Panama Investor Blog

Ministers to hold Law 71 forum on 29th

Public service announcement from the U.S. Embassy:
 
Have you had problems with your right of possession, land titling, or CATASTRO?  Do you want to influence the process how you buy rights of possession and title land in Panama?  Now is the time for your voice to be heard by the Government of Panama!

The Government of Panama wants to provide you information and receive feedback from you on Proposed Law 71 ? Possessory Rights and Land Titling in Coastal Lands and Islands.  All expatriates including Americans are invited on Thursday, October 29 from 9 to 12 a.m. in the Salon Bolivar of the Hotel Continental to listen to the following Government officials:
 Minister of Economy and Finance, Alberto Vallarino
 Vice-Minister of Economy and Finance, Dulcidio de la Guardia
 A representative from Catastro

The U.S. Embassy in Panama encourages you to take advantage of this important opportunity to influence legislation that affects your property rights in Panama.

Indians on war path in Bocas Del Toro

This story and photo have appeared in all the local papers today and is indicative of the challenges the government needs to deal with regarding law 71 now winding its way through the assembly. Here we have a group of indigenous claiming they have lived on a property that someone else is laying claim too. In some cases unscrupulous individuals try to usurp property inhabited by families for years and in other cases the indigenous are hired squatters sent in to make the claim and the unwary property owner is left facing machetes and corrupt officials. Who knows?

From El Siglo; HORACIO Trottman
  htrotman@elsiglo.com

  Ngabe fear being evicted in El Empalme

90 families residing in the community of Bamboo, located in the village of El Empalme, Bocas del Toro, could be on the street because the alleged owners of the land have appeared where they are settled decades ago.

  This situation caused tempers flared and the Ngabe arm themselves with sticks and machetes in front of a campfire, where they promised to defend the land, where some of the more than 300 people who live in Bamboo have lived for more than 30.

  Rogelio Abrego, one of the leaders of the community of Bamboo, said they are willing to do anything to continue to inhabit this land.

While Rodriguez Victorian painted war as their ancestors revealed, that the alleged owners for their safety should not appear on the site where is located the community of Bamboo, as they would be tied up and tried to style their ethnicity.

  They are watching carefully because they think that any time the authorities arrive to evict them.

  This conflict has led the Indians in the field of Bamboo to place sentries armed with machetes, all along the road.

Simon Becker, Governor of Bocas del Toro, said he spoke with the mayor of Changuinola and to initiate an investigation to determine the status of these lands.

  "There followed a process and calm must prevail," said Becker.

Proposed law for beach and island land may cause many to lose their investments

The confusion over "right of possession" land and the attempt to settle it have been going on ever since the land boom started in Panama back in 2005. I have posted numerous articles about it and here is the latest.

Although this newly proposed law 71 has not yet been enacted, it has sure raised a ruckus again among both the foreigners and Panamanians who have purchased "right of possession" (ROP) land from the original or subsequent land holders. I have had a number of frantic calls and emails from folks in this position asking me for help. Fortunately, I don't have a dog in this hunt as I have never purchased ROP land. In fact I have advised anyone who would listen over the last 12 years or so not to buy ROP land. The reason is simple. It means what it says, which is the right to possess, not to own.  The government owns the land and is allowing the use of it. I fully understand that property rights are the foundation of democratic civilization, but ROP is not the same as ownership.

The fact that the original land holder has the right to transfer the property even though he did not own it, has caused a lot of the problems and confusion that the new government is attempting to sort out. In addition, Pronat, a government agency, had been advertising on large billboards throughout the country to "title your ROP land, it is your right" under a new law (law 23) that the previous administration had enacted. I don't know how much ROP land was actually titled during that campaign, but there was a significant drive to get it done. I was very skeptical of this action at the time believing the government was doing this in order to be able to tax the property. As it stands, the government can't collect property taxes on land it owns (ROP), only on privately held titled land.

But, I may have been wrong about the motivation for pushing to get property titled. I had heard numerous rumors that members of the last administration had purchased large ROP properties on the Caribbean coast and the push to get properties titled may have been a smokescreen in order to get so many ROP titled that no one would be wise to it. Even so you can bet those "special" properties were the first to receive title under law 23. This is just speculation on my part, but it was very curious seeing the government trying to help people to title land that had been in their use for generations.

I certainly sympathize with the many folks who in good faith have purchased ROP land in the hopes of later being able to get it titled. I heard and read of many accounts of attorneys and real estate agents telling people that ROP was just as good as titled land and they need not worry. Well, it is time to worry because if this new law is approved by the National Assembly in the coming weeks as is, most ROP holders will lose their entire investment.

Eric Jackson of The Panama News did a great write up on the details of the proposed law and its current status along with his opinion of what is motivating the administration at this point. I know many of my readers are ROP holders, so you should get informed and help with the growing crusade to protect your investment before it is too late.

This posting is about all the help I can lend.

Martinelli wants to "clean up the courts"

An article both praising and criticizing the presidents first 100 days in office highlighted his decision to clean up the judiciary. Anyone who has had the misfortune of dealing with the court system here in Panama can attest to the dire need for a complete change in that way the system is operating. The current archaic system of civil law vs common law  is extremely slow, non transparent, inefficient and promotes corruption among the judges. Here is a link to the English version of his first 100 days and here are the pertinent quotes regarding the cleaning of the courts.

"Another issue that is a focus of Martinelli is the justice system. The minister of the Presidency revealed that the president is exploring ways to see how he can clean the courts.

"He wants to start new, with new justices and a new judicial system," the minister said.

Vice Minister of the Presidency Maria Fabrega said that "the judiciary lacks true integration that would allowing all the components to work for a common objective."

But it is unlikely that any substantial changes would be able to be made without changing the Constitution or holding a referendum."

Tales of woe regarding property rights in Central America

Of all the challenges facing investment in Central America that can end an investors dream, it is those regarding property rights. God forbid you get in a legal dispute that requires years of waiting, because in the end you will probably lose. As investors coming from more sophisticated societies we wrongly believe that property rights will be protected by the state, especially when we are bringing economic prosperity to an otherwise impoverished area. The truth is that you are only as secure in your own ability to deal with the pirates who may prey upon you.

I have first hand experience here in Panama and it has cost me a lot. If at all possible you need to try and settle with whoever is causing you the problem, the sooner the better. My advice, don't let your ego, ideals or sense of fair play enter into it. That will only cost you time and money. The stories related in this article and accompanying comments about Costa Rica could apply here in Panama as well.

To be clear, I have not heard of problems with clearly titled property in developments or high rise towers. The problems usually arise from plots of land in the interior or where a unsuspecting buyer becomes a target of sophisticated crooks who know how to manipulate the system. Its called corruption.

Excerpts from Forbes:

Costa Rica is a retirement heaven--unless some squatters steal your land

The check from Banco de Costa Rica for $157,202 cleared in August. But after 12 years of legal wrangling it wasn't much consolation to H. Craig Carter and a small group of investors from Utah, who had hoped to turn their 180 acres in this Central American Shangri-la into luxury condos. In 1993 the group paid $50,000 for the dirt in hopes of spending another $12 million to develop Rincón Golf & Country Club Community. "They're not giving us a fair price on the land we own," insists Carter, 78, who with his associates has spent an additional $200,000 on travel and court fees. Based on the rise of property values in Costa Rica's Guanacaste Province, he argues the plot is worth $4 million and is hoping for additional compensation.

Read the rest of the story....

Special incentives for tourism investment in Darian

This new law has been banging around the assembly for several months now and the third reading and approval means it will go into law after signed by the president. This is very similar to law 8 for special zones like Boquete that are still in existence. Here is a machine translation from La Prensa;

Roberto Gonzalez Jimenez
rgjimenez@prensa.com rgjimenez@prensa.com

  The National Assembly approved on third reading the Law of Development and Promotion of Tourism Development in the eastern region of the province of Panama and throughout the province of Darien.

The law encourages investment in these regions, through tax exemptions.

To enter into force only need to be approved by President of the Republic.

Since the construction of hotels, resorts, restaurants, to bird watching centers, through the construction and operation of port and maritime infrastructure or the creation of small and medium enterprises will be exempt from paying income tax, corporation , transfer of movable and immovable, and imports and the tasks, duties and fees for the preparation of plans, surveys, studies and consultancy, among others.

The law provides exemptions for a period of 20 years.

The company has a period of 12 months to begin construction of the project.  That period may be extended only for another six months.

  Infrastructure

The promoter of the law, the deputy Hernán Delgado, said the law aims to reduce the serious problem of unemployment and asked the authorities with a stake in the region and make the necessary investments in infrastructure like bridges, roads and electrification.

Delgado said that despite its problems, the regions have a high potential and are rich in natural resources.

Jaime Campuzano, President of the Chamber of Tourism of Panama, welcomed the initiative of promoting investment, especially "if it is in places that need more development."

He also warned of the need to make policies according to the guidelines of the Tourism Master Plan and the Tourism Authority of Panama is a participant to that "development is given in a sustained and coordinated."

Setback for transparency in Panama National Assembly

I am a bit concerned by an article in La Prensa this morning where the National Assembly has mandated that certain information should be kept from the public. Anytime public officials think their employers should not be made aware of certain aspects of their work it infuriates me. These are all paid public officials who work for the tax payer. They don't handle issues of national defense so there should be nothing that is not made public IMO.

From La Prensa: The National Assembly gave him a stunning blow to the Transparency Law.

Yesterday issued a resolution in the Official Gazette, where they declare restricted a range of information considered of interest to citizens.

Among these documents include, for example, modifications made to draft legislation, instructions or recommendations given by the coordinators of banking to its members in connection with the discussion of a legislative matter, and records of complaints and proceedings against the judges of the Supreme Court and the President of the Republic, that from now on will not be publicly accessible.

Juan Antonio Tejada, a former ombudsman and one of the proponents of the Transparency Law, believes that this resolution could well be placed in a context of illegality. "There are at least five aspects of [the resolution] that are not covered by the Law of Transparency and restricted access," he said.

The National Assembly based its decision on the grounds that by its function generates, receives and processes a large amount of information constrained by their institutional nature.

To date, the Legislature is in arrears with the promise of Prime Minister Jose Luis Varela to make reforms to its rules to cut privileges to which Members are entitled.

Condo rental opinion letter

The matter of short term rental of apartments is a hot topic  right now as the new head of Tourism has come out opposed to it. Backed by hoteliers and tax collectors it seemed as though the issue was decided. But there are many voices who are directly affected, especially buyers of the many condo's being built in the city and companies who have set up shop to manage the rentals and they are crying foul. I don't believe their voices are going to be the persuading factor as much as economics. Pressure will continue to mount as more and more apartments come on line are are not sold. If short term apartment rentals can help with sales, you bet the developers, many of whom are members of the hotel associations, will backtrack and support a measure to allow it, and government will go along as long as taxes are collected.

Opinion letter from the CEO of Select small hotels.

As a tourism professional I can’t understand the recent actions by the ATP with regards to such an important segment of the tourism industry like short term rentals.  In every important tourist destination this type of accommodation is an integral part of the touristic offer.

The reasons presented in Resolution No. 52/09 aren’t credible, for example; “for non-compliance with the legal, sanitary and security logistics and prerequisites” just isn’t true for the majority of the properties available for rent, they are more sanitary and safer than many hotels operating in this or any other country; “(for) the protection of the development of the national tourism industry” also doesn’t make sense – this segment, as mentioned above, is an integral part and extremely important to the national tourism industry, hotels are not the only places people want to stay and we need to offer a wide variety and options in order to grew as an international destination; “Advertise to the tourists that are staying in this type of accommodation that these places don’t have the correct measures for control and security”, how is it possible to publish something so prejudicial to the image of the tourism industry in general, and besides, it’s not true for the majority of these properties.

I agree that it is necessary to put regulations in place, but regulations that make sense. I agree that the government needs to collect the pertinent taxes but in a manner that is fair to all.

I hope that in contrast to previous administrations that the ATP, as the leaders in the promotion of tourism in Panama, involves all segments of the industry in dialog before making unilateral decisions that affect us all.

Hotel occupancy drop blamed on "illegal hotels"

Contradicting a previous post from last week, the comptroller general this week says that the hotel occupancy rates dropped 8.9% in the first six months of the year and 21% in the month of June alone. The average occupancy rate was 51.2% in June and the first half, from 59.6%. The daily average overnight stays also is lower than last year.

The result reflects the negative trend in the number of tourists who stayed overnight in the country, which fell 12.8% in June and 2.7% in the semester.

According to Jorge Loaiza, President of the hotel association of Panama, much of the decline can be attributed to the short term rentals of apartments by management companies, which is illegal according to Panama law. Apartments built and sold as condo/hotels fall into a different category which allows them to be rented on a short term basis.

With over 16000 hotel rooms in the city, I doubt that a few hundred apartments could play such a significant roll in the occupancy rate downturn. It does give the hoteliers ammunition to make an issue of it.

Many investors bought apartments in the city with the plan to flip them but when resale of apartments came to a standstill, many were forced to either walk away from their deposit or finish the purchase and rent them out on a short term basis because of the difficulty in getting hotel rooms in high season. Many real estate sales people promoted this idea, even though there is no provision in Panamanian law to allow short term rental of apartments. Apartment management companies now find themselves in a difficult position as the hotel industry has made an issue of this and demand that the government stop the activity. The tourism authority sides with the hoteliers because their is no provision in the law for collection of a 10% tourism tax on apartments. Compounding this problem is the fact that many of the owners of the larger hotels in the country,  are also developers of many of the high rise apartments that are now sitting empty.

Most countries allow for short term apartment rentals, if it is not prohibited by the homeowners association, and they charge a tax on them. After all, these are private property and one would think an owner should be able to do as he wishes with it. If Panama is to see further sales of the many apartments coming on the market, it may need to adjust the law to provide for this service. 

New resolution will cost every small business in Panama at least $500

A new regulation was pointed out to me by one of my readers and I asked our legal firm for a little clarification. Apparently all licensed businesses will be required to comply with this new regulation by September 11th 2009 and for most it will require an "expert" in order to comply. I understand the need to protect the employees, but any additional costs that are imposed on small business will only impede their starting and growth.

Here is the short email from the reader and a response from my attorney.

Good afternoon Sam,
I am a business person here in Panama (Chiriqui) and have just been informed by my accountant about this  RESOLUCIÓN Nº41,039-2009-J.D.
Do you know anything about it.
I have just been sent a "quote" of $500. to prepare the survey of our company. We have 3 employees--sounds more like a tax to me. Any input would be appreciated.
Cheers,
Jack

Hello Sam:
 
Yes, this is a new resolution from Caja de Seguro Social that was approved as the General Regulation for prevention of professional risks and security and hygiene at work (I am not sure if my translation is correct but I am sure you will understand the main idea).
 
It contains rules that in general can be considered good because the idea is to provide better conditions for the employees in the place of work, but it obviously creates an impact even in small business because it is mandatory in general for employers and employees, from public or private companies and it obviously will mean that in order to comply with the regulation, the companies will need to hire, depending on the category, a qualified person to prepare a plan of prevention of professional risks and submit it to the Caja de Seguro Social. As far as I have heard this type of person is charging  fees like US$ 500.00 to prepare the plan and also the companies may need to check all the sanitary conditions, systems to prevent accidents, fire, water for employees. I mean, there are included a large number of conditions that must be provided to the employees and it obvious can cost money to the employers and if not comply, the employer will receive fines and sanctions.
 
Attached you can see the original resolution and also the last resolution that modified the date when the resolution and obligations related to it will be effective (September 11, 2009).
 Download Resolucion
 Download Resolucion 2
Regards, 
 
Karen Diez Serrano
Icaza, González-Ruiz & Alemán