Tax (CGT) in various rates. In general, CGT for individuals selling real estate property occasionally (not like a real estate dealer) is flat 10%. Individuals who are real estate dealers have to submit annual tax return that would include the Capital Gain as their normal income. Tax would be paid in the form of assessed income tax. Depending on the income (through buying and selling real estate) the tax may go as high as the maximum rate of 27%. Real estate corporations on the other hand have to pay a flat 30% CGT. A transfer tax of 2% (except new homes) which needs to be paid by all sellers would be credited against CGT after transfer.

Retirement haven or ‘heaven’ – Panama offers a host of incentives for foreign retirees. It has started becoming second home to many of the retirees from Europe, Canada and the U.S. Anyone over 18 years of age can apply and may earn a pension and other facilities. For retirees the facilities include:

• Tax-free import of household/personal goods up to $10,000.
  
• Tax-free car import in every two years.
  
• 30% discount on land/sea conveyance.
  
• 25% discount on airfare.
  
• 50% discount on home loans closing costs.
  
• 50% discount on hotel accommodations (Monday-Thursday)
  
• 25% discount at restaurants and 15% discount at fast food shops
  
• 10% discount on prescription medicine
  
• 15% discount on dental and eye check-up
  
• 50% discount at movies and theatres
  
• 20% discount on doctor’s fees and surgery
  
• Cheap hiring cost of maids and gardeners (as low as $300/month for full time job)

Suitable locations for investing in Panama

Panama City – The capital has literally become a modern cosmopolitan metropolis. Fantastic real estate opportunities exist in the city areas that have high-rise buildings and structures overlooking the Panama Bay and the ocean. Apartments and condos are available in abundance in the city’s exclusive residential areas like Marbella, Coco del Mar, San Francisco, Paitilla, Putna and David.

Suburban Areas – Larger and attractive single family homes and condos are available in the suburban areas of the former Canal Zone. Balboa, Albrook, Amador Heights and Clayton are some areas worth mentioning.

Protected Areas of Casco Viejo – Panamanian government offers special investment incentives for restoration, renovation and/or development of the buildings and other real estate properties in Casco Viejo, the oldest city in the entire west coast of the Americas. The grand buildings and structures that bear the witness of the historic Casco Viejo need massive restoration. Land development too is a crying need here. Since Panamanian government actively supports and encourages such projects, real estate business is seeing promising prospects in Casco Viejo. Recently real estate investment in Casco Viejo has seen renewed enthusiasm and hopes for foreign investors.

Outside Capital – Outside Panama City El Valle, Chiriqui and Altos de Maria are some of the wonderful (and popular too) real estate properties.

Highlands – Panama’s highlands have become a popular retirement living destination for foreigners due to their cooler climate and serene environment.

Bocas del Toro – For its rich Antillean culture, crystal clear waters, laidback tropical climate and waterfront structures, Bocas del Toro has become a popular destination for living and retiring. It offers picturesque Caribbean beach-front real estate properties where inhabitants, tourists and shoppers boat around and enjoy all types of water sports and natural beauty. Natural beauties also include palm fringed beaches around the islands and the meeting of rain forests with the turquoise water of the ocean. All these are very much affordable as far as prices are concerned. The area has become busy with American and European investors and tourists from all around the globe.

Real estate is becoming a great investment in Panama especially in the Pacific Coast areas due to a steady growth and increasing property values. Away from the cities and suburbs, excellent real estate properties can be found with extremely low price. Remoter the cheaper – that is the keyword!

Budget and price range

Property price - You don’t need a budget as big as in U.S. or Europe for acquiring a real estate in Panama. Prices of real estate properties naturally vary due to location. This assortment of prices in the city, mountain or beach-front areas allows you to choose an appropriate property for you within desires and abilities. City areas have new condos with costs starting at $1000 per square meter. On an hour drive outside the city areas, you may find beach-front properties with only $600. It varies with the zone, community and beach itself. In the mountain areas, you may find a property with an unbelievable and shocking low price of $20 per square meter! These areas however are little difficult to reach since they are away from the roads and public transport routes.

Service charges/fees – A low service charge varying between $200 and $300 are levied by the Notary Public and Public Registry offices for registering a buy/sell agreement of the real estate in Panama. The closing costs, depending on the type of transaction, vary too.

As for an example, if a seller has his own titled property and the buyer wants a title transfer to a Panamanian corporation – a common and recommended option scenario – then the closing costs would stand as the accumulation of:

• Legal property transaction fee amounting $1200 (title search, buy/sell contract, closing and title transfer charges)
  
• Title transfer fees for Public Registry amounting approximately $200-$300
  
• Escrow account charges from 0.5% - 1% of the amount transacted.
  
• Incorporation fees of $1000 to setup the Panamanian corporation.

On the other hand, if the real estate property is already held by a Panamanian corporation and the buyer wants to purchase corporation’s shares, then the transaction is relatively simpler. In this case title transfer registration does not take place hence title transfer tax and Public Registry fees are not incurred. The closing costs would thus be a total of:

• Legal property transaction fees amounting $800 (title search, purchase of shares contract etc)
  
• Change of directors/resident agent of the corporation amounting approximately $350
  
• Escrow account charges from 0.5% to 1% of the amount transacted.
  
• Public Registry and Notary Public costs amount up to $200 to $300 approximately depending on the particular transaction.
  
• Title transfer taxes are normally paid by the seller.

Mortgages – Mortgages are available in the amount between 60% - 70% of the purchase price or assessed market price, whichever is the lesser. The mortgages attach an interest rate between 5.5% to 6.5% plus yearly 1% subsidy surcharge (Fondo Especial de Compensacion de Intereses -FECI).

Conclusion

Investing in Panama has become very popular with many foreigners who now call Panama home. With mesmerizing natural beauty, appealing diverse landscape, rich history and traditions, welcoming native community, low living costs and crime rate, thriving economy and booming real estate business sector, the country can probably be compared to ‘heaven on earth’. A business promoting government with all its support for investment has been successful in making the country an investors’ paradise. Especially in real estate sector, Panama is simply a land of newer opportunities. Given so many favorable options for investment or retirement living, one should seriously think of investing elsewhere than Panama real estate.

For a selection of Panama Real Estate click here