Panamanian law gets you financing at 2% to 3% interest rates until 2008, or later ...

Banks granting residential mortgages for new residences below US$62,500 receive a negotiable tax credit equivalent to interest reduced in 2 to 4 points below the prevailing rate (see http://lawyerfuture.blogspot.com/2006/10/buying-your-real-estate-in-panama.html).

This has made financing the construction of houses an attractive business for banks, who after earning the tax credit can assign or transfer it to another company which has to pay a lot of taxes, but at a discount. The benefit stems from a little-known Panamanian law that gets you financing at 2% to 3% interest rates. The law expires this year 2008. http://mensual.prensa.com/mensual/contenido/2005/01/09/hoy/negocios/102717.html

For the buyer, this translates into having to repay a mortage loan at interest rates 3.2% to 4% less than what the government considers as the "Reference Rate", under Law 65 of October 29, 2003 , as long as the home is the main residence of the borrower and its purchase value does not exceed US$62,500.

What is more, if the home has a purchase value below US$16,000, the final interest rate to the borrower can be of 2%. http://www.martesfinanciero.com/history/2005/07/19/columnas/nacional_3.html

For example, the government Superintendencia sets the Reference Rate (TRM) at 8.25% http://www.pa-digital.com.pa/archive/11122003/finance01_slim.html A bank would get a 4% credit rate for financing the purchase ofa US$62,000 home, so the borrower would repay at a 4.25% rate. For a US$24,000 home, the bank gets a 5% credit, so the borower gets a 3.25% rate loan.

With the current TRM at 6.5% under Memo CFL 3-85 2-2008 you can use this formula to calculate the final loan rate:

TRM - Bank Tax Credit points = Final Loan Rate


This means that the law does NOT provide benefits if:
1) The home was purchased for more than US$62,500 (this may get you a 700 sq. foot apartment or studio in the banking area, or a 2 bedroom house in a working-class commuter town),
2) The borrower expects to buy the property under a corporation,
3) The borrower already has more than 1 home under his/her own name.
4) The borrower is a foreigner buying a home to apply for a Solvency Visa (which requires an US$80,000 home)

Developers are recommending to increase the cap for benefits to homes up to US$85,000, since the US$62,500 limit was set under the first preferential interest rate law 3 of 1985. This benefit is regularly renewed thanks to the construction lobby, although many developers and real estate agent are expected to push buyers into signing the dotted line with the story that interest rates will go up.

If anybody misses the 2008 deadline, it is a good thing to know that the 5-year laws have been renewed like clockwork under Laws 3/85, 11/90, 5/94, 28/95, 30/99, 50/99 and 65/2003.

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

Panama mortgage loans for foreigners

One of the many questions we receive is what are the requirements for a mortgage loan. Each bank has their own list of requirements and not all cater to expats arriving to Panama. All banks ask that a bank account be opened with them as additional collateral, which in turns means that a new customer must provide all due diligence and know your customer documents.

We received this list from Credicorp Bank which responded to our survey:

A. Source of Funds Identification

This process is necessary to identify the source of funds and also to measure the large of the account. Basic documents are as follow:

1.Personal Accounts

• Personal accounting balances

• Personal Income Tax Declaration

• Last two month personal bank account statement.

2.Corporation Accounts.

• Copy of the Registration of the Corporation

• Balance Statement of the corporation. Must be stamped/duly signed by an Authorized Accountant.

• Last two month personal bank account statement.

B. References.

1.Personal Accounts

• Personal Bank References

• Personal Credit Office References (from a credit bureau office).

2.Corporation Accounts.

• Corporation Bank References.

• Commercial References of a Service Provider or important client.

• Corporation Credit Office References (from a credit bureau office).

C.Copies and Other Documents.

1.Personal Accounts

• Passport copy (copied in the bank premises.)

• Driver License (copied in the bank premises)

• Copy of a utility bill.

• Fill out of internal account opening forms.

2.Corporation Accounts.

• Copy of a utility bill.

• Copy of product brochures, annual corporation book or any other important document related to the operations of the corporation.

• Fill out of internal account opening forms.

D. Mortgage Loans.

1.Basic Documentation

• Draft of Sale Contract.

• Fill out internal forms.

• Most recently-made appraisal (if required)

• Copy of the Title (if required)

• Opening of Bank Account (information above).

2.Basic Parameters (subject to negotiate)

• Competitive Interest Rates

• Term up to 30 yrs for personal and 15 yrs for commercial

• Loan amount up to 70.0% of property value.

• Life insurance of debtor for total amount of loan endorsed to the bank.

• Fire Insurance for 80.0% of construction value per appraisal submitted endorsed to the bank.

• 1.0% of FECI tax (if applicable)

• Up to 1.0% of commission based on loan amount.

Their website has a handy online mortage calculator.
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