DEEP POCKETS

Panama 2016 | CONSTRUCTION & REAL ESTATE | FOCUS: KICK-STARTING PANAMA’S REIT INDUSTRY

Panama is hoping to open its small but dynamic commercial real estate industry to overseas investors, but the industry has been slow to take off.

In light of the dynamic, booming real estate industry, the government has realized the potential for a real estate investment trust (REIT) industry to attract foreign investment, increasing liquidity and reducing the concentration of property ownership, which currently lies in the hands of a few investors. The introduction of REITs is expected to minimize some of the real estate risk currently assumed by banks and allow non-real estate developers to participate in the real estate market. New guidelines, introduced in 2014 after two years in the making, require trusts to disclose almost every detail of their operations to give investors a clear picture of the risks they are assuming. The legislation places few restrictions on how much debt REITs can accumulate nor does it list a ceiling on the fees that investors can be charged.

Led by the Panamanian Chamber of Managers of Mutual Funds and Pension Funds, the new law was expected to bring Panama's first publicly traded REIT in 2015. The advantages of REITS over real estate investment funds include special fiscal benefits such as lower dividend taxation and capital gains tax exemption. REITs have become popular vehicles amongst real estate investors and capital market investors around the world, but a lack of awareness and familiarity with REITs in Panama perhaps explains why they have not taken off here. Scepticism and apprehension from property owners regarding publicly listing their properties might also explain this. It is unclear when Panama's REIT industry will really kick off. Despite the booming real estate industry, experts say it will be a few years before the REIT industry begins to attract international attention. The legislation is, however, a welcome start.