Panama’s boom triggers a commotion

Last Updated: Oct 31, 2007

Panama’s boom triggers a commotion

The real estate frenzy in Panama continues. More condominiums are being built and planned, and major developments are underway.

Around 300 tower projects, making up more than 40,000 units, are reportedly being constructed or publicly announced. Even the Trump Ocean Club International Hotel and Tower, part of Donald Trump’s $400-million project in Panama City, has started construction.

The Panamanian Government has initiated the move to expand the congested Panama Canal, which was approved by the public through a referendum in October 2006. To contain the growing real estate and tourism industries, additional changes are seen, including shortening the 90-day tourist visa to 30 days for security purposes, with an allowable extension of 60 more days.

Protests arose and legislators are to discuss possible reversal or modification of this new law due to its consequences to the second home market.

Property prices are rising. Land is being sold from $700 to $1,000 per sq. m., says Tomas Portillo of Prima Panama. Even what used to be sold at $1,000 per sq. m. is now selling at up to $3,000 per sq. m. Construction costs, including cement, steel, other raw materials, and labor, are now higher too.

Blunders cause fear of a burst

The booming real estate sector is not without issues. The ambitious 104-story Ice Tower, hoped to be an iconic condominium building in Panama City, never reached past conception. The developer returned deposits without interest after the project has been declared nonviable. To replace the Ice Tower is the 78-story Iron Tower, of which almost half of the units had been sold. It was learned that it does not have a building permit to date.

This overzealousness of developers has not only damaged the Ice and Iron Towers. The redesigned Palacio de la Bahia, with the number of floors reduced from 96 to 83, is waiting for municipal approval. Another deverlopment, Park 32, of 54 floors, has to undergo redesigning; The owner returned deposits plus interests.

The government is quick to act on these transgressions. On May 16, 2007, a regulation has been approved fining developers 1% of the project’s value for promoting land sale without an approved first draft of the plan. Violators will have to settle the fine before the first draft can be received for evaluation.

Not without difficulties

Bocas del Toro, a province at the North-Western tip of Panama, composed of 68 islands and numerous mangrove keys, received much foreign interest. However, all is not doing well. While the rest of Panama is running about, Bocas del Toro experiences labor strikes and litigations. Apparently, profits are not as good as expected because unemployment is increasing, aggravated by the closure of around 30 businesses in the province.

New property owners are not worry-free as well. The 20-year tax exemption on new properties ends soon, in accordance to the modified chart of exoneration in 2005. To be eligible for tax exoneration of 20 years, the construction permit should have been obtained before September 1, 2006, and finished improvements are registered in the Public Registry before August 31, 2007.

Poverty amidst growth

While Panama’s economy is growing impressively, there is still much poverty to deal with. GDP per capita grew by 4.62% from 2005 to 2006. Investments surged since the turnover of the Panama Canal from United States’ control to Panama’s. Foreign direct investment accounts for 16% of the country’s GDP. Without a doubt, Panama is enjoying real estate and construction booms, add that to the ever stronger tourism sector.

Despite the major developments and a speedy economic growth, 40% of the population still lives below the poverty line. Unemployment looms and is worsened by business closures and demand for labor that is mismatched with the skills Panamanian workers can offer.