The Kalu Yala Blog

A Study of Real Estate in Casco Viejo

January 25, 2013

by Bertie Herrtage
Posted In: Crafted Investing

A Study of Real Estate in Casco Viejo

By Bertie Herrtage


When looking into the various options for the use of Real Estate for Kalu Yala in Casco Viejo, it came to me when researching that the information available was very disjointed. In order for Kalu Yala to be able to make investment Real Estate decisions in Casco Viejo I have created a document that includes all of the necessary knowledge of the area that one must have before making such a decision.

My aim here is to create an informative document that will serve the company as a resource for making Real Estate decisions in Casco Viejo. Options of Real Estate investments

1)   Diversifying the income portfolio (renting properties)

2)   Alternative site locations

3)   Office

4)   Investors club

The History of Casco Viejo

The original settlement of the city was Panama Viejo, found in what are now the suburbs of the modern day city, situated east along the coast from Casco Viejo. Panama Viejo was founded in 1519 by the conquistador Pedrarías d’Ávila, to serve (according to UNESCO research) as a “commercial and administrative centre” due to its consolidated key position on the transoceanic route between Spain and the Americas.

Upon attack by the infamous privateer Sir Henry Morgan in 1671, its population deserted the city after the decision was made by Governor Juan Perez de Guzman to burn it and flee to keep the wealth and prowess of the city from falling into his hands.

A few years later in 1673 Antonio Fernández de Córdoba initiated the building of a new settlement (Casco Viejo) on a small peninsula nearby which was superior in position and provided the necessary fortifications that its predecessor lacked (see fig.1).

Casco Viejo is considered to be the ‘cultural gem’ of Panama City. Its rich colonial history has left behind a wealth of architecture, predominantly Spanish and French colonial buildings studded with the odd examples of art deco and neoclassical styles.

Across the 18th century (1737, 1756 and 1781) the new city was severely damaged by fires. This had the unfortunate effect of stunting its urban development and expansion. The Californian ‘gold rush’ began in 1848 bringing a great number of people to Panama. It was thought preferable by many to sail from the Atlantic to Panama City and venture across the isthmus via mules and canoes, to await a ship on the Pacific side to take them to San Francisco, rather than endure crossing the North American continent by railroad. In this small city men from all over the world were converging at once. The economy enjoyed a large boost in this period and by 1855 the Panama railway spanning the Isthmus of Panama was finished and the Pacific Mail Steamship Company began regular service from San Francisco to Panama. Improved infrastructure facilitated the journey of miners to California and the return of Gold bullion to the East coast thereby increasing significantly the wealth, commerce and mercantile activities of the hosting country.

In 1880 it was the French who were the first to attempt the construction of the Panama Canal, a waterway that would span 48 miles across the Isthmus thus saving ships an 8000-mile journey around the bottom tip of South America. The project was given the go-ahead by the Colombian Government who controlled the area at the time, financed by private investors and run by Compagnie Universelle du Canal Interocéanique. At the head of this project was the champion of Egypt’s Suez Canal Ferdinand de Lesseps. The French were unsuccessful in their pursuits due to a fundamental lack of the correct machinery and logistical knowledge to co-ordinate such a project in a foreign environment.

Not long after the Americans began to make their own plans to build the canal but the Colombian government in power blocked their efforts. The U.S. supported a revolution that led to Panamas independence in 1903. The Hay-Bunau-Varnilla Treaty was signed soon after which gave the U.S. perpetual control of the canal and 5-mile zones either side. The Canal was built between 1904 and 1914, bringing an influx of wealth into Panama that enabled the development and expansion that the city had previously lacked. To accommodate the automobile and build newer and more modern housing, the city spread into the suburbs. Its new CBD situated NE further along the coast left Casco Viejo (the old quarter) isolated on its peninsular, where it was subject to great deterioration as business moved away and the buildings emptied.

Up until the mid 1990s Casco Viejo was basically forgotten, except by adventurous tourists who entered to glance upon cultural heritage sites, monuments and plazas. The hopes to become the next Cartagena – fully restored colonial city – seemed unachievable. But the government decided to take further action to encourage restoration in the famously beautiful, yet neglected historic neighbourhood.

With the passage of Law 9 on August 27, 1997, special restoration incentives were applied to real estate in Casco Viejo.  Furthermore, the same year UNESCO chose Casco Viejo as one of its 46 World Heritage sites. Combined, these two aspects gave Casco Viejo the boost it needed to attract investors, developers and homebuyers.

During its 300 years as the heart of Panamanian life, the peninsula developed a unique legacy of Spanish, French and American colonial, neoclassical and art nouveau architecture. Certain styles, particularly the narrow 16th through 18th century houses with internal courtyards, are specific to the region. So, while people often refer to Casco Viejo as a “colonial city”, the current cityscape is more dominated by French and Early American architecture, which, UNESCO points out in its justification of world Heritage status, “lends it a special quality that other colonial cities in Latin America lack.”

UNESCO drew a connection between this eclectic collection of architectural styles and Panama’s historical role as a world cross roads, with each style representing a boom in inter-oceanic trade through the Isthmus. This collection of architecture and the people who inhabit it are clear reflections of Panama’s fascinating cultural makeup and an important part of our common heritage.

Sectors of Casco Viejo

The map drawn up in 1679 defines the area of the oldest part of Casco Viejo quite well. It is here that most of the surviving colonial buildings of interest reside. The UNESCO protection embodies not only the buildings but the street plans as well. There are 940 colonial buildings here about 800 of which are protected. The two areas that make up Casco Viejo are San Felipe and Santa Ana, El Chorrillo is a further extension that is not included (see map above).

San Felipe

This is the oldest part of the city, where the great sea wall surrounding the tip of the peninsular was built in 1671 to fortify and protect it from further pirate attacks. This area has undergone the most restoration in recent years. There is a vibrant night culture here that has been compared to that of New York’s Soho 20 years ago. The nights here buzz with Panamanians, Ex-pats and tourists, converging once again in this now fashionable part of the city which is dripping with bars and restaurants and will continue to do so once more work is completed. The old quarter serves now as social and business hub for Panama’s creative class.

The artistic energy flows freely here, “Thankfully for Panama, it’s starting to happen here. A young class of creative locals combined with the growing affluence of Panamanian society, the rapid influx of people from around the world and a gorgeous UNESCO World Heritage Site are laying the foundations of what could eventually be one of the world’s great cultural districts.” Panama Info.

Real estate prices have rocketed here, where 7-10 years ago you could pick up an apartment for $40,000 you would now expect to pay at least 10 times that much. Another spike in property here is unlikely, however investments made will continue to grow as more of the area is restored.

Santa Ana

Santa Ana is a later addition to the Peninsula, this area is not the architectural gem that San Felipe is but it serves the local population with areas of cheaper housing and basic markets. It is not part of the creative and exciting movement of San Felipe yet it does still hold home to many new and exciting businesses that will inevitably lead to its expansion and increase in value. After the restoration of San Felipe is completed the attention of the state will turn to Santa Ana. Supposedly the Cinta Costera phase 3 developments will help bring change to this area.

Spanish Colonial Architecture Features:

Real Estate

Casco Viejo is not a large area. It occupies a small peninsula that is 11 blocks long and 4 blocks wide. Scattered across the peninsula are government buildings and offices, including the Presidential offices, as well as 4 plazas, a few cathedrals, a couple boutique hotels and many restaurants and bars, in addition to apartments, condos and limited office space. Currently, about 30 – 40% of the buildings have been renovated and restored, and those that have not, and are still inhabitable, are either occupied by low-income families, squatters or a mix of both. However, large portions of the historic buildings remain nothing more than just a street facing façade. It is expected that within the next 5 years the percentage of renovated and restored buildings in Casco Viejo will be closer to 70%.

Cost of Casco Viejo Real Estate

Ten years ago, buildings in need of complete renovation and restoration could be bought for as little as $40,000 and those were even with an ocean view. Now, you can expect to pay close to ten times that amount. Buyers can anticipate paying from $150 to $350 + per square meter for non-restored buildings and $450 to $1,000 per square meter for newly renovated and restored buildings and condos. The cost of restoration, including construction materials, labour, architectural plans, and any incidentals for a building in Casco Viejo could add up to be well over $500,000 for a 3 story, 3,000 square meter building.

The value of real estate in Casco Viejo has skyrocketed in the last ten years, and the increase is expected to continue, albeit at a much more modest rate. Contributing factors to the climb in real estate value are as follows: Casco Viejo is the second most visited tourist attraction in Panama. The first is the Canal.

As a UNESCO World Heritage Site, it earns a respectable place on the map of international tourist dentations, as well as an added bonus for foreigner investors and developers. The neighbourhood has become the cultural and artistic lungs of Panama City. Casco Viejo is to Panama City what SOHO was to New York City 20 years ago. The trendy restaurants, cafes, bars and art galleries will surely continue to attract more people.

Law No. 9 – Restoration Incentives for Casco Viejo

Law No. 9, established in 1997, was created to incentivize investors to restore buildings in Casco Viejo. In order to benefit from the incentives, the investments must have been made between August 1997 and August 2007. Therefore, the incentives do not apply to current investments.

This investment law had the following features:

-       Owners of buildings or land located in Casco Viejo are exempt from income tax on profits earned (capital gains) from the sale of buildings or land, if such sale is made before Aug. 2007.

-       If after five (5) years from the time of transfer, the new owner has failed to rebuild or restore the building, the Department of Revenue will proceed to apply the tax waived with legal interest and penalties involved.

-       The landlord or investor who pays compensation (indemnity payment) to evicted residents shall be entitled to a refund through a tax credit. Indemnity payments are calculated by the government according to the resident’s dwell time.

-       Preferred interest mortgage loans are offered for real estate restoration projects in Casco Viejo.

-       A 30 year real estate tax exemption was awarded to property owners in Casco Viejo

-       Owners who restored property and resold were exempted from the real estate transfer tax.

-       The profits generated by commercial, professional or industrial activities in Casco Viejo have a 10 year tax exemption.

-       The equipment and materials used in the construction, restoration, and equipping, will be exempt from the Import Duties.

Casco Viejo Real Estate Restoration Guidelines

Beyond the incentives the government of Panama set to attract investors and developers, they also set stringent guidelines for the restoration of properties in Casco Viejo. The Directorate of Heritage of the National Institute of Culture (INAC) is tasked with the administration of all Casco Viejo restoration standards and guidelines. One such guideline created is that all edifices built before 1940 cannot be demolished, only restored.

All restoration plans and blueprints must be submitted by a licensed architect to INAC for approval. If approved, the plans will then need to receive additional approval from the municipality which reviews the buildings infrastructure, including electricity, plumbing, etc. The entire approval process usually takes less than three months; however, once you add up the time to create the plans, plus any potential bureaucratic failures, it could easily take 6 months.

Real Estate Development Companies in Casco Viejo:

If you are not interested in restoring a building there exist many options to buy modern condos is nicely restored and renovated buildings. Many Panama City realtors operate in Casco Viejo and it should not be difficult to find an agent to show you around. The majority of the restoration in Casco Viejo is done by a few development companies, some who specialize in only developing properties in Casco Viejo.

List of Casco Viejo developers:

BASIS Panama – Social Investments

Compania Inmobiliaria San Felipe, S.A.

Conservatorio, S.A. Goldmann&Goyochea- Habitat Developmens

Historical Projects

Isla Palenque

Two Oceans Property Consultants, S.A.

Salzburg Development S.A

Investment Potential

Casco Viejo is certainly the best Real Estate Investment you can make in Panama and perhaps even in Latin America. It is perhaps one of the last of the Spanish Colonial Cities to be restored, and there are few places in the world that can match its charm. Casco Viejo is a cultural launch pad; much the same way the neighbourhood of SOHO in New York City was (and still is) during the 1960′s and 1970′s.

Even with the global recession, prices have shown no sign of slowing in Casco Viejo, and interest and investment has barely missed a step. Panama, which has one of the highest credit ratings in Latin America, has the most stable democratic government and economy in all of Latin America, and is the largest banking centre in the Southern Hemisphere, is an ideal place for Real Estate Investment or just a great place to live.

Banks, although they have stricter lending policies than you would find in the USA or Western Europe, are willing to lend on average up to 70% for Real Estate Investments. The process of getting a loan is lengthier here than in some other places, but with patience and a lawyer, very manageable. There are well over 100 banks to choose from in Panama when shopping for a loan, both foreign and domestic.

Whether you are interested in buying a fully restored apartment with all the luxuries or a 300-year-old building with little left but a street front facade, Casco Viejo has it. At this moment only about 30 – 40% of the buildings have been renovated from Calle 1 (1st Street) to Call 12 (12th Street), which is the most attractive area. But it is likely that this area will expand quickly in the next few years. You can also expect then in the next 24 months the percentage of renovated buildings in the area mentioned would be closer to 80%. The buildings that are restored are creating terrific rental opportunities.

Example of buying and selling real estate

To Rent: $1800 per/month 148 m/sq 2 bedrooms and 2.5 bathrooms San Felipe

To Buy Restored: $419,000 156 sq/m 2 bedrooms and 2.5 bathrooms San Felipe

To Buy an Un-restored Building: $800,000 284 sq/m 4 apartments + commercial space + parking San Felipe

According to Hache Uve one of Casco’s most prestigious firm of architects the general rule of thumb for the cost of restoration for a building such as this is $1200/per sq m. The margins may be a lot smaller than they were 10 years ago, however, a basic feasibility study on a generic colonial building in this area indicates that there is still potential for a 20-30% profit.

It is clear that San Felipe is the state’s priority as it is the most historical part (Casco Antiguo) and is the cities centre for tourism. On completion the state will turn its attention to Santa Ana the secondary area of Casco Viejo expanded out of San Felipe. The property here is comparably cheaper, it is considered of secondary status and worth to that of San Felipe, however, its restoration will attract further investment and the area will also see a large increase in value.

Casco Viejo Lifestyle

As aforementioned earlier Casco Viejo is reminiscent of an earlier 1960’s SOHO. A fashionable bohemian scene has blossomed from the easy charm and electric pulse of this place. The governments own restoration incentives have drawn in copious businesses and investment to bring this colourful scene out of the shadows. The days are full of lazy afternoons spent at the cafes and galleries while the nights are alive with the hum of busy bars and Latin rhythms of the Americas. Most of the buildings restored have transformed into the bars, restaurants, clubs and cafes that feed this culture.

Investors and business owners have made a great use of some the property in Casco. Those more generic colonial buildings that have been restored allow for businesses to slip in readily. Those buildings of more of an awkward nature have also been able to attract business, using their uniqueness as a selling point. For example the club Villa Augustina is only the former shell of a building that now serves as an open bar, dance and performance area. The space has been and can be used for a multitude of different events, meaning the owner is able to tap into a few different markets, using its ability for diversity to a variable income stream. Casco’s uniqueness and diversity is the reason for such a multitude of different businesses that have tailored the architecture to meet their needs.

The future of Casco Viejo

i) Cinta Costera development

Panama City Bay is undergoing a transformation. The impressive endeavour began 3 years ago in an effort to correct sewage and waste systems, alleviate congestion by bypassing crowded city streets and give the coastline a much-needed facelift. At a cost of about $200 million and 26 hectares of reclaimed land, today, three years after the start of construction, the Cinta Costera or Coastal Belway boasts a 6-lane highway with viaducts, parks, pedestrian crosswalks, a promenade, bike line, basketball courts, fountains and gardens.

Encouraged by the results, the government of Panama has decided to extend the project further and have proposed to construct new traffic lanes and a tunnel commencing roughly where the Cinta Costera ends and finishing up at the Bridge of the America’s. The plan, about 3 miles in length, would transform those areas in and along its path into prime real estate for residences, tourism and commercial businesses. The new project, with a value of approximately $777 million, is fully funded by revenues approved and set aside by the government and congress of Panama.

ii) Phase 3 of the Cinta Costera development

This is a very controversial topic and one that is hard to distinguish whether the correct investigation has been undertaken by the authorities as to the affects of such a project on this historical centre. The previous legislation that was in place to protect an area of such historical importance seems to have been bypassed or interpreted differently to belittle the cases of the opposition. Such a case was noted by the UNESCO report done in June 2012. The States letters ‘indicate that the proposal falls under the criteria of cultural landscape, in order to allow the continued development of the property. It must be remembered that the property was not registered as a landscape, but as a group of historical monuments’. This seems to have an affect on the land use designation for the area enabling certain planning documents to be pushed forward.

Three options have been suggested to incorporate the new ring road

i)              A tunnel to the other side

ii)             A causeway that would not infill the land

iii)           An infill of the water around Casco Antiguo and the road

The tunnel option has been deemed to expensive by the state, the causeway option would preserve Casco Viejo’s connection to the sea but would have the negative affect of diminishing the shoreline of the modern city and the last option to infill the land between the ring road and the shore is considered to be the most damaging to both the integrity and landscape of the historical site.

Furthermore, it is expected additional impact to the area, derived from the proposed new use as a parking area. Regarding the marine viaduct, the report indicates that it involves a great visual impact, morphological and aesthetic and its relevance as historical peninsula would be lost irreversibly. However, the report argues, the project is an opportunity for dialogue between past and present. Not really identify any tangible benefit.

The Governments brief on the project

The Cinta Costera Phase III is an important part of the new road network of the City of Panama, for complete communication axis comprising the Cinta Costera Phase I and the Southern Corridor, linking the area to the west of the province of Panama. This new route will become an alternative to the Avenue des Martyrs, so divide the large flow of vehicles entering every day for the Bridge of the Americas, separating vehicles heading north from going south. The connection project was also designed to encourage coastal development and add value to the neighbourhoods of San Felipe, Santa Ana and El Chorrillo. The project includes the following components: Improving the Avenida Balboa, maintaining the Cinta Costera Phase I and II, tourism Breakwater, New Bridge Avenue Poets and Marino. All these components are designed to run independently.

iii) Current projects in the pipeline

I made an appointment with one of the primary property developers in the area ‘Arco Properties’ to take me around Casco Viejo to see the level of development and number of projects in the area. Each and every block in the San Felipe area is busy with restoration. The majority of buildings have been in fact restored, leaving those that haven’t in between and outside those that have. This creates a very strong contrast, helping to envisage how things will look once they start filling in the blanks (see photos  above).

Each of these projects underway is to end up as a new hotel, luxury apartment or nightclub etc. The number of hotels that have sprung up or are in the process of doing so hints that Casco Viejo will become even more of a honey pot tourist destination. The numerous hotels serving to house a great many more tourists and the art galleries, cafes, bars, nightclubs and restaurants will serve to occupy and attract a variety of demographics.

This is a good demonstration of the quality and style of the restoration of the streets and buildings in comparison to the streets that are yet to undergo the same treatment. The blanks that are left will in a short period of time undergo the same treatment, slowly blending everything together to form this new and much smarter image of Casco Viejo. Considering the rate at which projects are reaching completion in San Felipe (usually 3-4 years), the available stock of residential and commercial space will increase, attracting more businesses and investors.

Hotel Central

One of the most prominent developments includes that of the Hotel Central located in Plaza Cathedral. Built in 1874 it was considered an architectural landmark in Panamanian and Latin American history. The hotel is steeped in history, giving its custom to both aristocrats and the businessman and diplomats who are responsible for opening Panama up in the era of the Californian gold rush. This is a 140-room flagship development site for the area, drawing in further investment and business interest to restore the buildings and plaza around it.

Casco Viejo has already undergone a huge amount of change and restoration. I’m sure a big question on everybody’s lips is ‘has the market here peaked? And what effect will the Cinta Costera phases 3 development have on Casco Viejo?’

Clara Hardin of Arco Properties was the correct person to talk to about this as her company deals with the selling of real estate in Casco Viejo and is partnered with the developer Conservatorio S.A. Clara informs me that over the last few months she has been busy talking to developers and business owners around Casco. The general feeling being that Casco will survive and continue to grow regardless of the external factors which are controlled by the government. No doubt protests will still happen from time to time against issues that adversely affect Casco and its residents. As more buildings are restored into residences, offices, hotels and commercial spaces, there will be even more reason for journalists to write about the historic city as well as for tourists to visit. Casco Antiguo is already one of the destination places to live. It has a unique cache for those who like living in such a fashionable community and will continue to serve as the cultural centre it has become.

Clara from a real estate brokers perspective is hoping that prices will go up slowly as restorations take place and the infrastructure is renewed.

“In recent transactions, due to the limited inventory, buyers have found properties that they ‘love’ and have made reasonable offers that have been accepted. What this says to me is that buyers looking for bargains don’t see Casco Antiguo as offering bargains.  Our typical buyer is willing to pay a fair market price.  Looking at comparable historic cities will give you a better idea of the path Casco Antiguo is most likely to follow. With a limited supply any type of property, it is difficult to become overbuilt.  If all the un-restored buildings that have been sold in the past two years are developed within the next couple of years, the face of Casco Antiguo will be greatly changed. What hurts is speculation; buildings that are re-sold push prices up without the former owner adding value to the property.” Clara Hardin


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