Panama Market Watch

Property Market Crash In Panama City? I Don’t Think So…

With all the construction going on in Panama and especially in Panama City and all the trouble that other property markets worldwide have seen post-2008, real estate pundits have been predicting an impending crash in Panama real estate values for years. Both rental rates and sales prices did soften in Panama, including in Panama City, in the wake of the 2008 global real estate crisis, but this market has seen nothing resembling a crash…and I don’t believe it will anytime soon.

Rental rates in Panama City were extremely high in 2008. At the time and through 2009, I was enjoying, as a result, a net annual yield of 13% on my one-bedroom rental apartment. Note that this was for a long-term contract. That level of yield is not uncommon for a short-term rental, but for long-term? That’s a return to get very excited about.

The same tenant has occupied the apartment since that time. Over the last four years, the rent has dropped a total of 25%, bringing my net annual yield down to 9.5% on the original investment amount, which is still above the 5% to 8% range I target for a rental investment.

Based on the current value of the property, I’m currently at a 7% net yield. In other words, rental returns in Panama remain good no matter how you slice them.

What happened to the great collapse that many have called for? As I said, it just hasn’t happened. And it won’t.

Why were so many so convinced that this market would implode?

Mostly because of all the buildings planned, through 2008/2009, for construction. It was generally accepted by people commenting and pontificating but not really paying attention that this marketplace would be flooded with inventory.

However, not all of the planned buildings got built. Some investors who bought into the pre-construction projects that never made it to actual construction lost their deposits, which is part of the pre-construction risk. The point here is that not all the proposed inventory came to market.

Everyone predicting an inventory glut missed something else, too. It takes a while to build a skyscraper…especially in Panama. Construction times in this country can (and did) get stretched for many reasons—everything from struggles to find construction crews to a slowdown in bank disbursements in the aftermath of 2008. Panama banks did what they should have done when they got nervous about making loans—they stopped making them. This helped to give this market time to sort itself out and meant that all the anticipated inventory didn’t come online at once. It continues to be delivered over time and, as a result, is being absorbed as it appears.

Further, not every building planned for construction was intended for residential use. Panama City boomed across the board, not only in residential construction. New high-rise construction over the past decade in this city can be broken down into at least four categories—high-end residential, middle-class residential, office buildings, and hotels. In Marbella, for example, which is partly residential, partly commercial (including a lot of banks), unless you paid close attention to permit signs as they were posted, you might have missed that all the many towers under construction were not apartment buildings. Many were office towers, and some were hotels.

The skyline in Panama City is still dotted with cranes, but not as many as a few years ago. Meantime, investors from Venezuela, Colombia, North America, and Europe continue moving in in ever-bigger numbers. In the past two weeks alone, I have forged new business relationships in this city with an Irishman, a German, a Brit, and a Dutchman.

And I’m a single individual investor. Many big-deal international companies are also moving into this market, basing themselves in Panama City, Panama Pacifico (an essentially new city that has been built from scratch on the site of the former Howard Air Force Base), Costa del Este (a planned suburb of Panama City with residential and office buildings), and the new office and industrial complexes adjacent to the Tocumen airport. With each company set-up comes teams of executives and their families. Meantime, the tremendous amount and diversity of employment available in this town right now is attracting immigrants from far and wide in search of opportunity. All these folks need places to live and work.

Meantime, tourism figures continue up, and this country is doing a great job positioning itself as the alternative to Miami for would-be shoppers throughout the region. Used to be that Latinos traveled to Miami for annual shopping sprees. Now it’s too much of a hassle for them to get U.S. visas. Panama has stepped into this market opportunity quickly and effectively, and the shopper-tourists it’s attracting are helping to fill up the new hotels as they come online.

Given all this, I don’t know how anyone could still be predicting a collapse of property values in Panama.

Of course, you still have to buy right if you’re buying for investment. Buy based on both the area and the developer. In Panama City you can find excellent developers with good track records…and others you’d describe differently.

One Panama City developer I know well and have worked with for a long time (more than a dozen years—this is the group that built the tower that contains the rental investment apartment I reference above) is Empresas Bern. The company has 35 years of experience in Panama; their focus is Panama City and the City Beach areas.

I like the Bern group for many reasons, including the number of projects they have available at any one time, in various stages of completion, from pre-construction sales to fully completed buildings with a few units remaining available. The inventory options can suit any buyer, whether you’re an investor or an end-user.

Lief Simon

Continue reading: Qualifying For Panamanian Citizenship And A Panamanian Passport

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