Timing is Everything in Real Estate

Panama’s beach real estate market is beaten down. The market in and around Coronado, Panama’s most popular and developed beach community, is off nearly 30%, as unsold developer inventory in some of the largest projects are converging with a new supply of resale properties (both homes and condos).

Smart investors know that as soon as a property starts to sell below replacement cost, it may be time to buy.

But let’s take a step back and give you a bit of perspective on the Panama beaches market, specifically the areas in and around Coronado.

Coronado was one of the first “beach towns” to be developed by a private family, the Eisenmanns, who acquired a massive parcel of land in the 1940’s.  What started as a small waterfront community has mushroomed into a full blown beach town complete with shopping malls, hospitals, and schools.

Up until around 2005, Coronado was mostly a weekend-only destination, with few full-time residents.  Property owners were pretty much exclusively wealthy Panamanian families.  Fast forward to the boom-time years of 2006-2009, when international real estate was en vogue and Panama was booming. In 2005, Coronado had less than five restaurants, no shopping malls, and a tiny private school. Today, the town boasts 3 shopping malls, over 50 restaurants, several international schools, and a first-class hospital.  The town is beloved by expats and locals alike and is abuzz with activity every day of the week — no surprise, since it’s now home to hundreds of full time residents.

What happened?  

As expected, prices went through the roof. But today, they’re definitely back to earth.  And anyone following the Panama story knows how it unfolded.

The Panama property market for the beaches area around Coronado was and still is heavily dependent on foreign buyers from Canada, the US, and Europe, many of whom relocated in search of an active, outdoor lifestyle — golf, beaches, hiking, etc, abound in Coronado.  They come for the year-round tropical climate, warm ocean, low property holding costs (like taxes and HOA fees), safety, ease of travel, and proximity to a cosmopolitan city like Panama City.  

But then…

• Americans started to experience a renewed boom in the real estate and stock markets back home, meaning many are now re-investing domestically and have put their retirement and second-home purchases off for a few years.   
• Canadians are confronted with an unfavorable exchange rate against the Canadian Dollar (CAD) today, making Panama a relatively expensive place to buy.
• Europeans are still coming, even though they — and anyone else not tied to a dollarized economy, like Ecuador — are dealing with the same FX issues as Canadians.
• Panamanians are grappling with one of the worst recessions in two decades.  And what is the first thing that gets put on the market (or nixed from the wish list)?  You guessed it: the beach house.  So, demand is down from what used to be the strongest market and new supply is surging from families deciding to sell their beach homes, simply because they can’t afford to keep it.

Add in a mix of foreigners who moved to Panama during the boom years but are now looking to go back home for personal reasons (be they for health issues, new grandchildren, or the rising cost of living in Panama), the number of new beach properties hitting the market is quite staggering.

Could the market dip further?

The market can always keep dipping down. Developers are still on track to deliver new unfinished towers over the next few years, and if those units don’t have new buyers, then a new product is born.  

In addition, Panama may not fully recover from the current recession, in its second year now, until well after the new president takes office in 2019.  Add to that worsening traffic in and out of the beach during city rush-hour as Metro Line 3 and the new Bridge over the Panama Canal is under construction.

But for anyone with a 5-10 year horizon, now may be the best time in decades to start looking for the right beach property. Here’s what is on the horizon:

1. The USD will go down.  No one can predict when, but the global currency market always has ups and downs.  When the EUR and the CAD rise back up (against a weakened USD), Panama will inevitably see more non-USD based, value-focused buyers rush in.  
2. After the roadworks are completed on the new Chorrera–San Carlos highway, road capacity will expand and traffic will ease up significantly, meaning weekenders who leave the city at 5pm can get to their beach houses at a reasonable hour.
3. Metro Line 3 will also be a game-changer.  That, combined with the new bridge over the Canal, are on track to be completed in four years or so.  
4. The Panamanian economy, like all economies, goes through cycles.  Toll revenues from the Panama Canal are showing solid gains, the free trade zone is starting to emerge from its slump, and large Panamanian enterprises will start hiring again in the future.  And when the good times come back, locals will start buying beach homes again. And, as geo-political factors are increasingly on people’s minds, Panama will always stand out as a safe and secure option to live or invest in: Panama City lies an hour from its to beaches and is now on the map as a world-class destination for luxury travel in its own right; Panama isn’t grappling with any spillover of narco-violence from Mexico/Central America; and, while its negative image as a tax haven no longer holds, the country’s tax regime is still very favorable to foreigners: foreign-earned income is taxed at zero.

Savvy real estate investors understand that timing is everything, and now may truly be the best time in the last 10 years to purchase a property in Panama’s beaches area.