Panama’s house prices are rising strongly
Last Updated: November 30, 2015
In Punta Pacifica, a collection of exclusive waterfront skyscrapers, residential prices rose by 14% in 2014, according to Punta Pacifica Realty, and residential sales volumes soared by 35%. The average price in Punta Pacifica now stands at around US$2,500 per square metre (sq. m.), up from about US$2,200 per sq. m. the previous year.
The property market is expected to grow stronger in the medium-term, amidst the opening of the Panama Canal and the continued influx of foreign investors into the country.
Panama's economy grew by a robust 6.2% in 2014, after real GDP growth rates of 8.4% in 2013, 10.8% in 2012, 10.9% in 2011, 7.5% in 2010, and 3.9% in 2009, according to the International Monetary Fund (IMF). The economy is expected to expand by 6% this year and by another 6.3% in 2016.
Tourist numbers have risen by 83% over the last five years, according to Panama America. In 2014, the total number of tourist arrivals rose by 4.7% to 2.3 million people from a year earlier, according to the Panama Tourism Authority. Of the total, 48% came from South America, 24.3% from North America, 12.7% from Central America, and 2.5% from the Antilles.
Likewise, tourism revenues increased 5.5% to US$3.23 billion in 2014.
Panama: stable prices, yields strong
Prices in Panama have remained very stable over the past year, with little sign of impact from the crisis in the US. Beachfront apartments sell for around US$1,500 to US$2,200 per square metre (sq. m.), or US$140 to US$205 per square foot.
Apartments away from the beach sell for slightly less.
Gross rental yields remain good, ranging from 8% to 9.3%, with not much difference between apartment sizes. Gross rental yields have somewhat declined over the past 2 years on smaller apartments, but have arguably improved on beachfront apartments.
Taxes are quite high in Panama
Rental Income: Net rental income is taxed at progressive rates.
Rental income is also subject to VAT at 7%.
Capital Gains: Capital gains realized from transactions not related to business activities are taxed at a special flat rate of 10%. Otherwise, capital gains are taxed at the standard progressive income tax rates.
Inheritance: Inheritance tax was abolished on 26 December 2002.
Residents: Resident individuals are taxed on their Panamian-sourced income at progressive rates, from 15% to 25%.
Total transaction costs are low in Panama
The total roundtrip transaction costs for buying and selling properties are around 7.30% to 9.30%, including the real estate agent’s fee at 3% to 5%. The seven procedures needed for the registration process can be completed in about 22 days.
Panama's tenancy laws are pro-landlord
Panama’s rental market is generally pro-landlord.
Rents: Rents can be freely agreed between landlord and tenant. In general, lease agreements can freely incorporate increases in the rent every certain amount of years, as agreed between the parties.
Tenant Security: In general terms, the court systems works, although the caseload is substantial and it may take several months to finalize the evictions, says Patton, Moreno & Asvat, a Panamanian law firm.
Strong economyAfter more than 10% annual GDP growth in 2011-2012, Panama’s economy slowed to 8.3% in 2013, and further to 6.2% in 2014—the slowest growth rate in 4 years. This reflects work delays at the Panama Canal (originally planned to be finished in 2014), and the end of other public work projects, and the Colon Free Zone dispute with Venezuela and Colombia.
However the economy is expected to expand by a robust 6% this year, and by another 6.3% in 2016, according to the IMF.
The ongoing US$5.25 billion expansion of the Panama Canal, which began in 2007, has experienced delays and cost overruns amounting to US$1.6 billion. Now 70% completed, the project will allow the canal to accommodate larger ships, and is expected to more than double average annual canal earnings from US$2 billion, to around US$5 billion in 2016.
The United States and China are the principal users of the Panama Canal. In 2007 Panama and the United States signed a Trade Promotion Agreement free trade agreement. Panama approved the TPA the same year, and the U.S. in October 2011. The agreement took effect in October 2012.
Other major infrastructure projects include Panama’s metro rail system, the first in Central America. Line 1 was completed in April 2014, while the second line is expected to be completed in 2017. There is also a planned US$8 billion upgrade of the port of Colon.
New President, continued support
Opposition leader Juan Carlos Varela won the presidential elections in May 2014, inning 39% of the vote, compared to 32% for outgoing President Ricardo Martinelli's choice José Domingo Arias, a result interpreted as a rebuke for Martinelli.
Martinelli was a dynamic and pro-business president, but was widely seen as authoritarian, and in 2011, The Economist described foreign investment as hurt by "doubts about the rule of law", citing suspected corruption in the bidding for the metro contract and the flooding of a wealthy Panama City neighborhood with sewage due to a lack of enforcement of planning laws. Reports of Martinelli receiving a bribe from Italian president Berlusconi featured prominently in the election campaign. There was intense bitterness between the candidates. Hearing of Varela's win, Martinelli said "I know the candidate, and really, may God help us!".
Varela, a former Martinelli ally, is a free-market conservative, but he takes office with a legislative minority that will force him to negotiate with the centrist and centre-left politicians that dominate Congress. Despite winning the presidency, Varela's Panameñista Party only got 11 of the 71 seats in Congress which were also up for election.
The new president promises continuity, and a reduction of tensions with Venezuela. More specifically, Varela is expected to continue former President Ricardo Martinelli’s investment program that maintained strong economic growth for Panama, but also pledged to reduce inequality and help the poor.
Panama’s economic growth is expected to remain buoyant over the medium term, as it continues to enhance its regional and global logistics role for the movement of goods, capital, and people and its moderating inflation. The expansion of the Panama Canal, which is scheduled to open in 2016, will boost annual revenues. Together with other major infrastructure projects, it will also improve the country’s connectivity, and breathe new life to the economy and the real estate market.