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Cash Flow And Capital Appreciation—It’s Possible In A Handful Of Markets, Including This One

As Lief and I explained to the crowd assembled for last week’s Offshore Summit in Panama City, you aren’t buying real estate in most of the world today for capital appreciation. You’re buying for yield…for cash flow.

With a handful of exceptions, including Panama.

Property markets across Panama saw steady, even dramatic, appreciation from 2002 through 2008, by which time they’d achieved what could be described as bubble status. Then the global landscape changed, and the bottoms fell out of property markets worldwide. Not so in Panama, though, where values softened, for sure, but never collapsed. It was a buyer’s market from 2009 through 2011 but not one that busted.

Then, in 2012, values in Panama City leveled off as they have remained since.

Now, I predict that this market is poised for another run up, starting in 2015, when the new and expanded Panama Canal is due to be open for business. Expectations are that the bigger passage-way will double canal revenues by 2017.

Panama’s President Martinelli is a business tycoon. He has done exceptional things for the country in the last five years and is largely to thank for the impressive infrastructure changes you’ve heard so much about, both in Panama City and beyond. Two new international airports have opened during Martinelli’s presidency, and the value of the country’s local airline stock has tripled since 2011. The Panama City metro, the first in Central America, is to open in February 2014. The well-landscaped, well-policed, and well-used-by-local-residents Cinta Costera is 3.5 kilometers of parkland through the center of the capital.

The number and scope of improvement projects that have been accomplished, that are in the works, and that are on the planning boards are unprecedented. There are but 3.5 million people in Panama, meaning those big canal revenues translate into a lot of money to share among every man, woman, and child, and it’s being spread around in a grand and very all-at-once way.

The truth? From one who has lived here full-time for the past five-and-a-half years? Right now, Panama City is not a nice or an easy place to be. All these improvement projects have translated into one of the dirtiest, noisiest, most chaotic cities on this planet.

“Is traffic always as bad as it is right now?” asked one attendee at last week’s event, looking out the window of the hotel meeting room over mid-morning traffic in El Cangrejo.

“No,” I said, “it’s normally much, much worse.”

I have to work hard every day to keep things in perspective. Right now, day-to-day life in Panama City is a struggle. Survival depends on an ability to see humor in the absurd and a well-stocked liquor cabinet. However (I tell myself every afternoon during the 60+ minutes it takes us lately to travel the 1 mile—no kidding—from our office to our apartment) that, just a few years down the line, when the new metro has been completed…when all of the city utilities have been moved underground (in process right now)…when all of the road work and detours and changing traffic patterns are fading memories…well, this will be a much more livable city.

Coupling this reality with the Canal Expansion project and the development of the Panama Pacifico business park…and swapping my resident expat’s hat for that of an investor…I start to get excited.

At last week’s Offshore Summit, Kent Davis, the Panama City real estate agent we recommend, shared a sampling of his most interesting current listings, including apartments in key parts of the city (in El Cangrejo, Punta Pacifica, and along Avenida Balboa, for example) that could be rented out to earn 5% to 8% annual returns.

Which is great. But these rental investments are also hard assets that I believe will appreciate nicely in value over the coming three to five years.

And Panama City is one of the few places in the world where I’d say that is the reality.

Kathleen Peddicord

 

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