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Building to Fuel the Economy
Construction is one of the sectors that has grownthe most in the last ten years, thanks to thegovernment´s mega projects such as the MetroLines, the Panama Canal’s expansion and the rehabilitationand widening of the Interamerican Highway to namebut a few. Also, there has been a boom in residential andcommercial developments with malls and new communitiesappearing all over the country.
In 2005 construction contributed 4.5% of the GDPrepresenting $1.4 billion to the economy. The PanamaConstruction Chamber (CAPAC)’s director of economics,Michael Fernandez revealed that in 2014 the contributionwould be around $5.1 billion which means a growth of14.6% in comparison with 2013.
The National Center for Competitiveness (CNC forits Spanish initials) director and former Panamanian president,the economist Nicolas Ardito Barletta, pointed outthat the construction sector is one of the most dynamicsectors in the economy not only for its contribution tothe national production but also a signifi cant source foremployment.
Barletta indicated that construction is a good indicatorof the good health of the economic activity, because it isthe result of public and private investment with the objectiveto satisfy the urban development’s needs.The CNC highlighted the importance of the constructionsector in the GDP that went from a modest but significant 7% in 2007 to an impressive 13% in 2013 with anaverage annual growth of 18% in the last fi ve years.These fi gures put construction as the third most importantindustry for the economy surpassed only byTransport, Storage and Communications and Wholesaleand Retail. At the same time it is the second activity thatgenerates more employment, giving jobs to 11% of thepopulation all over the country with more than 180,000workers, according to the National Institute of Statisticsand Census.
The increasing weight of construction in the Panamanianeconomy is due to the investment fl uxes (domesticand foreign) over the last few years when the investmentrate has exceeded the 27% of GDP. The compositionof these investments is: 37.2% domestic private sector,30.6% direct foreign investment and 32.2% public sector,according to the latest fi gures of the Republic GeneralComptroller.
Requirements for Building in Panama
Panama’s government welcomes foreign investorsand the construction sector is not an exception. Severalinternational construction companies such as Odebrecht,FCC, MCM and INGECONSER have opened divisionshere.
The construction sector contributed 7.9% to the GDP in 2014 and highest in Central America according to the Central American Integration System (SICA) report
The country has strict rules to build commercial andresidential projects here and at all stages Panamanianprofessionals must be employed to create topographicplans, master plans and environmental impact studies.Once the environmental impact study is approved by theNational Environmental Agency (ANAM for its initialsin Spanish), then it is presented to a municipal engineer of the district where the project is going to be developed.
The Housing Ministry (Ministerio de Vivienda(MIVI))approves the zoning of the project. Rural areas that do nothave specific zoning laws are not a problem. The pre-projectblueprints can be approved by MIVI and could takeapproximately six months depending on its complexity.The developers are required to meet with the neighborsnear the project, so they can present their complaints andobjections.
The Public Works Ministery (Ministerio de ObrasPúblicas (MOP) approves the construction of roads, drainages,sidewalks etc. Usually once the MIVI gives thegreen light to a development the MOP also concedes thepermits. All the blueprints for roads and drainage must bedone by a qualified engineer.
The taxes and fiscal matter related to property are collectedand supervised by the Ministry of Economy andFinance (Ministerio de Economía y Finanzas (MEF)). Itis necessary to hire an economist to prepare a study aboutthe estimated financial projections of the project’s cost.The study should be presented to the MEF, which willconcede an approval resolution. This process takes betweentwo and six weeks.
Ministry of Commerce and Industry (Ministerio deComercio e Industrias (MICI), supervises the commercialoperations and also grants commercial permits. Thedeveloping company must obtain a business license as areal estate developer. This process takes between four tosix weeks.
The local Fire Department reviews the architecturalblueprints (especially the electrical ones) and carries outa physical inspection of the area. Once it is determinedthat there is no fire hazard, they issue a resolution. Thecosts of the Firemen permits are included with the onesof the municipality.
More information about the requirements that mustbe complied to operate a construction company in Panamacan be found in the CAPAC page www.capac.org andwww.mici.gob.pa.
The Real Estate Boom continues
Panama has become a real estate hot spot in Latin America over the last decade. This activity is an important component of the Panamanian economy, because it develops, builds, promotes, finances, and commercializes real estate.
A report of the National Competitiveness (Centro Nacional de Competitividad (CNC)) found that in 2013 the real estate, rental and business activities generated $4.6 billion, representing 13.7% of the GDP.
According to the construction census, the biggest contribution with regards to build areas for 2013 was: single houses with 352,132 SQM, apartment buildings 202,017 SQM and public buildings 126,004 SQM, among others. This trend continued in the second quarter of 2014, where the built area for single houses and public building increased by 14.8% and 434.7% respectively.
The growth in this sector over the last few years is due to the increasing local and foreign demand for apartment, offices and single houses. The promotion and construction of residential and
Rental and business activities generated
13.7% of the GDP
commercial structures is an activity that attracts investments and at the same time generates employment, which improves the economic performance of the country. These, together with other sectors like tourism and commerce have promoted the development of the real estate activity.
Developers are betting heavily on the impact the Panama Canal expansion will have on the city and the region. They believe that the Canal will generate an increase demand for offices, because more than 400,000 SQM will be in construction by the end of 2016, causing an increase on the offer of 47%. The vacancy rate has reached 37.3%, which has diminished the income generated. However a report of JLL, an international real estate company, stated that the perspective for sustainable economic growth is promising.
Where to Invest?
The best opportunities for investment, especially for the small and medium size companies are outside Panama City, according to experts like Miguel Eduardo Magallón, a strategy and business advisor.
Places such as Coronado, Penonomé, Aguadulce, Chitré, Las Tablas, Santiago and David are growing steadily and need more facilities. The first options are David and Chitré, closely followed by Santiago, Penonomé and Coronado and Las Tablas and Aguadulce as the third options.
Buying Property in Panama
Before buying real estate in Panama it is important to know that there are three types of property in Panama: titled, possessory rights and concession. Each one of them has different set of procedures for their acquisition.
Titled property is very similar to that of “fee-simple” titles in the United States and Europe. The Public Registry has a cadastral department that oversees the registration of titled properties in all ten provinces of the country. Titled property is the most preferred type since it is easily verifiable in the Public Registry system. Normally, banks will give loans on titled properties, registering liens against the title as collateral on the loan.
The procedure to buy a titled property is simple: a Promise to Purchase Contract is drafted by a lawyer and a nominal amount is paid to the seller. A title search is carried out by your legal representative, in which he/she will verify at the Public Registry that the title is in fact in the name of the seller, and it is free and clear of encumbrances, liens, or other issues that could affect the free disposition or transfer of the title; (b) the cadastral survey map
Panama City has more than 70,000 SQM of construction for commercial properties
should be reviewed, and in some cases it is recommended to have a professional surveyor physically verify the maps points on the property, to avoid future boundary conflicts; (c) verification of utility debts (water and sewage, power, telephone, etc.).
A Buy-Sell contract is drafted by the lawyer and is registered at the Public Registry and the final balance is paid to the seller. Once this has been done, the title is transferred to the buyers’ name. In some cases, if the title is in a corporations’ name, and the seller agrees to sell the corporations’ shares, then there is no transfer of title, only a transfer of shares of the corporation.
Possession Rights Property is similar to “squatter’s rights”. It is government owned property that is “occupied” or “used” by a Panamanian individual (or Panamanian organization) over time. These rights are granted through very simple certification documents issued by either municipal mayors, sheriffs, or other government organizations such as the Land Management Land Authority (Autoridad Nacional de Administración de Tierras (ANATI)). Although this kind of property can be registered, it is a “Buyer Beware” situation.
The process to acquire is as follows: Promise to Purchase Contract which is the same as the one explained above for titled properties. Due Diligence that includes: the verification of Certification of Rights of Possession issued by the appropriate government’s office; verification of Survey: the survey should be stamped and signed by a professional licensed surveyor engineer, identifying the possessors’ name, location and reflecting the same information in accordance with the certification of possession rights. A physical inspection of the land by the surveyor, also make contact with the local authorities to verify that property can be used for the type of activities the buyer intends to pursue. A Buy-Sell contract the same as the one for titled land is drafted together with the rest of the money is paid to the seller. The possession right over the property is officially transferred to the buyer once the possession right certification is transferred to buyers’ name, which is done immediately after the buysell contract is signed by each party. If the corporation is selling the land the shares are transferred.
Concession property is similar to that of a land lease arrangement, as is common in Mexico or Hawaii, for example. It is government owned
The biggest contribution with regards to build areas for 2013 were single houses with 352,132 SQM
property, where the government has granted a concession to an individual or organization for a specific purpose, such as a real estate development, hotel, marina, or other purposes. Concessions in Panama are generally granted for a maximum of 20 years (renewable). Concession property is guaranteed by the government through a specific contractual agreement.
Sites of interest:
Green buildings in Panama
Sociedad Panameña de Ingenieros y Arquitectos:
Telephone: (507) 213-SPIA (7742)
Cámara Panameña de la Construcción
Telephone: (507) 265.2500
Ministerio de Vivienda
Telephone: (507) 579 9200
Ministerio de Comercio
Telephone: (507) 560-0600
Ministerio de Obras Públicas
Telephone: (507) 507 9400
Ministerio de Medio Ambiente
Telephone: (507= 500-0855
The perspectives for the Panamanian construction sector will continue to be positive. In 2015 a total of $5,675 billion in growth is forecast which represents an upturn of 11.3%.
The construction industry is in constant movement, infl uenced by factors such as the government’s investment in infrastructure and the increase of foreign and local investment.
The State contribution was confirmed by the Ministry of Economy and Finance reports for the current period, after the approval of the State General Budget which tops $19,571.5 billion. This propels the industry and its related activities to continue to be the most active sector in the Republic of Panama.