Panama: Overview

RENTAL YIELDS

Spectacular yields in Panama at 9.55%

Panama City has yields on apartments and condominiums reaching up to 11.23%, for 190-sq. m. units. As the size increases, yields decline but only up to around 7.15%, which is still a good figure.

Condominiums in Panama City are priced at an average of US$1,695 per sq. m. This is slightly more expensive than houses located in coastal areas, which are selling for US$1,411 per sq. m.

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TAXES AND COSTS

Taxes are moderate in Panama

Rental Income: The gross rental income of a non-resident individual is taxed at 15%, plus an education tax of 2.75%.

Capital Gains: Capital gains resulting from sales of real estate located in Panama are taxed under a special regime. Under this regime, the taxpayer can opt to be taxed in two ways.

Inheritance: Inheritance tax was abolished on 26 December 2002.

Residents: Resident individuals are taxed on their total income received from Panama sources.

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BUYING GUIDE

Total transaction costs are low in Panama

The total roundtrip transaction costs for buying and selling properties are around 7% to 9%, including the agent’s fee at 3% to 5%. The seven procedures needed for the registration process can be completed in about 44 days.

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LANDLORD AND TENANT

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.

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ECONOMIC GROWTH

Waiting for the Canal's expansion

Panama’s strategic position between the North and South American continents, and its canal, have made it a target for intervention by the US, which in 1989 invaded to depose Dictator Manuel Noriega. But this intervention also resulted in a remarkably stable democracy (with a growing economy).

In 2004, Martin Torrijos defeated ex-president Guillermo Endara, pledging to modernize the Panama Canal, to tackle corruption, and to investigate violations of human rights under the rule of his father, former military leader Omar Torrijos.

Panama has a dollar-based economy, sustained by the canal and by the Colon Free Trade Zone, the largest in the Western Hemisphere, and by its position as a growing international financial and banking center with good communications and first world amenities. Panama still faces the challenge of shaking off its reputation as a major transshipment point for US-bound drugs and illegal immigrants, and as a haven for money laundering.

The long awaited plan to expand the Panama Canal depends on a referendum expected to be held in August or September 2006. The 90 year-old canal is showing signs of age, and is too narrow to accommodate bigger and wider ships. It is already operating at 93% capacity. The US government transferred control of the Panama Canal to the Panama government in 1999, and its subsequent smooth operation is a Panamanian success story.

The project would cost around US$5 billion to $7.5 billion and is expected to be completed in seven years. The expansion would provide 10,000 construction jobs, crucial in a country with an unemployment rate of 16%, one of the highest in Latin America. Around 40% of the population is living below the poverty line. Inequality is also one of the highest in the region and the world.