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According to DSR research, property prices in Panama City have been growing at an average 25% per year for the last two years. This is based on the fact that prices in the Global Property Guide for early 2006 were $1700 per sqm, the average price of a Panama City property is now $2910, an appreciation of fifty percent in two years.

This is a good sign for the City of David, which is currently seeing a lot of development, and similar potential for growth as Panama City. Development's here are all very new and it is very early on the growth cycle, so prices are still low, but likely to grow at the same rate Panama City has enjoyed for the next few years.

DSR's Panama property The Best Western Condo Hotel and Casino is in the City of David, and priced at just £32000 for a 1 bedroom fully serviced apartment. The Hotel has replaced the Panama Rey Hotel one of the swankiest in Panama, rates of £40 per night. Because of its location, Panama's growing tourism and the hotel's reputation, DSR expect rental yields of at least 10%, but yields could potentially reach as high as 18%.

Rental income in Panama is taxed at 15%, plus an education tax of 2.75%, sellers can choose how they are charged capital gains tax from two different schemes:

1) 5% of the sum of the: the property's cadastral value + improvement costs + 10% of the property's cadastral value for each year of owning the property.

Under this scheme capital gains tax and transfer tax are consolidated, so there is no further tax to be paid on capital gains.

2) 2% of the higher either: the sales price OR the sum of the property's cadastral value at the time of acquisition + improvement costs accrued during ownership + 5% of the property's cadastral value (including the improvement costs) for each year of ownership - whichever is higher.

The second option incurs a further tax on the capital gain. The taxable gain is the selling or transfer price less the acquisition cost or the cadastral value + transfer costs + 10% of the acquisition cost for each year of ownership. The final gain is calculated by dividing the above by the number of years the property was held and is taxed at the standard income tax rates.

The second option is subject to the 2% initial tax on the selling price, but this can be credited as real estate transfer tax, and as such deducted from the sale price. Total transaction costs in Panama are 7 to 10% and the 7 processes can be completed in around 44 days.

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