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Low Income Housing - Panama
The low socio economic class residential market
The Panamanian government grants these days subsidies up to 100% of a residence value (subject to its value, the income of the purchaser and according to the scales determined in the law) by subsidizing the interest on the mortgage (the purchasers pay a nominal interest between 0% to 3% yearly for a period of 30 years and the government pays the bank the difference between that rate and the market interest rate) for purchasers of apartments and houses in a value of up to USD 80,000$. This market is called the Low-Income Housing market.
The banks financing the purchase of such houses and apartments are for example: HSBC, GLOBAL BANK, BANVIVIENDA, BANCO GENERAL, CAJA DE AHORRO, MULTICREDIT BANK, BANESCO, CUSCATLAN and BANK CONTINENTAL.
In addition to the incentives given to the purchasers of the houses/apartments, also the developers of such projects are enjoying preferred finance thanks to the financing banks confidence in the success of such projects.
According to official publications in Panama, the Low Income market is in shortage (over demand) of over a hundred thousand units and the demand is growing faster than the supply, so even if the construction will be increased, it will not be enough to fulfill the existing shortage. The low income housing market is considered “suffering” from low supply and financing institutions see it as a very low risk market.
The banking system in Panama and the low socio economic class residential market in light of the world economic crises
The Panamanian banking sector is comprised of 90 banks with consolidated assets, as of January 2010, of USD 65 billion.
One of the strongest points of Panama as an international banking center that some refer to as ‘Switzerland of Latin America’, is its iron handed supervision that is based on the Basel committee for an effective banking supervision. In addition to the strong supervision, the banks in Panama have executed a conservative investment policy through the years and its exposure to the collapsing mortgage market in the US has been minimal (According to unofficial estimations the exposure has only been US$ 40 millions which the owners of the banks had to cover from their own equity). Thanks to this conservative investment policy, only 0.3 percent (three-tenths of one percent) of the assets at the government's development funds could be affected by the events of the recent financial crisis in the United States.
It should be emphasized that latest events in world economy and capital markets have created new difficulties for real estate developers in achieving finance for new projects and we assume that the finance conditions for this project will be less favorable than before, at least until the market stabilize again.
Nevertheless, we estimate that the low-income residential market has been affected less from the financial crises thanks to the following:
- The low income residential market suffers from over demand (this is an existing local market, unlike the high end residential market which is mainly designated for Americans, Venezuelans and other foreigners and less to the local market) and that is the reason the banks and the financing institutions see this market as low risk market, especially in times the banks are highly conservative in financing real estate projects.
- The banks have another incentive, which is the tax exemption they receive from the government while financing the mortgages for the purchasers – The subsidies the government grants to the purchasers are paid to the banks through tax credits.
- In addition, the slowdown in the high-end markets benefits the low-income market as labor is more available, materials (especially sand) are more accessible and the authorizations periods have shorten.
- The world crises also caused a decrease in construction cost as materials costs went down.