Panama's economic boom continues, and house prices are rising strongly
December 22, 2016
In Panama City, the country’s capital, the average selling price of residential properties in Class-A projects rose by 8.8% y-o-y to US$3,100 per square meter (sq. m) during the first half of 2016, reflecting the continued increase in demand for high-quality residentail properties in the capital and surrounding areas, according to CBRE Panama.
In Punta Pacifica, a collection of exclusive waterfront skyscrapers, high-end apartment prices are rising by 6% to 12%, due to a decline in the inventory of available units. 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. By end-2016, sale prices of apartments are expected to reach US$2,800 per sq. m. In Trump Ocean Club, apartment prices are now almost US$3,300 per sq. m.
In Balboa Avenue, one of the capital city’s high-end residential areas, property prices increased 8% during the year to June 2016, to an average of US$2,500 per sq. m, according to Panama Equity Real Estate. In fact, in GrandBay, property prices were up 35% over the same period.
The property market is expected to remain strong medium-term, because of the opening of the expanded Panama Canal and the continued influx of foreign investors into the country.
“Overall, we feel that prices should continue to appreciate at a moderate pace over the next 12 months, with some short-term correction before the end of the year if sellers start to see fewer buyers,” said Kent Davis of Panama Equity Real Estate. “Inventory lists in buildings such as YOO, which still have apartments for sale by the developer, are showing absorption around 2-3 units per month meaning that supply should be depleted by early 2017.”
Panama’s economy grew by 5.8% in 2015, after robust GDP growth rates of 6.1% in 2014, 6.6% in 2013, 9.2% in 2012, 11.8% in 2011, and 5.8% in 2010, according to the International Monetary Fund (IMF). The economy is expected to expand by 5.2% this year, and by another 5.8% in 2017.
Tourist arrivals increased 7% to 5,585,000 people in the first nine months of 2016 as compared to the same period last year, according to the General Comptroller. Likewise, tourist spending also increased 5.6% over the same period.
Foreigners can own real properties in Panama. Foreign homebuyers are accorded with the same property rights as Panamanians. However, mortgages can be difficult to obtain, especially for foreigners, and the process can take two to three months. More than 80% of real estate transactions involving foreign buyers are in cash.
Panama: firm prices, yields good
Gross rental yields in Panama have declined somewhat over the past few years. But the gross yields in Panama - the rental return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - are good, by international standards. Yields range from 5.7% to 7.3%.
There isn't much difference, in terms of yield, between beachfront and further back. Beachfront is more expensive, but you get a better rent. Smaller apartments do tend to yield more.
Taxes are quite high in Panama
Rental Income: Net rental income earned by nonresidents is taxed at progressive rates, from 15% to 25%.
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 6.6% in 2013, and then to 6.1% in 2014, and to 5.8% in 2015—the slowest growth rate in 5 years. This reflects work delays at the Panama Canal (from August 2014, the completion date moved several times to June 2016), and the end of other public work projects, and the Colon Free Zone dispute with Venezuela and Colombia.
The economy is expected to expand by 5.2% this year, and by another 5.8% in 2017, according to the IMF.
The recently-opened 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. The expansion project has doubled the capacity of the Panama Canal with the increase in the width and depth of the lanes and locks and the addition of a new lane of traffic that allows more ships and larger ships to pass. The canal 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.
During the fiscal year ending September 30, 2016, the Panama Canal had the third highest annual tonnage in its history, according to the Panama Canal Authority (ACP).
“This latest success reinforces the continued strategic importance of the route and the growing value that recent investments in the canal will bring to the maritime industry,” said Panama Canal Administrator Jorge L. Quijano.
“What we accomplished with the opening of the Expanded Panama Canal this past fiscal year was just the beginning of an ambitious plan to strengthen Panama’s position as the logistics hub of the Americas,” added Quijano.
Another logistics infrastructure project, the Corozal Container Terminal, is being bid, and is expected to further enhance the country’s position as the preferred route and regional destination for shippers.
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. All of these major infrastructure projects will improve the country’s connectivity, and breathe new life to the economy and the real estate market.