Panama City property values have been impressively resilient over the past 10 years.
The global real estate crisis of 2008 didn’t result in 50% and greater price devaluations in the Panamanian capital as it did in many other markets around the world.
Prices in Panama City did soften; in some areas properties lost as much as 25% of their pre-2008 values. However, the recovery was quick… and values have continued on an upward trajectory ever since.
Why didn’t Panama City property prices drop as significantly as those in, say, Ireland and Spain… two markets where investors lost as much as 80% of the value of their holdings?
Fundamentals. Most important among them: leverage.
In Ireland in 2007, you could get a 110% mortgage to buy a piece of property. Absurd, right? I thought so, too, at the time… and then I and the rest of the world watched as Irish property owners were forced to reckon with the consequences of that absurdity.
In the Panama property marketplace, on the other hand, leverage plays a minor role… then and now. Yes, foreigners can get financing to buy real estate in Panama, but best case you’re talking about 60% loan to value.
Furthermore, at times, banks in Panama have limited the value they were willing to use to calculate the 60%. Prices per square meter for apartments in the city were going up so quickly at one point that banks began ignoring what a buyer was paying per square meter and based their mortgage calculations on their own more conservative valuations instead.
You could have been paying US$2,400 per square meter for the apartment you were trying to get a loan to purchase… but the bank would only lend to you based on a cost of, say, US$2,000 per square meter. Using this example, your 60% LTV worked out in reality to 50% LTV.
Banks’ ultraconservative lending practices combine with the fact that most investors buying in Panama City—again, then and now—pay cash to make for a relatively stable market.
The other stabilizing factor results from the perception of Panama as a safe haven for regional wealth. Panama is far less reliant on North American buyers than neighboring Costa Rica, for example. While the North American buyer pool dried up post-2008, Colombians, Argentines, and Venezuelans carried on investing… and Panama City was their favored investment market.
Today, that cycle has largely played out. Venezuelans with money have by now gotten that wealth out of Venezuela.
What’s to keep Panama City property values moving up from here?
Over the past two weeks, I’ve met with the biggest and most experienced developers operating in this market (in some cases, these developers have been building in Panama City for decades) in an effort to get a read on where this city is headed in 2019 and beyond.
The developers I’ve spoken with have highlighted three factors they believe are going to put upward pressure on apartment values in Panama City going forward.
The starting point for any discussion of the Panama City property market is to understand that today’s Panama City property market breaks down into three sectors—local housing, expat housing, and luxury housing. These three submarkets overlap at the edges, but, for maximum investor upside, you should consider them separately.
Profit From “Local Housing”…
As Panama’s middle class continues to expand, so expands the demand for what is referred to as “local housing.” Big international companies continue to target Panama City for their operations… and to hire locally for middle-management positions. These jobs pay relatively well in the context of Panama’s labor market… meaning the Panamanians filling these jobs have relatively greater resources to draw from when looking to purchase a home.
The resulting demand for middle-class housing in and around Panama City is so strong that one developer I met with last week has put together a series of projects to allow individual investors to profit from the phenomenon. This developer is building eight apartment buildings targeting the local middle-class buyer and allowing investors to get in through excellent pre-construction pricing. You buy early at a substantial discount and then either rent or flip upon completion of the unit.
The developer in question has identified two insights into this market niche that no one else is paying attention to yet. We’ll share details of the program in the next issue of Global Property Advisor.
Meantime I can tell you that, by the end of the conversation with this developer, I was sold. I’m ready to invest personally.
The international companies setting up shop in Panama City also bring in expat management teams. These folks want housing that is both bigger and built to a higher standard than what is available for the local market. This demand tends to be focused in the “suburban” areas of Costa del Este and Santa Maria right now, as well as other prime Panama City neighborhoods such as Punta Pacífica and Avenida Balboa.
Buildings that many expats and wealthy Panamanians have bought into historically could be considered high-end… but high-end by Panama standards. These properties would be considered normal-standard in developed Western markets.
However, today, an international high-end standard (that is, luxury) apartment market is emerging in Panama City.
And Luxury Housing
It started with Trump Tower and the Yoo building. At the time of construction, these were the most expensive buildings (on a per-square-meter basis) in Panama City. And they have served since to help pull up prices of other buildings in the same neighborhoods.
When launched, these two buildings were ahead of the market in Panama City. This is no longer the case.
Over the past decade-and-a-half, developers in Panama have evolved plans for each next building by trying to outdo their local competition. One apartment I bought pre-construction years ago touted the fact that each unit came with a doorbell installed. Before this, developers wired apartments for doorbells… but then you had to install the doorbell yourself or pay an extra fee to the developer to have him do it for you.
Today this one-upmanship has moved to a whole new level. Today, the market-moving developers I met with last week aren’t trying to outdo other buildings in Panama City. These guys aren’t trying to compete locally… but globally.
They want to create product competitive with high-end luxury buildings anywhere in the world in terms of both quality of construction and finishes and amenities and services.
Prices for these luxury-level buildings seem expensive compared with prices of other buildings on the market in this city, but, after touring a couple of them this week, I can tell you that this is a case of getting what you pay for.
And the prices per square meter of these luxury Panama City apartments compare extremely well with those of other destinations worldwide where you find this standard of product.
Before walking through the first building, I almost laughed when the developer’s agent told me the price was US$3,600 a square meter.
After touring the property and seeing the quality of construction, the amazing amenities, and the prime location, I’d say that US$3,600 a square meter is a bargain.
What’s my bottom-line analysis of the Panama City market after my close look over the past two weeks?
This market continues to offer tremendous and diversified opportunity… and I’m more bullish than ever.