My Panama City 2015 Market Forecast
Following the close of my Global Property Summit next week, I’ll be taking a couple of dozen VIP attendees on a property tour of Panama City. We’re going to visit four apartments to assess them, together, for their investment potential in the current market.
Over the last eight years, various pundits have predicted, at various times, the death of the Panama City real estate market, insisting the end was near and that this city was no longer an interesting investment option. I’ve disagreed, and I feel more confident in the potential of this market, short and long term, than ever.
Property prices fell in Panama City post-2008, but not as hard as values fell in many other markets around the world at that time. In the years since, Panama City purchase prices have stabilized and turned up again.
Property prices didn’t collapse, and rental yields have held strong… despite concerns about the number of new hotels coming online in this city.
A rental property I own in the center of town has enjoyed better than 95% occupancy over the last seven years. One tenant being in the unit for more than five years helped, but other landlords in my building report similarly high occupancy rates, both long- and short-term, as long as the owner is putting in some effort. Absentee owners with no management company on the ground don’t do as well, of course.
Based on the current value of the apartment, my net annual yield works out to 7.3%. That’s based on my current long-term renter. Despite the whining of the Panama City hotel industry, my yield could be better renting short-term. I prefer long-term because it’s less hassle for me and less wear and tear on my apartment.
On the field trip following my conference next week, we’ll consider each property we view to try to project what kind of investment return it could realize. I’ll be analyzing these apartments on the fly with the attendees, but I suspect we’ll find that the 7% my rental is yielding is typical.
My general net rental yield expectation is 5% to 8%, so I’m very happy with 7%, especially in a city where values have been steadily appreciating for the last year or two.
I expect annual appreciation to continue at a steady rate of maybe 5% per year. The Panama City market is more divergent and diverse all the time, with more high-end properties, more midlevel properties, and (of less interest to the foreign investor but still an interesting indictor) more local housing.
Many big-time international companies—Caterpillar, Volvo, Nestlé, and Proctor & Gamble, for example—have been establishing themselves in Panama over the last 10 years. Panama also serves as a regional hub for U.S. and UN agencies (two tenants in my Panama City rental have worked for the UN). Both of these factors help keep pressure on both rents and prices at the upper end of the market (properties on Avenida Balboa and in Punta Paitilla, Punta Pacifica, and Costa del Este).
Also keeping prices strong is the fact that few building sites remain available in Panama City’s prime zones. Short of tearing down existing apartment buildings to replace them with higher high-rises, there’s not much remaining opportunity to add to inventory in these sought-after areas.
The local lending industry is another important factor. Banks in Panama have never been as aggressive as their counterparts in the United States, Ireland, Spain, and elsewhere (places that went bust post-2008), and today they’re even more conservative. Still, Panama banks are lending, including to nonresident foreigners who qualify.
A bank in Panama will lend up to 80% of the property value under the best circumstances. A nonresident foreigner likely won’t do better than 60% LTV, maybe 70%. Still, nonresident foreigners have few options to finance locally in Latin America, helping Panama to maintain its position ahead of the pack.
The Panama City property market has legs. This is one place where you can buy today both for long-term capital appreciation and a solid yield.
Of course, you have to buy right. That’ll be the point of the conversation I’ll be having with the VIP attendees who accompany me for the property viewing tour next Saturday morning.
Lief Simon
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