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Pre-construction Panama making comeback by Kent Davis, Panama Equity

Why Pre-Construction in Panama Is Making A Comeback

Buying a property pre-construction is once again looking like one of the best ways to participate in Panama’s real estate market.  Buyers are finding it to be one of the most flexible ways to purchase a property before completion because it allows them to lock in today’s price and come up with the balance in 2-3 years. But first some context…

For the 3 years following Panama’s first real estate boom in 2005, early investors made profits buying pre-construction and selling to end-users once the property was complete.  Take an example of purchasing a pre-construction apartment at $200,000 and then reselling three years later for $250,000.  So a $60,000 investment is now $110,000.  The concept of buying pre-construction allowed early buyers to benefit from the entire value of the appreciation with only 30% of the capital outlay.

The pre-construction market then cooled around 2012 due to a tight lending environment for construction finance, global economic pressures, and a local shift from residential construction to office buildings and hotels.  Over the next four years, very few new condos hit the market, creating what is now very interesting timing to consider purchasing “off-plan” again.

The Skyline is starting to see another wave of new developments in Panama, particularly in quickly evolving neighborhoods like El Cangrejo and established waterfront districts such as Balboa Avenue.  Up and coming beaches areas like Gorgona and Chame have also seen several new project announcements in 2015, with construction on those projects starting NOW.

The market in Panama is starting to heat up again, paradoxically just as the rest of the world seems to be slowing down  because of issues like currency volatility, increasing regulation and regional instability pushing more people and more capital our way.

Panama’s economy for the second third consecutive year is predicted to be the best performing economy in all of the Americas in 2016, topping countries like the US, Canada, Mexico, and Brazil.  The real estate market is growing along with it, and all indications point to property prices being HIGHER in 2 years than they are today.

Here are a few reasons buyers are looking at Pre-Construction Condo Projects in Development now more than ever:

For starters, you’ve got built-in appreciation assuming the overall market moves at the very least at the pace of inflation. Most times, the developer (the seller in this case) will “price-in” the upside, meaning since they cannot sell their pre-construction properties at the same price as an existing property, they will offer them at a discount compared to today’s market.

Developers have a specific formula for escalating their sales prices, usually tied to the number of units sold, meaning that as more properties get sold, the next buyers in line will pay a higher price.

Generally, maintenance for the first 5-10 years will be less than a comparable property because things like a/c units, plumbing fixtures and water heaters are all brand new so the expense on repairs is greatly reduced.  Along the same lines, all builders offer guarantees which in some cases run up to 10 years.  This means that structural or interior building faults must be repaired by the builder.

Another major factor to keep in mind is that Panama is still offering tax exoneration on new properties.  While owners will always have to pay land taxes (in most cases less than $500/year), all new construction has a tax exoneration on the actual property of from between 5 and 20 years, depending on the purchase price.

With tax rates running right around 2%, the savings on a $250,000 condo which has a 10-year exoneration is the equivalent of a $50,000 tax savings.

An added benefit on the sale of a property in pre-construction is that conveyance to a new buyer, assuming the construction has not been completed, is simply a sale of the rights to take over the contract, keeping the transaction cost lower by reducing the taxable event to zero.

Given a compelling case for future pricing gains and the overall health of the Panamanian economy, we believe pre-construction could be the best angle to get in to Panama’s real estate market in 2016.

If you are interested, contact us for a complete list of the best developments, neighborhood by neighborhood

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