Factors at Play in Panama’s Real Estate Market 2020
Opportunities for Buyers and Frustration for Sellers
Excess Inventory and What to Expect
Panama Real Estate Market 2020
Economic Cycles at Play
Make no mistake, while certain areas of Panama City’s property market are heavily dependent on foreign buyers and foreign renters, the vast majority of Panama’s property transactions still involve Panamanians. And while they are not necessarily the majority in the high end, $400,000+ category, locals still comprise the largest single demographic of buyers and sellers in Panama.
Since unemployment is at a 10-year high of nearly 7 percent, incoming president Nito Cortizo has already started to address this figure in the form of job-creating policies and initiatives such as infrastructure projects and new legislation designed to lure in more multinational corporations, all of which will be good for the real estate market, including both buy-to-let properties as well as first-time homebuyer sales.
GDP is expected to grow by nearly 20 percent on the heels of strong canal traffic and new inflows from gold and copper mining. What’s more, the agricultural and industrial sectors are set to see improvements as the new administration focuses on increasing exports and courting new manufacturers.
All of these sectors fuel property demand, both in the form of job creation (first time home buyers), corporate multinational rentals, and foreign direct investment into the property market. Panama Real Estate Market 2020
Tourism as a Bellwether
Never before in Panama’s history has the recovery of the tourism sector been such a national priority. And one can argue that there is no single industry that contributes more to foreign direct investment in Panama than tourism both at the beginning and the end of the property sales cycle.
And as the saying goes, a rising tide lifts all ships.
Simply put, an influx of tourism dollars often begets a scale-up on hiring and an increased exposure of Panama to new potential buyers visiting for the first time. And then, of course, all of the revenues created from any subsequent real estate transactions, not to mention an increased demand (created by job growth) for rental properties. Needless to say, said influx could have a ripple effect.
New alliances with airlines such as Lufthansa, Emirates, and Air China combined with the opening of the expanded Tocumen International Terminal 2 could mean that Panama’s tourism sector will finally start to see positive numbers after a nearly six-year lull.
For the last 15 years, foreign buyers have comprised a large part of the property owners for the downtown and beaches areas. And as tourism numbers increase, more foreigners will be exposed to Panama. This means excess supply is likely to disappear if Panama plays its tourism card right.
Tourism’s effect on unemployment is just as important which, when considering secondary industries such as retail and transport/logistics, comprise more than 20 percent of Panama’s overall economy. Panama Real Estate Market 2020
Disruption in the Industry
The planned beach along Avenue Balboa will move the needle on property prices in and around the city, particularly along the Cinta Costera. And of course, there will be sellers who decide to rent and wait to take advantage of the rising values, but there will also be property owners who cannot afford to wait for the project to be completed.
Other megaprojects that will finally come to fruition and have a direct impact on both rental and purchase demand are the one-two punch on the Amador causeway that is the opening of the new Cruise Ship Terminal (April 2020) and the opening of the Amador Convention Center (March 2020). But again, the effects will be more mid-term.
On the supply side, traditionally generic, copy-cat developers who for years have been installing the same modular kitchens and designing buildings with the same cookie-cutter amenities are finally starting to break the mold with innovative projects and tried-and-true celebrity endorsements.
Projects such as DAO Panama have taken a page from New York developers and will install keyless-entry systems throughout the building. Onsite pet-care and pet-friendly facilities are slated for the new Velure project in El Cangrejo and rooftop community gardens in the new Casa Parque are all expected to break the mold as well.
Construction Quality as a Benefit
Ever since the 2006 boom, the quality finished product has been in short supply, as developers were more focused on churning out a product to an indiscriminate buyer than they were on creating long-lasting, aesthetically pleasing properties.
Savvy developers have realized that reputation and build-quality are both factors that influence buyers in a competitive market. Considering that, it’s no surprise that a handful of forward-thinking, mostly second-generation builders are finally starting to spend time and resources on delivering quality products in the form of durable building materials and superior construction oversight.
Project finance legislation slated for 2020 could also disrupt the industry by allowing a banking product for developers to unlock the equity tied up in unsold units by converting them into rent-to-own properties. It remains to be seen how this increased supply in apartments for rent could affect the overall market, as the reduction in for-sale properties would see a directly proportional increase in the offer of rental properties and corresponding pressure on rental prices.
What’s more, the traditionally tenant-leaning leasing laws are also up for constitutional review in 2020 and, if changed to favor the owner’s side, could have a very positive impact on conservative investors who have sat on the sidelines because of eviction and truancy concerns.
Panama has always benefited heavily from major infrastructure projects like the expansion of the canal or the building of a Metro Line. Jobs are created, executives relocate to the region, and businesses open to support the billion-dollar megaprojects that can take years to complete. Panama hasn’t seen one of those projects start for more than five years, and bids have just been awarded for two such projects, both likely to start in early 2020. That will help, but that alone will not be enough.
Increased tourism will directly benefit the property market across nearly all price points and areas in Panama City and the beaches areas, bringing an end to a 3-year correction.
And if multinationals establish corporate headquarters and bring foreign direct investment (and then manufacturers follow suit) it will likely shore up and ultimately increase rental prices and property values for the downtown and fringe areas of Panama City.
And finally, geopolitical instability and a weakening dollar are also always good for the property market in Panama as investors and end-users continue to flock to Panama as a stable and conservative play.