Impressions of Panama Real Estate 2008

The Panama City skyline from the vantage point of our roof terrace on the 9th floor is dotted with high rise buildings, mostly all new and half still under construction with new foundations going in all over the place and brown skinned workers hanging off every unguarded ledge.

Prices for real estate here have doubled and in many cases tripled in the last three years but still a three bedroom apartment in an older building in somewhere central like El Congrejo can be bought for $180,000.

Apparently though 30,000 new high-rise units will be coming onto the market in the next 12 months and these are currently twice the price of older property even pre-construction. Now here’s the thing, many units have been bought by investors hoping to flip the property probably before completion (and final payment) and the developers used the excitement and greed to inflate their own prices. Then the credit crunch came and changed all the rules of the game. It is now possible to see unfinished units on sale for less than the developer’s prices.

For example we saw a one bedroom apartment in Trump Ocean Club for sale on Craig’s list for $300,000 when the list price is around $495,000! It would appear that prices have got a little over inflated and buyers who want (or who can afford) to actually live in these new properties are thinner on the ground that it may appear. Certainly I can’t see too many Panamanians being able to afford even the $2000/m2 required for buildings outside of the financial district let alone in Trump’s project.

On thing to be aware of when thinking about buying property in the financial district: Avenue Balboa is the only access in and out of Punta Pacifica and the Marbella area and treffic is so bad it literally grinds to a halt for most of the day. Fine if you live AND work there but horrible otherwise!

Down and up again?

A lot of people are moving here from abroad however, particularly from Venezuela (and elsewhere, if we are anything to go by) and the slack will get taken up soon enough. Not only this, but with 130 banks and a huge international business center operating out of Panama City combined with the horrible traffic problems in the city, people will always pay to be able to walk to work.

My prediction therefore will be that prices may fall by up to 25% in 2009 until the over supply is bought up. This will be a good thing and could well prevent a future big bust like that seen recently in places like Miami and Fort Lauderdale. Growth can then go back to warm and steady rather then hot and heady.

Do people still want to buy a soulless condo unit?

My second observation here is that developers are building the same sort of faceless tower blocks on the coast both north of Panama City on the Caribbean Coast as well as on the already more developed Pacific shoreline about an hour and a half east of Panama City, regardless of their incongruence with their naturally beautiful tropical surroundings. Now in the same way boutique hotels and villas with their own pools are replacing the intelligent tourist’s choice of abode on holiday in the world, over an all-in-one resort (now that everyone has got used to travelling) I believe the future for development is in individual homes or small communities that integrate within their environment.

Here in Panama they should be focussing on one or two floor tropical style homes like you see in Thailand – that are eco-friendly with their own water supply, water treatment plants and electric production rather than air conditioned concrete boxes piled one upon the other blocking off the view of the sea for everyone else behind.

These new skyscrapers are charging between $2000 to $3000/m2 and promising good capital gains by completion whilst the banks are not willing to lend more than $1,200/m2 for a mortgage. That should tell you something. Not only that, but for the price of a 120m2 3 bedroom unit (with fabulous sea views admittedly) in a not very well built 28 floor block in a gated community somewhere like Coronado you can buy a lovely 10 year old 4 bedroom, 3 bathroom home in 1000m2 private garden just 100m from the beach in the same community for the same price. I know what I would go for. You only pay the $50/month for the community charges too as opposed to the $2/m2 required by the high-rise management group next door.

Your own Home on the Beach

Up in Bocas things are looking good (literally) for real estate (despite the torrential rain recently) with still lots of virgin land still available on the seashore of the myriad of islands that make up the region. It is here that you see beautiful homes sharing a dock with a few others all with plenty of space around them. The homes can be simple wood construction or something more sophisticated but they do fit in with their surroundings. There are very few for sale however as the people that built them haven’t got round to wanting to move yet.

You can still buy a 1000m2 lot by the sea here though for building your own dream home, for as little as $50,000 or something slightly set back on a island with a sea view for as little as $38,000. For investment in this perfect piece of paradise, my money would go on buying a Right of Possession tract of land here, spending a year or so and some cash turning it into smaller Titled lots and then either selling them for a tidy profit or building tastefully built private houses sharing a few facilities like a solar power plant, a water treatment plant and a caretaker family to look after the chickens.

Back in the Old Town

Casco Viejo is the wonderful old colonial style town surrounded by water just across the bay from the new shining Manhattan skyline of the financial district in Panama City. It is in the process of being completely renovated with perhaps 30% completed so far. In order to benefit from the 20 year tax free status for both property tax and rental income these buildings need to be restored by 2011.

On the subject of streets, anywhere above 11th street is still considered a rough no-go area which leads into China town. This would be the next place to buy up as the boundaries of the new Bourgeois Casco expanded.

Trumped

My last observation takes me back to the Trump Ocean Club and it is that rich people love to spend their money and show off (and in times of recession they just get richer). The people in the ‘club’ have already bought 79% of the project due to be completed in 2010. The project is the largest real estate investment project in Latin America with 280,000m2 total space with condominiums and condo hotel units with their own private island, a wellness spa and a huge infinity pool, yacht club, a full service hotel and of course a 45k sq. ft colossal casino, office space and upscale shops as well as an elite concierge service. Despite the incredible prices, people are still buying here. It shows that top quality with the right image, in the right location will always sell.

So…..

The conclusion is if you are buying real estate as an investment, buy in the best area in town (even if it has to be small), don’t buy a condo unit out in the sticks unless it is cheap and you want to stay there yourself, buy land by the sea pretty much anywhere, build high quality private homes suitable for all year round living and buy something unique on the outer boundaries of Casco Viejo if you speak Spanish and can manage a building project. Buy something renovated in Casco too as I believe the prices will rise and stay high here just as they did in Venice, Dubrovnik and Prague.

December 2008