International investors continue to see Panama real estate (and Balboa Avenue in particular) as a good asset class to park equity due to low holding costs, relative political stability, and an economy that has shown significant gains and strong growth prospects for the foreseeable future. Based on several years of data collected in house, we believe that the overall upward trend in real estate prices in the downtown corridor will continue, and that Balboa Avenue in particular will continue to see gains in the next 12-24 months.
With only one residential high-rise currently under construction along Balboa Avenue, new supply for the next two years on condos for sale will be flat. Parcels for development are scarce and show no signs of construction starts, meaning that with the exception of the aforementioned project in progress, there should be no brand new residential inventory for the next three to four years along Balboa Avenue. This, compared to the period from 2007-2010 when inventory nearly doubled and prices corrected by 25% due to a number of factors, one of which was oversupply.
While prices are still off their 2009 peaks, we believe that strong demand and a sharp reduction in supply could drive prices back to 2009 prices in the next 12 months. Interest is on the rise with buyers from primary markets such as the US and Canada, many of whom had deferred the decision to buy real estate in Panama and will or already have entered the market.
Increased regional connectivity (most notably with Colombia and Venezuela) and the fact that Panama is a dollarized economy are also generating interest from European investors looking to take advantage of the disparity between rental rates and property prices along Panama’s waterfront district.
A strong case can be made for pricing gains in 2015 based on a study our office has been conducting over the last four years, and moderate appreciation in the 5-10% range is realistic.
On the other hand, banks such as Scotia Bank have increased their lending rates to investors by nearly 15% (from 6.25% to 7.25%), which may keep buyers looking for financing out of the market.
Rental rates softened in 2014 and may continue to decline as more investors buy rental properties. The decreases seen in rental rates in 2014 could potentially be offset by Panama’s renewed efforts to court multinational companies whose employees tend to gravitate to areas like Balboa Avenue and ultimately fill the gap and potentially drive up rental rates once again, but that remains to be seen. A further softening of rental rates could keep the investor out of the market in 2015.
Fire-sales of apartments purchased by “pre-boom” buyers who could not meet their obligations with the developer are a phenomenon of the past, although several large developers are still sitting on substantial inventory and could look to liquidate that inventory in 2015.
Favorable development financing terms (and the resulting lack of pressure from the bank) and an average of 3-4 unit sales per month in projects like Yoo Tower, may, however, keep these developers from dropping prices below the $3,000/meter mark.
A favorable economic outlook, steady to increased demand from both foreign and local buyers, combined with the Varela administration’s continued investment in improvements which better the quality of life in the city center are significant drivers which we believe will fuel growth in 2015 along Balboa Avenue as well as the capital city’s real estate market in general.