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Real Estate Trusts in Panama: the New Frontier 

by Marielena García Maritano, Senior Vice-President of Investment Banking, MMG Bank Corp., a member of Morgan & Morgan Group

Published: May, 2015

Submission: June, 2015


Growth of the real estate industry in Panama is evident everywhere. Skyscrapers that could very well be found in large cities such as Singapore, Hong Kong or Miami, rise proud in former residential and colonial areas of Panama city. Panama’s architectural identity is driven by important local and international architects, and symbolic buildings such as the Biodiversity Museum and the F&F Tower, also known as ‘the Screw’. Shopping malls, hotels, ports, industrial parks, beach resorts and others, spring up in the midst of great activity.


At the end of 2014, the construction sector contributed 13% to the GDP, consisting of over 12,000 projects in progress. The credit portfolio for this sector was about $4 billion and the mortgage portfolio was $11 billion. These figures are highly significant to a $45 billion nominal GDP economy.


The banking sector, with over 45 general license banks, has always been the engine behind the real estate industry. The cash offer for the financing of both developments and long term mortgages is accessible at all levels. The housing deficit and incentives for social interest projects open the doors to new players who, little by little, expand the city east and west ward.


High leverage of the industry is supported by interest rates at historic minimums and a constant appreciation of the real estate value. An excessive offer in some areas and high non-occupancy in others is cause of concern for some who wonder what will happen when the long awaited increase in interest rates arrives.


The introduction of mechanisms to efficiently deleverage the industry and create capital mobility could mitigate this potential risk and at the same time, create opportunities to attract new investors.


Developed markets have an instrument, the REITs (Real Estate Investment Trusts). This vehicle is not only very popular among real estate investors but also among capital market investors. Just as a reference, in the United States, $900 billion in real estate assets are managed through REITs that, for over 20 years, have offered double digit returns to their investors.


Based on the American model, in the year 2010 Panama introduced a law providing some tax benefits for real estate trusts. The said instrument allows participation by small investors in a sector that until now was restricted to large developers. Since its creation, the special regime for Real Estate Trusts in Panama has undergone several amendments but it is not until 2014 that significant changes were introduced to the tax rate.



The advantages are clear. Real Estate Trusts registered under the special regimen that fulfill all provisions of the law are exempted from income tax payments and also, their shareholders are exempted from the capital gains tax. As if this weren’t enough, in the long term it also offers the potential to atomize the real estate portfolio risk and deleverage the industry.


Unlike other countries, Panama’s special regime on Real Estate Trusts allows a wide gamut of real estate investment, from land acquisition all the way to the development and leasing of immovable property. Although in Panama the traditional REIT segment, namely real estate leasing and rent is still relatively small, the introduction of Real Estate Funds will have a positive effect in the industry’s composition, liquidity and prices.


Institutional investors such as pension funds, insurance companies or foreign real estate funds eagerly await the opportunity to participate in Panama’s thriving real estate market and this market is getting ready to conquer the new frontier.








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