Real Estate In Panama City

March 26, 2010
San Pedro, Belize

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Dear Live and Invest Overseas Reader,

The real estate market in Panama City is going to crash, isn't it? Some think so.

On the surface, this seems the safe position to take. Much of the world has seen precipitous real estate price declines over the past two years, and, yes, the Panama City market has softened noticeably. Meantime, dozens of buildings remain under construction. As all of this new inventory comes online, and investors and speculators who bought pre-construction try to off-load their purchases, the thinking goes, this market will be flooded.

And it will bottom out.

That's the popular thinking, but it's superficial and misguided, overlooking important fundamentals.

While the real estate market in Panama City has fallen off, its economy has not. The economy of Panama has continued to grow through the global meltdown of the past two years and is projected to grow by more accelerated rates in 2010, 2011, 2012, and beyond.

The local middle class is growing. This is critical to the fundamental health of any market and a big force behind the continued health of this one.

The Panamanian government continues to invest in infrastructure in a big way, and it will be able to continue to invest in ever-bigger ways thanks to the continuing very healthy revenues generated by the operation of the Panama Canal.

International companies, including some very big fish, continue to move their offices and workers to Panama. Private foreign investors continue to seek out this market, too, especially Venezuelans near-desperate right now to get their money and any assets they own out of Chavez' grasp. North Americans and Europeans continue to make their way to this country in retirement.

That's the demand side. While the volume of speculating investors has fallen off considerably, the end-user market remains strong.

The question is, is it strong enough to keep prices in Panama City from falling once all the buildings under construction are handed over to their owners?

It's true. Dozens of buildings are being erected in this city right now. But drill down a little. Not all these structures are residential. Some are offices, several are hotels, and, right, the rest are residential buildings, but, again, you have to drill down a little. Some of these residential units are intended for the foreign marketplace, but not all. Some are meant for the expanding Panamanian middle class.

When evaluating the residential apartment market in this city, ask yourself two questions. First, how many residential buildings are under construction as a subset of total current construction? Eliminate the offices and hotels from the crane count.

Second, how many units per building?

In a typical high-end residential building in Panama City, you have 25 to 30 floors. The first six or seven are for parking and social areas (communal space with swimming pools, party rooms, etc.). The top three to eight floors are penthouses, typically one apartment per floor. The remainder of the floors typically break down into two three-bedroom apartments apiece.

That makes the total count in a typical building about 35 to 40 apartments.

In a building geared toward foreign retirees and the local middle class, the individual apartments are smaller, typically one and two bedrooms rather than three. These buildings may have four to eight apartments per floor. Factor in floors given over to parking and social areas and perhaps three or four penthouse floors with, usually, two units per floor. In this kind of building, you're looking at maybe 100 apartments.

My point is that, in total, you're not looking at tens of thousands of apartments poised to come online in the next 8 to 24 months. It's maybe a few hundred at a time. Not an overwhelming number. Certainly not enough to squash the market.

Not when you remember the demand.

Panama City is a growing marketplace of, right now, more than 1 million people. And "growing" is my point. The local, the foreign retiree, and the foreign business populations all continue to expand at good rates.

That's why I do not see a big drop in property prices on the horizon for this city. This market is not going to crash.

That is not to say you can't find a really great deal right now if you seek out an especially motivated seller.

Lief Simon

Editor's Note: Lief Simon is Editor of Global Property Investor's Marketwatch, a global real estate investment service to guide you as you diversify your portfolio to include real property assets and reliable yields. Read more here.

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