IL Postcard

No Changes to Panama's Preferential Mortgage Proposal…For Now

Date: 07/12/2007

Just weeks ago we reported on the Ley de Interés Preferencial, or "Preferential Interest Law" that allows real estate buyers in Panama to obtain very low mortgage interest rates. The law applies to new construction with a sales price of up to $62,500, on which buyers can obtain mortgage interest rates of just 2% to 3% (regular mortgage interest rates are currently 6.5% to 7.25%).

The Panama Ministry of Housing (MIVI) and Chamber of Construction (CAPAC), along with a specially designated MIVI commission, initiated a debate about the law and whether to raise the price threshold from $62,500 to $82,000. Unfortunately for potential buyers, the government announced recently that the law will remain unchanged.

Does this affect you as a potential expat? Probably not-typically, city residences built to qualify for preferential interest rates are in undesirable areas-places that are either far from the city center or in settings you'd find unattractive at the very least. And the few "Preferential Law" homes and apartments coming up in Panama City today are smaller and more cramped than their outer-city counterparts. I saw one listing in downtown Panama City-featuring apartments that are just 656.6 square feet. Unless you live in a studio in New York City, you're probably accustomed to far more room than that.

But this ruling is a crying shame for middle class Panamanians. In Panama, the construction industry has profited from building homes that meet the current price limit, but rising costs are making it difficult to find anything new within this range. Every day I hear about how construction materials and gasoline prices have skyrocketed. I'm sure it won't be long before constructions companies aren't able to offer anything decent for $62,500 or less…at least not outside of rural areas.

I'm not the only one who thinks this way, thankfully. Panama's Association of Real Estate Brokers (ACOBIR) is criticizing the government's decision. ACOBIR says the subsidy should be extended (the preferential interest legislation expires in 2008) and the price threshold increased so that middle- to lower-middle class Panamanians can continue to buy decent homes. Thanks in part to the Preferential Interest Law, Panama has a very high percentage of homeowners (compared to other countries in Central America), and for many reasons, this is a trend that should continue.

For now, however, the law remains in effect "as is" and local real estate organizations and developers continue to offer a limited variety of low-income housing projects that qualify. Between April 2007 and now I have read about only seven such projects in Panama City.

An article that appeared in El Panama America just days ago speculates that subsidies like this will soon disappear because international financial and lending institutions are leaning on Panama to do away with them.

We'll let you know if the lobbying of ACOBIR and/or other such groups results in an extension or adaptation of the Preferential Interest Law.

Best Regards,

Jessica Ramesch
Editor, Panama Insider
International Living

P.S. The Preferential Interest Law applies to any nationality. To qualify, you must meet the price requirement and the home must be new (and intended as your primary residence)-among other requirements and limitations. Learn more about real estate and local laws that may affect your Panama plans from our team of experts…join us this August 2-4 for our Live & Prosper in Panama Seminar. It's the seminar you won't want to miss-not if you are seriously considering moving or doing business in Panama.