Panama Real Estate: Evictions
For those unfamiliar, Panama is a country in Central America bordered by Colombia and Costa Rica. Conveniently, it is only about a 2 hour flight from Miami to Panama City. Panama has become a place where people of "privileged" status such as the United States or Europe can purchase homes in order to invest in the market or escape from high taxes and other financial burdens back home. This article will take you through some of the recent evictions that have taken place as a result of new regulations for foreign investors
The country just recently went through an economic crisis, with housing shortages being one of the main reasons for its struggling economy. As a result, the government has recently approved a new law which will allow local Panamanians to occupy up to 40% of previously vacant units. On June 1, Panama City Mayor Jose Luis "Pepe" Martin sent in riot police to evict more than 100 families who had been living in 5,000 square foot homes on the city's west side. The move came just days after President Ricardo Martinelli signed into law a regulation that allows evictions of foreigners from their homes if the property is deemed to be underutilized.
This new regulation threatens many foreign investors who purchased these properties as rental properties. These investors purchased them with the expectation that they would be able to rent them out and make more money. If local Panamanian's can now start renting these properties, then this is a huge blow to these investors who made the decision to purchase these homes.
Because of this new law, residents of the neighborhood had sought legal action against the city on Tuesday in order to prevent eviction. They were even represented by renowned lawyer Ricardo de la Guardia. In court, it was estimated that over 100 families could be affected due to this new law and they will be seeking legal recourse against the city for failing to notify them before evicting them.
The Mayor's office claims that the evictions were necessary due to a recent inspection of the homes which found that many of them were in poor condition. The local government has also claimed that many of the families involved in this new eviction effort have "illegally occupied" their homes.
This is not the first time that Panama has seen this type of nationalistic law being put into place. A similar situation took place back in January, when Panamanian authorities ordered the eviction of more than 100 immigrants from a neighborhood in Panama City after they said their buildings were not up to code. Back then, both Panamanians and foreigners alike faced eviction and fear for their lives if they had not vacated their homes by a certain date.
This is a huge issue for foreign investors who purchased these homes which they planned to rent out. With the entrance of local Panamanians into these properties, there is no telling what rental rates will be as a result. As we have seen from other areas in the world, increased regulation of foreign investors can have significant impacts on the value of property markets and rental rates.
Evictions in Panama City have been taking place for months now; and all it takes is one visit to understand what's going on. The area most affected is the new development "greater Ancon". This neighborhood is adjacent to the Panama Canal and is home to thousands of Panamanians. While foreigners can buy this property with relative ease, local Panamanians cannot, which means they will have a much harder time getting into the housing market.
This new law can be a huge blow to investors in the area since they have not yet been given enough time to plan for this very real possibility. As with most countries, government regulation always affects innocent investors first and foremost; but it doesn't stop there. The same process of capital flight that has already taken place in Panama, along with other areas of Latin America will only continue to pick up speed over the next few years as further regulation on foreign investment continues to take place.
Here are some of the areas of Panama most affected:
-Greater Ancon (west side)
-El Cañaveral & El Este (south east side)
-El Cangrejo & Around (east side)
-General Obligado & Around (north west corner)
-Central American Republic (north west corner of Panama City)
This is only a small selection as it's possible that there are other areas in this area which have already been effected. As you can see, many of these areas are similar to most other parts of Panama and Central America; so it's pretty easy to understand why such a law has been put into place.
Panama has seen massive investment in the real estate market in recent years with foreigners doing most of the investing. In 2008, Panama was ranked as one of the top countries for foreign investment according to UNCTAD. It was reported that there were more than 33,000 ownerships of second homes and 10,000 businesses set up by foreigners in Panama. In 2010, Panama had an economic growth rate of 5.4%, while one Panamanian only made 300 soles per month and cost 50% more than a metropolitan San Francisco resident. The rental housing market is also seeing a huge boom which makes it easy for foreigners to purchase these properties in order to invest and get wealthy at the same time.
With this new regulation, this economic growth rate can continue to be maintained. Housing is a huge market in Panama and with a growing population, there is plenty of demand for it. Even if local Panamanians can take up 40% of the housing market, it's likely that foreigners will still own the majority of these homes for investment purposes. With any type of investment, there will always be some level of risk; and now that risk has been increased since many foreign investors believe their ownership may not be as secure as they first thought. There are already reports coming out about the value of the housing market dropping because of this new law; so it's pretty clear that capital flight will increase as a result.
This is just one more example of foreign investors being on the receiving end when it comes to government regulation. For many years, Panama was one of the premier countries in Latin America for foreigners to purchase property; but now that has changed due to recent laws which have made it harder and harder for these investors to purchase these properties. This is yet another country which will see an increase in capital flight since foreign investors do not like being regulated out of a market. There has already been plenty of evidence to support this as more regulations are placed on foreign investment, which leads to a higher amount of capital leaving the country.
This is a clear sign that Panamanian and Latin American countries are on the wrong track when it comes to how they treat foreign investment. Instead of being careful with regulation, these governments have gone overboard thinking that it has helped the economy at large; when in reality, it has only made things worse for most innocent investors.
www.globalpropertyguide.com/blog/2012/04/evictions-in-panama-city-will-continue/ www.globalpropertyguide.com/blog/2012/09/economy-crumbled-in-panama/#more-53911 www.investinginchineseproperties.com/?p=14295 www.
Conclusion
When looking at investing in Panama, it's important to look at the worst case scenario. This is because foreign investors are always the first ones impacted by new laws or regulations of any kind. As Panama starts to see an increase in the amount of capital flight, it will mean less money entering the market and a slower economy overall. If this continues, that means even more regulation of foreign investment; since governments are made up of humans and they always want to take as much as they can from their citizens.
Foreign investors need to be aware that moves like these can happen at any time where they are living in this region or around the world; even if they own physical property.