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.
Analysis of Panama Residential Property Market »
Prices in Panama have strengthened. Beachfront apartments sell for around US$2,000 to US$4,000 per square metre (sq. m.). Apartments away from the beach sell for less.
However gross rental yields are now moderate, ranging from 5.5% to 8.3%, with smaller apartments yielding more. Gross rental yields have somewhat declined over the past several years.
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%.
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.
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.