Construction is big business in Panama, to meet the demand for housing, tourist accommodations, business centers and service infrastructure. Many of those who come to invest or live in Panama choose to build, taking advantage of cheap labor and a string of government incentives to encourage development.

The Panamanian Institute of Architecture and Urbanism estimates construction will generate more than $10 billion over the next five years, and Panama City in particular is a shining example of the building boom.

A thriving cosmopolis, Panama City has 121 existing high-rise buildings, and more than 100 additional high-rises on the way. A recent study estimates these newest projects will create more than 10,000 new apartments, with a value of $3.17 billion.

Indeed, construction is one of the main engines of Panama economic growth, which increased nearly 7% last year.

To further stimulate the construction sector, special legislation has been put into place to offer tax breaks and preferential interest rates to developers. As of September 2006, new rules came into effect (replacing earlier incentives programs) offering tax exemptions of up to 15 years on the construction of residential homes. These exemptions are transferable when the property is sold.

Real Estate Tax Exemptions on Constructions for Residential Use Commercial Buildings: 10 years

Houses
- Up to US$100,000: 15 years

- US$100,000 – US$250,000: 10 years

- More than US$250,000:  5 years

Reduced mortgage interest rates, up to 6.5% below regular rates, are also offered in some cases. To qualify, the home being built must become the owner’s principal dwelling, and be valued below $62,500. This incentive is mostly appealing to those who want to move or retire to Panama.

Other special incentives on construction include those made in special tourist zones, and considered ‘in the public interest’ as defined by the Panamanian Institute for Tourism. These are granted a 20-year exemption on real estate, as well as import duties and value-added tax over the importation of furniture, materials, equipment used for the construction, as well as vehicles of at least eight passengers.