Market Update 2022: Price Movements in Avenida Balboa

In 2010, the Panama City skyline was dotted with cranes and looked more like Dubai than Central America. Literally, thousands of new condos for sale in Panama were getting ready to hit the market at the same time. And with all of the new construction in neighborhoods such as Avenida Balboa, oversupply crushed the market and pushed prices down. However, prices are finally starting to see some upwards movement, most notably along the water.

Since 2012, the Panama City real estate market has seen little to no price appreciation. Oversupply, immigration policy changes, and the health pandemic are just a few of the factors that led to stagnant prices. Rising unemployment, travel restrictions, and an economy off its 10% growth pace were also hampering what was once one of the hottest property markets in Latin America.

However, if the last quarter of 2021 and the beginning of 2022 are any indications, the Panama real estate market may be taking a turn towards price appreciation.

Rents Are Increasing

A bellwether neighborhood and historically one of the most attractive areas of Panama City is Avenida Balboa, where prices are starting to rise.

During the throes of the pandemic in April 2020, one-bedroom apartments for rent on Avenida Balboa hit their lowest price in 12 years. At the time, multinationals had already pulled their employees back to their home countries and local hotels had furloughed 90% of their workforce. The Panamanian economy was staring into the abyss.

In April 2020, one-bedroom apartments on Avenida Balboa could be rented for as low as $750/month or about $8.30/m2. Pre-pandemic, that same property would have been going for around $900/month. Today, one would need to spend between $1,100 – $1,200/month.

Putting the above in context, rental prices have come up roughly 25% over the last 2 years and 45% over the last 16 months.

Expats renters have always been one of the biggest drivers for the Panama real estate market. And one of the biggest factors affecting rent prices is a resurgence of expat relocations.

A record number of expats from countries such as Peru, South Africa, Canada and the EU have decided to either move to Panama permanently or at the very least give Panama a try. And many are opting to rent a property first.

Whether it’s political frustrations, increased work flexibility, or the desire for change, the Pandemic has positioned Panama as a new option for thousands of families and individuals.

Avenida Balboa has always been one of the top neighborhoods that expatriates gravitate towards.

New Condos For Sale on Avenida Balboa

Since 2015, developers have not been in a position to increase prices during construction. Many projects in Panama often faced unsold inventory at the time of delivery, forcing developers to reduce their prices in order to realize a profit.

Currently, there are a total of six projects in construction along Avenida Balboa. These projects comprise 1,195 total new condos for sale. Based on current developer availability, approximately 900 of these units are sold.

Pre-construction prices, i.e. properties for sale in projects under development, have started to rise since mid-2021, and are up by roughly 5% across the board. This includes new condos for sale on Avenida Balboa.

That said, these price increases pale in comparison to cost increases the developers have had to absorb on things like materials. As an example, copper, steel and cement are up nearly 50% over the last 12 months. Wages have also seen 10-15% increases during the same period.

Developers have started to pass along these cost increases. However, there is still a significant disparity between rising costs and rising prices. That means there is still a significant possibility of further price increases.

A good example is Nuovo/Armani Panama. Nuovo is a residential real estate project in Panama City, just off of Avenida Balboa. Nuovo started construction in 2017 with pre-construction prices around $2,400/m2 or roughly $230 per square foot. That project, due for delivery next month, is now offering units at $3,100/m2 and is over 90% sold out.

The price appreciation on new builds has also driven up property prices for existing condos.

Yields on rental properties have increased significantly over the short term. This is because property prices increases have lagged behind rent increases.

Recent Transactions Along Avenida Balboa

Panama is a very building-specific property market. In some cases, buildings that are the same age, in the same neighborhood, with similar amenities, may be priced differently as much as 10-15%.

This is due to a number of factors including the age of the building, amenities, and the quality of how the property is being administered. This pricing difference may also be influenced by the composition of the residents in terms of end-users vs tenants.

Buildings such as JW Marriott Ocean Residences (formerly Trump Panama) and The Sands Panama are mostly sold to investors. For that reason, we’ve seen wide price swings as rental vacancy shifts and condos are bought and sold.

A 178m2 Rivage unit listed at $2,458/m2 which had been on the market for 8 months, recently sold for $2,200/m2. Rivage is 10 years old, has 3 floors of amenities, and is considered one of the nicer buildings on Avenida Balboa. It’s located closer to Casco Viejo and the Sky Lounge has recently been renovated. Prices in Rivage dipped to as low as $2,000/m2 during the pandemic and would often sell for a discount of roughly 10% off of the asking price.

The Element building, located next to Rivage was delivered 2 years prior to Rivage and has one floor of amenities. There are 4 apartments per floor and all of the units are similar in size. Recently, a 114m2 two-bedroom condo was sold for $1,886/m2 after being listed for $2,150/m2 and on the market for over a year.

Element had some major filtration issues when it was first delivered. This was due to faulty insulation on the coolant lines in each of the apartments. And while that problem has since been resolved, prices took a hit initially and are finally starting to catch up with other buildings in the area such as Destiny Tower.

Several buildings along the Avenida Balboa area are seeing unprecedented levels of occupancy in terms of rentals and sales, including Allure at the Park.

The Allure building, built by Emporium Developers is one of the best-maintained buildings in the area. The building’s amenities include a large pool and a renovated fitness centre among other facilities. Rental prices in Allure are now listed for as high as $13/m2 and property prices have risen to around $2,200/m2 on average

Over the last month, a few examples of recently rented condos in Panama include:

• One bedroom, 97-meter Bayfront condo, city views furnished renting for $1,185/month
• Two bedroom, 134-meter Allure condo, ocean and park views, unfurnished renting for $1,450/month
• One bedroom, 134-meter YOO condo, city views, furnished renting for $1,950/month.

Other Factors Driving Price Appreciation in Panama

Properties for sale and rent on Avenida Balboa have increased in price over the last 6-12 months. However, the trend is not limited to this small area of Panama City, Panama.

Costa del Este is experiencing historically low levels of 3 and 4 bedroom furnished apartments for rent. These properties, typically the first choice of incoming multinational families, have been rented at a surprising pace given the last several years of high vacancy rates.

This is due in part to multinationals lifting their hiring restrictions and relocating employees coming back to Panama.

Political unrest in countries such as Peru, Venezuela and South Africa have also brought a high number of families to Panama and many have decided to rent before buying.

Hot property markets around the world are also motivating investors to reallocate equity earned over the last few years in emerging markets. Panama is benefiting from this new wealth.

And finally, the continued political and fiscal stability of Panama has made the country increasingly popular during turbulent times such as these.

2022 Outlook on Property Prices and the Real Estate Market in Panama

Markets are notoriously hard to predict. And while real estate prices generally tend to move slower than stock markets, one can never even attempt to “call the market.”

Of course, there are factors that influence real estate markets and Panama is subject to all of them.

Rising interest rates tend to put a damper on real estate activity. However, at roughly 6%, interest rates in Panama have been 30-40% higher for real estate financing than they have been in other parts of the world. This means that an interest rate hike may actually push prices up as investors look to foreign markets as their cost of borrowing increases in domestic markets.

Inflation usually pushes up property prices, as long as builders are able to pass these prices along to buyers. So far, that has been the case in Panama but there will come a time when that will simply be impossible.

New condo construction has slowed down significantly, even before the pandemic. In fact, Panama’s property market began cooling around 2016. That means that future supply will be determined more by demand vs new supply and that may also support price appreciation.

And finally, immigration policy changes will have an effect on property prices, but their effect remains to be seen. Recent changes to the Friendly Nations Visa requiring a $200,000 purchase for residency could have a positive or negative impact on the property market.

All in all, the days of stagnant pricing and low yields appear to be taking a turn in Panama’s property market. Long overdue if you ask me!