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New Development and Pre-construction Property For Sale In Panama

Author

Panama Equity

Published on

September 20, 2021

Updated on

September 25, 2021

The real estate market for new developments in Panama may have finally reached a tipping point. This important driver of the Panamanian economy got going shortly after the Panama Canal reverted to Panamanian ownership on December 31st, 1999. And starting in 2006, the presale market for new developments experienced exponential growth, with prices on condos for sale in Panama more than doubling.

Yet over the last 24 months, the world health pandemic, conservative bank lending, and overbuilding have all led to what no one, most especially the developers, wanted: Unsold completed inventory.

Unsold Completed Inventory

Currently, there are a total of 23,688 new properties for sale within a 30KM radius of Panama City, Panama. These properties for sale span three stages of development: Pre-sale, in construction, and completed.

First, an important distinction: The property market in Panama is generally divided between two segments: Subsidized and unsubsidized.

In this case subsidized refers to properties priced below $180,000. This is the price cap that the government has instituted as the top end of the range in which they are willing to incentivize builders (and buyers) in the form of subsidies.

Due to a shortage of affordable housing in Panama, the government began offering a reduced interest rate to banks willing to offer loans to certain buyer demographics several years ago. At the same time, they also began to incentivize builders in the form of tax incentives.

Absorption remains strong for properties priced at less than $180,000. These new properties for sale generally tend to sell quickly and to mostly local buyers. The dynamics of subsidized interest and low wages usually mean that these types of properties are not geared to investors.

Of the 23,688 new properties in Panama currently for sale, 18,176 fall into this category.

The issue that warrants attention is properties priced over $180,000. Most notably the fact that these units are not selling nearly as fast as they were two years ago.

Presale Phase

As mentioned above, there are a total of 23,688 new properties for sale in Panama. Of these, 36% (8,550) are in the presale phase.

In Panama, the presale is a way for the developer to test the market to make sure their project is viable. The presale phase occurs before construction has started. In most cases, presales begin before construction finance has been secured. This is the riskiest phase for a new investor. But developers recognize the risk and generally offer price incentives at this stage. This stage is also the best time to pick up the high floor and premium-view units.

The biggest risk when purchasing pre-construction properties in Panama is one of time. More specifically, how long a project will take to complete. 

A quick note regarding risk: While the build quality is not strictly regulated in Panama, the bank superintendent and ministry of commerce pay close attention to the housing industry and there are very few instances of developers taking presale deposits and absconding.

38% (9,198) of the properties for sale in new developments are in the construction phase. This is an important milestone in the lifespan of a new property for sale in Panama. The reason being, the risk for an early-stage investor is significantly reduced.

For a project to break ground, several conditions must be met including a certain level of presales within the development. These presale requirements are determined by the bank financing the project. Banks take into account factors such as the track record of the developer, the price per square meter of the inventory along with a number of other risk factors to determine what percentage of the project must be sold prior to releasing money to start building.

The presale requirement by local banks generally ranges from 30-60% presale. In other words, before a project can be funded, said project must have already sold between 30-60% of its inventory.

The third and final segment and the one that merits the most attention is the number of completed units currently on the market in Panama. That figure is resting at 25%.

Most developers usually make their profits over the last 15-25% of the inventory is sold and after costs are covered. Given the above, many developers have had to reinvent their sales process and incentivize new buyers to realize a profit. This pressure has benefited the consumer in several ways.

Increase of Financing Options

The first way that the current situation has benefited consumers is an increased number of financing options.

These include rent-to-own and developer financing. In some cases, developers have even started to rent unsold inventory. 

Developer financed options are becoming very attractive for new buyers. The loan periods are shorter than traditional bank financing and generally range from 5-10 years. In some cases, developers also offer more competitive interest rates as an incentive to buy.

Some developers have also opted to simply rent their units out. This, in the hopes that their unsold inventory would sell at the conclusion of the lease.

This pressure to sell unsold inventory and adapt to a changing market has not significantly reduced list prices. As is usually the case, certain developers are more willing to negotiate than others. Many developers have opted to keep their current asking prices and simply negotiate better deals at closing. This is mostly to protect past buyers from losing equity.

One market segment that may be affected as a result of this unsold inventory are rental rates. These rates have seen increasing pressure from unemployment and started to fall during the pandemic. As multinational corporations start to return and tourism starts to rebound, those rents have held steady although the future always remains to be seen.

The silver lining to this scenario is that new inventory over a 5-year horizon has been reduced. This is mostly due to developers postponing or canceling their pre-covid developments.

All said it’s still a buyer’s market for new developments in Panama. And this is likely to be the case until at least the end of the year.

 

Panama Equity
Panama Equity

Panama Equity’s expert team has been a trusted authority in Panama’s real estate market since 2007. Our knowledgeable staff brings years of experience, market insights, and a passion for helping clients navigate the diverse opportunities Panama has to offer. From luxury beachfront properties to commercial investments, our articles are designed to provide valuable information, actionable advice, and the latest trends in Panama real estate. Whether you’re buying, selling, or investing, Panama Equity is your go-to source for expert guidance.

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1 Comment

  1. robert rossi

    on October 21, 2021 at 5:59 pm said  

    would like more information
    Visiting Panama soon 11/6-11

    Reply

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