Panama focuses on residential and water links

Representing $5.1bn and 14% of the nation’s growing GDP, construction is a major component of Panama’s economy. From infrastructure to commercial and residential building, all subsectors have seen important advances in the past year. According to the Panama Construction Chamber (Cámara Panameña de la Construcción, CAPAC), the sector saw 14% growth in 2013-14 and is set to expand by 10% in 2014-15. In the first half of 2014, some 232 non-residential construction permits were issued with a total value of $582m. Interestingly, residential permits showed a similar value at $573m but with a much greater number – over 7000 – making the residential market one of the most dynamic subsectors in the country and the region.

The construction sector, which has long played a substantial role in Panama’s job offer, now employs about 197,000 people, or 11.8% of total employment, according to CAPAC. Recent sector developments, combined with broader economic growth and an expanding middle class, have caused a shift in construction projects, from high-rise office space to housing developments for the country’s growing urban population.


Panama used to have a simple 20-year property tax exemption on any improvement or new construction project, but in 2012 the law was adjusted to offer a 10-year exemption on commercial buildings, and a 15-year exemption on residential construction valued up to $100,000, shortening to 10 years for those in the $100,000-250,000 range and to five years for those worth more than $250,000.

Other incentives for the residential market include preferential loans. State-funded mortgages for homes under $40,000 can receive 0% interest for up to a 30-year term. Houses in the $40,000-80,000 range are entitled to a 4% reduction on interest, falling to 2% for those with a value of up to $120,000. With mortgage interest rates in Panama already low compared to other Latin American markets, running in the 5-7% range for residential projects, these reductions have been well received by homeowners and developers alike.


In the residential segment, the growth rate leapt from 8% in 2013 to 18% in 2014, according to the National Council of Housing Promoters (also known as Convivienda), which has a long history of significant participation in the sector. In 2013 alone the sector logged over $1bn in residential housing sales, of which 70% had been built by Convivienda participants. According to the council’s executive director, Elisa Suárez, the most dynamism can be found in the $40,000-120,000 range, as current material and land costs make it almost impossible to build housing for under $30,000. Statistics from 2013 published by Convivienda found that 88% of Panamanians had bought houses in the under-$120,000 range. According to the Department of Statistics and Census, the first half of 2014 saw unprecedented growth in the residential segment, with apartments up 27% and housing up 30% compared to the same period in 2013.

Social Housing

With the housing deficit sitting at 170,000 units, the government has drawn up a plan to reduce this by 70,000 in the next five years, bringing a host of opportunities for the construction sector. Of the $19.5bn in total public investment outlined in the Strategic Government Plan 2015-19 (Plan Estratégico de Gobierno, PEG 2015-19), some $1.45bn is aimed at addressing the housing deficit by building, remodelling and adding basic services to low-cost housing.

The government’s housing plan consists of two main programmes. The first, called Techos de Esperanza (Roofs of Hope), will combine with the resources of the Solidarity Housing Fund (Fondo Solidario de Viviendas, FSV) to provide 50,000 houses by addressing informal settlements and helping the people living in these to rebuild their homes, including basic services like sanitation and masonry. These efforts are supported by a $95m fund from the Ministry of Housing and Land Management. Land ownership would also be standardised and notarised – services to be financed by Banco Hipotecario Nacional and charged monthly, amounting to around $50 per household for 25-30 years.

The second programme, called Interés Social (Social Interest), is structured as a public-private partnership (PPP) whereby the government provides the land and private developers carry out construction. It is aimed at families whose monthly income is $1200 or less. A recent change in regulations at the end of 2014 upped the subsidies to address houses with a value of up to $50,000 and gives beneficiaries up to $10,000 in grants. The changes also increased the requirements for eligible construction projects from a floor size of 45 sq metres to 50, and raised the maximum land size to 160 sq metres. These PPP projects have seen great interest from developers, with the number of approved projects rising from 78 to more than 120 by the end of 2014. The FSV has also participated in this programme, with over $3m in benefits granted in 2014. For 2015, more than 2700 projects are being planned in provinces including Darién, Colón and Bocas del Toro.

The social strategies included in PEG 2015-19 have already been launched through a project called Colón Urban Renovation. Under this scheme, modelled on a concept used to redevelop the Panama City’s central “Casco Antiguo” (ancient quarter), more than 5000 houses in Colón have been condemned, and the government expects to invest some $410m to revamp the area. Total condemned houses in the country amount to more than 8000, with the largest concentrations in Colón and Panama City, and more than 340,000 inhabitants live in informal settlements, as estimated in the housing strategy of PEG 2015-19.

Housing Interest

Modifications in 2012 and 2013 to the Preferential Interest Law, which aims to reduce the housing deficit by subsidising interest rates, now define three ranges for housing interest reduction. The first is the under-$40,000 category, where the interests are fully covered by subsidies; the second, for properties worth $40,000-80,000, gives a reduction of up to 4%; and the third, for those worth $80,000-120,000 allows a 2% reduction. According to the Superintendency of Banks of Panama, the first half of 2014 saw a total outstanding mortgage balance of over $8.5bn, of which $3.2bn came from preferential interest mortgages. Considering the very competitive conditions for home financing in Panama, with rates of 5-7% and terms of up to 30 years, the subsidies further incentivise an already competitive market. Residential construction fairs and expos announced by CAPAC will include Expo Vivienda (Housing), Expo Hábitat (Living Spaces) and the regional Expo Chiriqui.

Commercial & Industrial

The Multi-national Company Headquarters Law 41 of 2007, later modified by Law 45 in 2012, grants special licences to firms wishing to set up operations in Panama. The benefits include favourable tax treatment, special migratory visas for employees and flexible labour regulations.

Many companies have thus set up multinational headquarters in Panama, including Caterpillar, Inelectra, Cemex and Halliburton. Such openings have had an impact on construction, creating a market of corporate centres both within and outside of Panama City. “Panama is already on the map,” William Herron, president of Panamericana de Avalúos, told OBG. “Its infrastructure, political stability, geographical location and mild weather have enticed many multinational corporations to move or open new offices in Panama.”

Some of the most important developments are in the special economic zones (SEZs), like Panama Pacífico, a 1400-ha megaproject that has been under way in stages since 2007, for a total investment of $430m as of the end of 2014. Other important projects include Parque Industrial de las Américas with 250 ha, and the recently announced eco-industrial park in the Herrara province, with a value of $30m. The planned SEZ at Zona Franca, aimed at agro-industrial, logistics and technology customers, would include a research centre and be completed in three phases.

Canal Expansion

The most talked-about construction work of all at present is doubtless the widening of the Panama Canal, a $5.3bn project due for completion by 2016 after $400m in remaining works are carried out. This mega-project will bring many other opportunities – the Panama Canal Authority has foreseen at least nine projects adjacent to the widening, including a liquefied natural gas terminal, a bunker storage facility, an energy generation plant (see Energy & Utilities chapter), the port of Corozal, a light-vehicle port and a logistics park (see Transport & Logistics chapter).

Water & Sanitation

The National Commission for Sustainable Development (Consejo Nacional de Desarrollo Sostenible, CONADES) is a key player in Panama’s infrastructure sector, having developed projects from landing strips and docks to highways, bridges and government buildings. Established in 2004 in Darien Province and later converted to a nationwide entity, the commission currently has a strong focus on water and sanitation, with many projects under way across the country, from door-to-door sanitation works aimed at converting latrines to WCs, to drinking water treatment, sewage collation and sewage treatment. Working jointly with the National Institute of Aqueducts and Sewers (Instituto de Acueductos and Alcantarillados Nacionales, IDAAN) and the Ministry of Health, CONADES is looking to achieve 100% potable water network coverage in the near future (see Energy & Utilities chapter). Today, the entire potable water system is publicly owned, except for the Laguna Alta Plant in La Chorrera, which has a private concession. Fast population growth and urbanisation may, however, require more private participation to accomplish this.


The story is very different in wastewater treatment, where the system mixes public and private participation. New large-scale residential housing developments – or barriadas, as they are commonly called – are required to install their own wastewater treatment plants (WWTPs) and to operate them for a three-year period. After that, the plants are supposed to be handed over to IDAAN, a process that has seen numerous challenges due to the fast-growing number of plants and limited operational capacity of IDAAN. In Panama City, the suburbs of La Chorrera and Arraijan alone have more than 100 WWTPs. The current development plan aims to join the two areas and build a unique WWTP in the Caimito River area to serve the suburbs and avoid current issues with under-maintained plants discharging under-treated wastewater.


CONADES has completed many important infrastructure works in the past year, and many more are to come. “Two out of the three most important construction works for the hydraulic ring in Panama City have been completed, and one is on the verge of being finalised,” Manuel Soriano, executive secretary of CONADES, told OBG. These works, carried out by three consortia, Constructora Norberto Odebrecht, Consorcio Meco, and Consorcio M2, aim at improving service quality and pressure systems for potable water in the higher-altitude areas of the city. The initial planned costs of the top three construction works – construction of a 15m-litre tank and the rehabilitation of two others at 39m and 8m litres, as well as installation of water pipelines and the relevant right-of-way pavements – were $33m, $90m and $200m, but their final budget was later adjusted upward for a total of $400m. “With these projects, drinking water has been brought to many areas that previously had no access, and have brought the Chilibre drinking water treatment plant to its full capacity,” Soriano said. “Any further network extension would imply a plant expansion.”

Panama City has also made many efforts to treat its wastewater. In a joint scheme by the city’s WWTP and a $2bn government project to clean up Panama Bay, 40% of the water that was previously directly discharged is now treated. Studies are being conducted to double that figure, and tenders for a further clean-up plan for west Panama Bay were under way as of April 2015.

Upcoming Projects

A number of contracts are opening up in the short term. “There will be a lot of opportunities in water-related projects in the coming years, since this area was previously neglected,” Soriano told OBG. Upcoming projects include the Renacimiento and Boquete Aqueducts, at $5m and $25m, respectively, and a new treatment plant for Isla Colón at $11m. As for general infrastructure, the Ministry of Economy and Finance’s $19bn investment plan for 2015-16 has already seen many projects tendered in 2015, including the first contract for a second metro line at $250m, the Urban Renovation Project for Colón at $110m, the third-stage sewer system for San Miguelito at $98m, two new university campuses for Panama University in Antenas and San Miguelito, also at $98m, the sewer system and WWTP at Changuinola at $40m, and the Bocas del Toro hospital at $24.5m.


Among the sector’s main challenges is the cost and time of obtaining permits, both of which have been rising. A thorough overhaul of regulations may be the key to solving this, and several initiatives to do so have been announced, though some industry players see progress in this issue as slow (see analysis).

Another challenge, especially in Panama City, is the rising cost of land. Some locations within city limits have unit costs as high as $2500 per sq metre, and land prices have a strong influence on the sale price of any development. The solution has in many cases been to develop in suburban areas. Yet Panama City’s geography is not well suited for this, surrounded as it is by oceans, natural reserves and the canal. Such constraints have only brought further obstacles, especially for projects aimed at social interest or low-income buyers.

In the residential segment, one issue with building new homes is availability of drinking water and wastewater treatment. Large new housing developments are required to include their own WWTPs, built and initially run by developers before being transferred to IDAAM after three years. This hand-over, however, has been somewhat troublesome: the public works company has found it difficult to take control of such facilities, in many cases leaving the operational expenses to be covered by the community, as Soriano told OBG.

Other problems are related to the creation and growth of commuter towns, such as the developments sprouting up east of Tocumen airport and west of the Americas Bridge. These suburban developments tend to have little or no industrial and economic activity aside from minor retail, leading to inefficiencies. Another hitch is the rush hour traffic these towns generate. Since many of them are rather new, they tend to lack an organised public transport system, leading to traffic jams and substandard transit flow (see Transport chapter).


At 14% of GDP, construction is the most important component of Panama’s economy after transport and logistics. The sector has seen profound growth in the past few decades and should continue to expand as long as its players maintain the capacity to respond to new demand. Infrastructure will remain key, but a shift in balance is coming whereby the majority of projects are likely be concerned with water-related issues for the next five years, especially after the completion of the canal expansion.

In the commercial segment, the high amount of competition in office real estate (see Real Estate chapter) may start to impact construction in the short term, driving investment interests to segments with higher demand, like residential, retail and industrial. The challenge of allocating available and up-coming office space may lead to price drops for office real estate, making further developments less viable. This, combined with the country’s recent success in becoming a value-added services location, may lead to a surge in the industrial segment. This shift is also creating the need for more spaces for storage and industrial processes.

In the retail sector, there has been an increase in demand for construction of new developments, especially those aimed at luxury sales. Such a tendency is likely to further impact retail construction, with more ultra-luxury malls like Soho or Megamall being developed in the coming years (see Retail chapter). The challenge here, as with office space, will most likely become a question of, “How much is too much?”

Finally, the surge in residential property has become very evident, especially for developments aimed at the middle- to low-income segment. Current economic conditions, combined with the government housing policy, points towards the continuation of this trend. If the public and private sectors can work together to address challenges like availability of utility services, cutting red tape and reducing the high costs of land ( including through subsidies and incentives) then, given the level of market demand, there will be many new opportunities for housing developers in the years to come.

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The Report: Panama 2015

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