Panama – The Land of Canals and Hats

Fast Facts

· 3rd Largest Economy in Central America.
· There are no restrictions on ownership of property by foreigners.
· Foreigners may engage in commerce or industry without limitations.
· Capital: Panama City
· Population: 3.3 million
· Currency: Panamanian Balbao

Economic Overview

‘If I buy a condominium, do I get a free panama hat? And can I swim in the canal or must I wait for the boats to go past?’ Don’t you just love those stupid tourist questions………..

Panama, officially the Republic of Panama, is the southernmost country of Central America. Situated on an isthmus, some categorize it as a transcontinental nation, connecting the north and south part of America. It is bordered by Costa Rica to the north-west, Colombia to the south-east, the Caribbean Sea to the north and the Pacific Ocean to the south. It is an international business center which also acts as a transit country. Although Panama is the third largest economy in Central America, after Guatemala and Costa Rica, it has the largest expenditure on resource consumption, making the country the largest consumer in Central America.

Because of its key geographic location, the economy of Panama has a mixed-western economy mainly based on the services industry, heavily weighted toward banking, commerce, and tourism.

Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of its GDP. Services include the Panama Canal (no surprises there J), banking, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health. While the country's industry includes, manufacturing of aircraft spare parts, cements, drinks, adhesives, automobiles, textiles and more recently, handmade artisan creation of Bush planes (No, this is not the George W variety…..).

Panama has the third highest GDP per capita in Central America and GDP growth for 2007 was 8.1% compared to 6.5% in 2006 (that’s some serious growth !!)

Property Market Review

The real estate frenzy in Panama continues as more major developments are underway. The country is busy re-inventing itself as Latin America’s regional logistics and services hub.

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 (the big man himself !) $400-million project in Panama City, has started construction.

During the 1970s an offshore financial industry flourished in Panama but then came the dark years of the rule of Manuel Noriega (Dictator, Ex-CIA, Ex-Spy……I think you get the point) who was toppled by an American invasion in 1989.

In 2004, Martin Torrijos defeated ex-president Guillermo Endara. In October 2006 Torrijos’ referendum to expand the Panama Canal was massively supported with the cost of expansion being close to $7.5 billion and is expected to be completed in seven years time.
Several other mega-projects are in the wings:

· Panama has signed an agreement with Qatar for the construction of a US$7 billion oil refinery in Puerto Amuelles.

· A consortium led by Hong Kong’s Hutchison Whampoa, plans to turn Balboa into the largest port in Latin America.

· China's government-owned shipping operator, COSCO, in alliance with Ports America Group, is to build a second megaport on the Pacific coast at Farfan (even though Panama recognizes Taiwan :)

However, the current problems in the US appear to be moving south (as is the rest of the world at the current moment!!) with Panama's economic growth decelerating sharply during the first quarter of this year from 6.9% which is well down on the 10.41% economic growth during the same period of 2007.

Home-grown obstacles to growth are also emerging with Panama’s 90-day tourist visa being shortened to 30 days for security purposes, with an allowable extension of 60 more days. The changes have made it harder for foreign visitors to make extended property tours and go through the closing process in one visit. Legislators are considering reversals or modification of this new law due to its feared consequences to the second home market, but there's a definite chill in the immigration climate.

As with much of Latin America, Panama struggles with getting corruption under control, cementing the rule of law, and generating enough educational reform and economic growth to reduce its stubbornly high poverty rate. Combined with the financial burden of expanding the Panama Canal -- and the uncertainty over how much additional revenue it will generate – foreigners here are faced with the growing possibility of reduced tax incentives and higher taxes going forward.

However, the current market conditions aside, the following does give Panama that ‘edge’ above it’s Central American competitors:

- Panama City records rental yields of up to11.23% !!

- Individual Taxes are moderate with a maximum of 27% per person.

- Transactions Costs are low with all costs included equalling approximately 7% (This includes the estate agents fee :)

- Purchasing property that began construction before July 2009 will be exempt from paying property taxes for 20 years

Conclusion

So, take into consideration the amount of investment going into Panama, the current economic growth, the upgrading of the canal as well as the spectacular investment opportunities that are currently available………And what do you get?

A country that has all the attributes to be the ‘New Dubai’ or the ‘New Miami’………..as long as the big brother up North doesn’t ruin the party.