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Thursday, January 31, 2008

Property tax exemption for 20 years, BUT ...

According to analyst Osvaldo Lau http://mensual.prensa.com/mensual/contenido/2007/12/23/hoy/negocios/1214905.html a new law has been approved by the Legislature to extend the number of projects with a 20-year property tax exemption.

To qualify for this exemption:
a) the BUILDING permit has been issued before July 1, 2009, AND
b) the REGISTRATION of improvements in the Public Registry is completed BEFORE December 31, 2011.

Since registration can take around 1 week, in practice the Occupation Permit would be from 1 week before, in order to comply with the deadline for registration.

There is no actual extension for new projects. The projects already allowed to be built before September 1, 2006, are given extra time to reach the Occupation Permit stage and enjoy the 20-year benefit. The law will only enter into force when signed by the President and published in the Official Gazette http://www.gacetaoficial.gob.pa As of now, Bill 386 "Whereby article 81 of Law 6 of 2005, article 27 of Law Decree 9 of 1987 and section G of article 2 of Law 63 of 1993 are reformed" has not been enacted.

The text of the bill can be downloaded in PDF files (Yahoo registration required):
http://groups.yahoo.com/group/Live_in_Panama/files/ProyectosdeLey/Bill386PropertyTax.pdf

Unlike the previous schdule of exemptions which had September 1, 2005, as threshold date for construction permits which would qualify for the 20-year exemption, Bill 386 has a confusing text which applies :
  • the normal 5-15 year exemption to residential improvements with building permits issued AFTER September 1, 2006,
  • the 20-year exemption when the building permit was issued before JULY 1, 2009.

What happens with homes with building permits dated between September 1, 2006 and June 30, 2009? Presumably they would be subject to a 20-year exemption only if they register the improvements by the 2011 cutoff date. If they miss the 2011 date, the normal 5-15 exemption applies.

Despite this extension, residential improvements have the normal limited exemptions of:
  • 15 years Up to US$ 100,000.00
  • 10 years From US$ 100,000.00 to US$ 250,000.00
  • 5 years Above US$ 250,000.00

Non-residential improvements keep exemptions of 10 years.

A caveat: These exemptions only apply to the value which the builder declares for the improvement, NOT to the full value which the buyer pays for the property. For example: if a builder underreports that a condo unit is worth US$70,000, but signs a bill of sale to transfer the unit for US$120,000, property tax would be applicable as follows:

- US$30,000 would be free of taxes because of the minimum threshold for property tax,
- US$40,000 would be free of tax for 15 years (or 20 if the builder registered the improvement before the 2010 deadline).
- US$50,000 would be subject to property tax from the date of the purchase because they are not part of the original value of the improvement.


So if you already purchased a property believing the 20-year tax exemption spiel from your friendly realtor or developer, get a statement ("estado de cuenta") from the nearest Ministry of Economy and Finance (MEF) for the "finca" where your unit is located. It is likely that the builder has not even notified MEF about the new owner, so you may have to show up with your title deed. Property tax statements are NOT sent by mail so outstanding taxes, interest and surcharges may be piling up as you read this post...

Extension to file appraisals

And what developers really like about the bill is that it extended the December 31, 2007 deadline to claim an alternative property tax rate to December 31, 2009. Property owners who file an update appraisal before that cut-off date are entitled to 40% savings in property tax, with a reduced rate of:
a. 0.70% over the property value above US$30,000.00 up to 50,000.00.
b. 0.90% over the property value between US$50,000.01 and US$75.000.00.
c. 1% over the property value US$75,000.00.

The cut-off date has been extended several times since the original 2006 deadline (See: June 30: Last day to file for property tax reductions). Since appraisers tend to list inflated values, this increases the assessed value with the government which is used to estimate the gain realized when the property is sold later.

The catch: The amended value cannot be increased by the Government for 5-years, which means that after that period, the Government will have a database of the properties which are likely to have increased values.

Monday, January 21, 2008

Trump Tower goes public

Some foreigners prefer to give out a check to some unknown developer who claims to own several miles of beachfront without conducting any due diligence but at the same time find the Panama Stock Exchange or BVP (Bolsa de Valores de Panama) to be too risky - go figure! The BVP lists Panama companies which have been around for decades, with the added benefit that they have to submit quarterly reports to the public and report material facts (even if founding majority shareholders dislike the added openness of being listed). This is the exception to the general rule of ice-cold secretive Panama corporations which have given bad fame to the country.
Unlike tourism and reforestation incentives which require to go through miles of red-tape to have their tax-free status approved, dividends and return from securities listed in the BVP are free of Panama tax.

Shares of holding companies of Pribanco, Banistmo, Continental, Cemento Panama and others were listed at prices around $20 for years and eventually their holders received tender offers for US$40 or more, which gave profits to those willing to hold on to their positions. Not much volatility to profit from, but at least gains are free from Panama taxes.
Now Newland International Properties, Corp. (Trump Ocean Club) (BVP: NEWL) has issued US$220m in 9.5% Secured Notes Due 2014 with BVP. Newland is controlled by Ocean Point Development Corp., a Panama-based holding company whose majority shareholder is investor Roger Khafif. Newland also has Bogota-based Arias Serna y Saravia SA, a Colombian real estate developer, and Espacios Urbanos SA as partners.
The prospectus and other relevant information for NEWL and other publicly-held companies in Panama can be downloaded from the Bolsa website.

NombreSector
Newland International Properties Corp.Bienes Raíces
Ver descripción de la empresa Ver información bursátil Ver hechos, noticias, informes de actualidad, otros

Fitch rated the notes as a BB+, pointing out that credit's strengths for this issuance include:

--Presales amounting to 65% of total expected units have already been recorded. Purchasers pay 30% of the sale price at signing with the remaining 70% due in full upon delivery of the unit.

--The development of Trump Ocean Club will be the singular focus of Newland and strict covenants are in place prohibiting dividends or cash releases to the developer. The incurrence of additional debt will also be limited. All cash collections and payments for operating expenses and construction, as well as debt service, will be highly regulated by the priority of payments waterfall clearly defined in the indenture.

--A portion of bond proceeds will serve to fund a construction escrow account sized to cover the remainder of all remaining construction costs. Draws from this Trustee controlled account can only occur after the independent engineer provides certification that all work has been completed according to plan and that costs are within budget. In addition, draws from the account must be backed by 125% in eligible receivables arising from the sale of units.

Development projects of this scope do contain various risks. Construction risk represents one of the main risks in addition to the liquidity concerns that could arise if sales velocity decreases. Sales at Trump Ocean Club also are correlated to global real estate markets. Proceeds from the $220,000,000 issuance will be used to fund a construction escrow account, fund a six-month debt service reserve account, and repay existing debt. Final maturity of the notes is seven years with a three and a half year interest only period and semiannual payments.

Fitch Rates Newland International Properties' (Trump Ocean Club) Senior Secured Notes 'BB'
Newland, Builder of Trump Panama Resort, to Offer Dollar Bonds By Guillermo Parra-Bernal
Issuer website
.


Registering property in Panama

The World Bank Doingbusiness site has surveys which examine the steps, time, and cost involved in registering property in Panama.

STANDARDIZED PROPERTY
Property Value: 244,500
City: Panama City

Registration Requirements:























































No:ProcedureTime to complete:Cost to complete:
1*Obtain a non-encumbrance certificate at the Public Registry Office2-3 days (simultaneous with procedure 2)$30
2*Obtain a certificate of good standing from the General Cadastral Office15 days (simultaneous with procedure 1)$5
3A lawyer prepares the sale agreement2 days$ 200 (lawyer’s fees)
4Payment of the Transfer and Capital Gains Taxes 2 days2% of property value transfer tax + 10% capital gains tax
5Notarization of the sale agreement and preparation of the public deed2 days$100
6The public deed is filed and recorded at the Public Registry Office under the name of the buyer7-10 days 0.25% of property price (registration fee) + $5 for filing + $10 for analyzing the document
7A copy of the recorded deed is filed at the Cadastral Office to record the new buyer and the new value for tax purposes 15 daysno cost








* Takes place simultaneously with another procedure.


Procedure 1.
Obtain a non-encumbrance certificate at the Public Registry Office
Time to complete:
2-3 days (simultaneous with procedure 2)
Cost to complete:
$30
Comment:
Parties
obtain a certificate of non-mortgage and non-litigation before starting
the transaction. This certificate is obtained at the Public Registry
Office.
Procedure 2.
Obtain a certificate of good standing from the General Cadastral Office
Time to complete:
15 days (simultaneous with procedure 1)
Cost to complete:
$5
Comment:
The
seller must obtain a certificate of good standing with the cadastral
value from the Treasury, which relates to the property tax to be paid
by owners. This certificate can be requested by any third party
interested, and must have the lot number and the page number (document
number), issued by the Public Registry Office. Note that land with a
value under $30,000 is property tax exempt. Property Tax may increase
as high as 2.10% annually based on the cadastral value.
Procedure 3.
A lawyer prepares the sale agreement
Time to complete:
2 days
Cost to complete:
$ 200 (lawyer’s fees)
Comment:
A
lawyer usually prepares the sale agreement (it can also be prepared by
a real estate broker). In any case, the sale agreement -called the
Minuta- needs to be stamped by a Panamanian lawyer prior to being
executed in a public deed. The sale agreement should mention that there
are no mortgages or limitations on the property. The documentation
shall include: Non-encumbrance certificate (obtained in Procedure 1)

Procedure 4.
Payment of the Transfer and Capital Gains Taxes
Time to complete:
2 days
Cost to complete:
2% of property value transfer tax + 10% capital gains tax
Comment:
Prior
to filing and recording the public deed at the Public Registry Office,
the Transfer Tax should be paid (if it’s not exempt by any particular
reason established by law) at the Ministry of Economics and Finance, by
the seller. Transfer tax: 2% of the price of the transaction or the
cadastral value, whichever is higher. There is no VAT in Panama for
transfers of property
As of 7/2006, at this time the seller must also pay 10% capital gains
tax, regardless of how long he has owned the property.
Procedure 5.
Notarization of the sale agreement and preparation of the public deed
Time to complete:
2 days
Cost to complete:
$100
Comment:
The
notary notarizes the sale agreement and prepares the public deed. All
transfers of property must be notarized or made into a public deed
before filing for recording at the Public Registry Office. The
documentation shall include: Sale agreement (prepared in Procedure 3)
Receipt of payment of the transfer tax (obtained in Procedure 4)
Certificate of good standing with the cadastre (obtained in Procedure
2)
Good standing certificate with water utility services (show that
payments are up to date)

Procedure 6.
The public deed is filed and recorded at the Public Registry Office under the name of the buyer
Time to complete:
7-10 days
Cost to complete:
0.25% of property price (registration fee) + $5 for filing + $10 for analyzing the document
Comment:
The
public deed is filed and recorded at the Public Registry Office under
the name of the buyer. The registration fee is paid at the National
Bank in favor of the Public Registry Office. The bank has a branch
inside the registry office. Since 1999, there has been an optional
expedited procedure in which one can obtain registration within 24
hours, at an additional cost of $250 though not many people choose it
because it is rather expensive.
The documentation shall include: the notarized public deed (obtained in
Procedure 5).
Procedure 7.
A copy of the recorded deed is filed at the Cadastral Office to record the new buyer and the new value for tax purposes
Time to complete:
15 days
Cost to complete:
no cost
Comment:
A
copy of the recorded deed should be filed at the Cadastral Office to
record the new buyer for tax purposes as the new person responsible for
the payment of the property tax. This should be an internal procedure
after Procedure 6, but in fact, the buyer needs to do it in person so
far. The buyer picks up the certificate of good standing with the new
name and value at the end of the 2 weeks.

Full text in http://www.doingbusiness.org

Sunday, January 20, 2008

Panama mortgages reach the $4.85 billion mark

Panama financial weekly Martes Financiero www.martesfinanciero.com

features a series of articles on real estate. Interesting numbers
tell us that:
* The first half of 2007 closed with $4.85 billion in mortgages, led
by Banco General ($0.98), Continental ($0.59, later acquired by
General), HSBC ($0.55), Banistmo (acquired by HSBC), and Banco
Nacional ($0.51).
* They are followed by Caja de Ahorros ($0.45), Scotiabank ($0.20),
BBVA ($0.18), Banvivienda ($0.17) and Credicorp ($0.09).
* Risk analysts point out that banks have increased their mortgage
exposure from 15 0/0 in 2003 to 21 0/0 in 2007.
* S&P analyst Angela Bala says that condo prices have reached very
high levels based on speculation from sale to foreigners, so Panama
banks face the risk of a "possible" mortgage crisis.
* These priced are not based on a local buyer who is unable to pay
$3000 per square meter.
* Despite the real estate boom, Panamanians face a housing shortage
of 160 thousand homes, down from 178 thousand in 2006.
* A square meter of Pacific beachfront costs $2,300.00.
* Investment by developers in Altos del Maria is of $20 million.
* Investment by developers in Malibu will be of $400 million for 1200
houses and 800 condos, with 80 o/o destined to the foreign market.
* In San Francisco, the price of a square meter of land ranges
between $800 and $1500, while in next-door Parque Lefevre they range
between $200 and $900. Middle-class Pueblo Nuevo has parcels between
$80 and $120 a square meter.
* The 2004 Panama Structure Regulations increased the anti-seismic
features - along with the cost - of high-rises.
* Monthly salaries of construction workers range from 2 times the
$300 minimum wage to $1200.
* Inmobiliaria San Felipe has 83 shareholders and has restored 50
apartments and 13 commercial spaces in Casco Viejo, for $6 million since 1995.
* Inmobiliaria San Felipe has 30 proyects in the pipeline and is
planning its IPO.
* The price of the square meter of land in Casco Viejo has increased
from $1000 to $2400, due to the demand from foreigners.
* Foreign competitors entering the market are Shyreen Deer Company
under Kurt Kisto with a $30 million investment in units of $50K and
Adsum Group with an $18 million office building sold at $2,200-2,600/
square meter.
* Only properties with occupation permits registered before August
31, 2007, qualify for 20 year property tax exemptions. Others have
lower tax holidays of 15 years or less.

The full text is available in

http://www.martesfinanciero.com/history/2007/09/04/index.shtml

Wednesday, January 16, 2008

Requirements for the Solvency Visa

Before buying that expensive real estate hoping to get a Self-Solvency visa, the foreigner must comply with one of the following options:

1) a time deposit account, in his name, with a minimum of two years extendible time deposit in a local bank and a minimum amount of Two Hundred Thousand American dollars (US$200,000.00). This time deposit must be mortgage free. The fulfilment of this requirement must be verified by means of a letter issued by the bank where the time deposit is registered, and the time deposit number must be certified; also the time period of the deposit must be specified. Additional to the above, an authenticated copy of the time deposit certificate or agreement by the bank, must be attached or

2). The ownership, within the national territory of a mortgage free real state property in the amount of Two Hundred thousands (B/200,000.00), or

3). The ownership, within the national territory, of a real state property in the amount of Eight Thousand Dollars (B/80,000.00), plus a two year time deposit in a local bank, with the minimum amount of One Hundred Twenty Thousands (B/120.000.00). This will be proved by the means of a Public Register Certification of the property in behalf of the petitioner and a letter issued by the bank where the time deposit is stating that it is pledge free, the time deposit number, and length of time. Additional to an authenticated copy of the time deposit, a certificate or agreement by the bank must be attached.

Owning a property through a corporation, private foundation or other entity - or buying any property with a mortgage - does not qualify for a Self-Solvency Visa.

This is the official list of requirements, as posted in http://www.migracion.gob.pa/eng/service_popup.php?id=3 on January 15, 2008:

Immigrant Visa and Residence Permit due to Personal Economic Solvency








To grant an Immigrant Visa and Residence Permit due to Personal Economic Solvency for a foreigner or family group that wants to immigrate. CODE: VISEP.

This immigrant’s visa and the corresponding resident permit can be requested by a family group that wants to immigrate all together and establish their permanent residence at the Republic of Panama. The family group must prove that they have, and bring along with them into the country, the proper economic means to support the family expenses such as housing, food, education, health, transportation and so on. This visa can only be requested by a family composed by: a) a couple (formally married and with a marriage registered in the Republic of Panama). b) The parents of the principal requester. c) Under age children; d) Single children over 18 years old but under 25 years, regular students attending high school or university studies can’t apply to this visa, brothers or sisters, over legal age married children, nor brother or sister in law or cousins.

Important: If any of the members of the family group is going to arrive to Panama afterwards, then this individual has to do it after the request of immigrant’s visa was granted to the family. In this case, the person must request an Immigrant visa as a dependent of a family resident.

Processing time frame: 2 to 4 months

REQUIREMENTS:

Foreigner
The costs of the carnets will be paid by the interested party as well as the B/10.00 fiscal stamp for those foreign citizens that require a visa.

Power of attorney and request by means of a lawyer: The Power of Attorney must be presented before a Public Notary or personally before the Directorate of Migration and Naturalization by the visa’s applicant (if it is only one person) or by all the components of the family group over 18 years old (head of family and dependents). This must show the complete general information of the interested parties, including full name and parent’s nationality. In addition, the petitioner must specify all the general information of the lawyer of the applicant and dependents, including office’s address, domicile at the Republic of Panama, telephone numbers and e-mail. Also the complete information of the attached checks must be given (check number, drawing bank’s name, date and amount), list and enumerate the attached documents and quote the facts and legal fundaments that sustain the request. The power of attorney, as well as the request must be stamped or sealed with B/. 4.00 per page. ]

Certified or cashier’s check in the amount of B/ 100.00 in favour of the National Treasury.

Certified or cashier’s check in the amount of B/. 500.00 in favour of the “Ministerio de Gobierno y Justicia” (Ministry of Government and Justice) as a repatriation’s deposit [applicable to persons older than 12 years]

Good Health Medical Certificate [: issued within the three (3) months prior to the presentation date (it must have date, signature and seal with the doctor name, including the code and register number of the physician.]

Penal history and police record issued by the previous country or residence country within the last two years, ( if the interested party has been in Panama for the last two or more years on a consecutive time, this document will not be necessary).

Passport of the country of origin [... with a minimum of six months validity time]

Complete copy of the passport [.of all the applicants]

Two (2) Carnet size photo [...of every one pertaining to the family group dated (no hats or veils and front face and up dated]

Relationship’s evidence [.Marriage certificate and /or Birth Certificate of every children to whom the visa is requested, according to the case]

Letter of responsibility from the married couple: [... or the spouse that claims to be the head of the family and income provider, which will allow the members of the family to support their basic needs such as a home, food, education, transportation, health expenses and so on. ]

Visa Request: [... To apply for this visa, the foreigner must comply with one of the following options: 1. a time deposit account, in his name, with a minimum of two years extendible time deposit in a local bank and a minimum amount of Two Hundred Thousands American dollars (US$200,000.00). This time deposit must be mortgage free. The fulfilment of this requirement must be verified by means of a letter issued by the bank where the time deposit is registered, and the time deposit number must be certified; also the time period of the deposit must be specified. Additional to the above, an authenticated copy of the time deposit certificate or agreement by the bank, must be attached or 2). The ownership, within the national territory of a mortgage free real state property in the amount of Two Hundred thousands (B/200,000.00), or 3). The ownership, within the national territory, of a real state property in the amount of Eight Thousand Dollars (B/80,000.00), plus a two year time deposit in a local bank, with the minimum amount of One Hundred Twenty Thousands (B/120.000.00). This will be proved by the means of a Public Register Certification of the property in behalf of the petitioner and a letter issued by the bank where the time deposit is stating that it is mortgage free, the time deposit number, and length of time. Additional to an authenticated copy of the time deposit, a certificate or agreement by the bank must be attached.]

Provide proof of the amount and source of income that will support the petitioner’s general expenses and of his dependent(s).

Legal Base:
Article 1, paragraph 6, articles 24, 25, and 26 of the Law Decree No.16 of 30 of June of 1960, and Executive Decree No.52 of February 19 of 2003.

Monday, January 14, 2008

Panama City Office Market View


CBRE Panama has an interesting report on the office building market with numbers from the 2006 market:

Panama has experienced a strong recovery and real estate market activity has rebounded in 2006.

Although a significant volume of new Class A buildings were delivery to the market in the first quarter of 2006, lease rates and sales prices have remained relatively stable and are expected to increase once the available space is absorbed.

Construction activity remains strong in the residential market, but has slowed the price in commercial spaces. Panama is steadily positioning itself as a top second home or retirement haven for foreigners within the region. The positive result of a nationwide referendum about the ambitious Panama Canal expansion project has attracted the attention of international companies for related business and offshore relocations.

Furthermore, economic growth projections accounting this project are 2% higher than former estimates.

The Class A office buildings that have been delivered on the first semester, doubling the existing stock have been relatively fast absorbed.

At present, there are few buildings in construction, and in planning stage.

Although inflation and oil prices increased since last year, the Panamanian economy grew of 6.5%.

Panama maintains the best performance of Central America in Foreign Direct Investment (FDI) for the fifth consecutive year, and figures among the top 10 recipients in Latin America.

The overall economic growth in fueled by and increase in tourism, exports of non-traditional products, Free Trade Zone at Colon, and the Panama Canal project expectations.

The construction of the Port of Farfan and the reopening of the former military airport of Howard, both located in the Panama Pacific logistics zone at the west of the city are starting. Dell and other tenants already out of this area, and Singapore Technologies Aerospace is establishing an aircraft maintenance facility. Call center activity, plenty of fiscal incentives, is also strong, and now complemented by back office facilities coming offshore.

Given the current stable political and economic conditions, prospects for Panama�s office market remain positive.

Things may have changed in 2007 but the outlook remains positive. The full text of the report can be downloaded from http://www.cbre.com.pa/PDFs/Panama3q06Ofc-Eng.pdf