Can The Panama Real Estate Market Finally Get Over The Hump?

If you’ve been tracking Panama’s real estate market over the past decade, especially condo and home prices in Panama City, you’ve likely noticed: prices haven’t changed much.

How is that even possible?

While markets in the US and Canada saw double-digit growth, Panama’s real estate market has remained slow and steady.

It’s not to say the market hasn’t been active in Panama. Cranes most certainly have not disappeared from the skyline of Panama City. Though not as prevalent as in 2007, when Panama felt more like Dubai with growth in every direction.

But property prices today compared to 2013 are nearly identical.

Is there light at the end of the tunnel or can we expect more of the same?

OverSupply

One of the main drivers of nearly flat property appreciation is oversupply in the market.

It’s important to keep in mind that Panama’s always been an old-boys network when it comes to residential real estate developers. You have the big firms such as Empresas Bern, Pacific Hills, Grupo Los Pueblos and a few other giant developers who will always keep building despite economic downturns. Sure, they might slow down the pace of new real estate projects, but to date, they have never canceled a project after starting construction.

However, what you had at the beginning of Panama’s epic real estate run starting in 2005 was a herd of young, wealthy Panamanians who’s parents typically made their money in Panama’s free trade zone, all getting into real estate development at the same time.

The result was a flood of copycat projects with identical cheap Italian kitchens, lobbies, and boxy floor plans, all built at once.

The result of this was, you guessed it, oversupply.

Market Evolution and Current Property Prices in Panama

Construction in Panama City

Looking back, we can now see that the peak supply for real estate was December 2018, when Panama had a total of 34,000 units for sale across 629 different residential real estate projects.

As of February 1st, 2023, that number is now down to 506 projects currently in construction with just 16,130 total units available for sale (Source: Galeria Inmobiliaria).

The figures above are related to the entire Panama City and surrounding area housing market from Panama City to La Chorrera, so these include homes for sale from $50,000 all the way up to condos for sale for $2,000,000 plus.

The range that is the most active in the buy-to-lease market as well as the second home and primary residence market for foreign buyers is the market for homes and condos for sale above $200,000.

And that’s where things finally started to get interesting.

Let’s look at a few more numbers.

Inventory for homes and condos priced at $180,000 or more in Panama has dropped 42% year-over-year (through sales or eliminations) and a staggering 70% over the last 5 years.

Several factors have driven this reduction, and we can make multiple predictions about the future of the real estate market here.

But first, a few secrets about the preconstruction market in Panama.

1.  Preconstruction real estate for sale is usually not heavily discounted in Panama. That means a condo for sale with expected delivery in 3 years is usually priced at or even above current resale pricing.
2. Many buildings post-2019 are taking at least 1 year after they are delivered to sell out, compared to 2008 when they were selling out within the first six months of being announced. That means developers are (or at least were) being forced by the banks to sell at a discount, which of course isn’t a good look for past buyers who were hoping that the sales price of the last remaining condos would have been higher than what they paid for them when the project was just a hole in the ground. 

Most builders have a clause in the contract saying that “the price may increase up to 10% if their costs have gone up” from the date the purchase agreement was signed. In other words, guaranteed appreciation is in the form of a higher purchase price.

So where’s the incentive to buy and what’s driving the market?

Banks and foreign buyers

Banks in Panama give better terms for new construction projects than they do for existing inventory. And these terms, by the way, have never been nearly as attractive as US and European banks, where cheap money (and speculation) is the name of the game.

In fact, Panama’s bank balance sheets have never been healthier. Capital adequacy ratios,

ie how much money the bank has in case things go south, are strictly regulated and tightly adhered to. And despite a slight  bump in mortgage defaults (mostly on properties valued under $120k) in the second half of 2022, banks continue to lend.

But that lending doesn’t come easily or cheaply, especially to foreign buyers. Meaning most of Panama’s $200k+ purchases are 100% cash.

However, the last three months of 2022 saw banks finally starting to ease up on lending restrictions with the coveted non-resident Panama real estate buyer, who for the last 10 years has pretty much been told “no” as soon as they reported foreign earned income and/or non-residency status in Panama.

Banks such as Scotiabank, Creditcorp, Banistmo, and a few other major Panamanian banks are reopening their doors to non-resident investors, finally. And those doors have been closed for a long time.

Granted, mortgage terms in Panama are still very conservative and hardly leave much cash left over. Generally, that means anywhere from 6.5 – 7% interest, 30-50% down amortized over 20 years. So for an investor looking for cash flow, rents since around 2012 have been high enough to cover the note as well as operating costs such as HOA fees and general maintenance, but that’s about it.

As rents increase, the economics gets more interesting. And they’ve started to increase since mid-2022. More on that later.

Mortgages and Foreclosures

The lack of available mortgage credit in Panama has hindered price appreciation, but it has also helped keep the market stable and prevented crashes.

Panama’s conservative banking stance has shielded the real estate market from the wild rides of the last two real estate cycles, most notably the market crashes in 2009 as well as the current downturn in many parts of the US.

So while high-interest rates and difficult lending requirements have managed to keep over-leveraged speculators out of the market, it’s also meant that many potentially bankable investors, usually foreigners, haven’t been able to secure financing, meaning less real estate activity.

But the crazy part is, banks in Panama also don’t seem to be going after much residential lending business with locals.

For example, let’s say you are a Panamanian who has been at the same job for the last 4 years. Your salary is $3,000/month (solidly middle class) and you have a car loan paying $400/month. So far so, good, right? But, if the company you are working at has only been around for 5 years, the bank may not lend to you.

Long story short is that banks in Panama are most definitely not overexposed when it comes to current outstanding loans. Plus banks will bend over backward to avoid foreclosures because very few banks in Panama are set up to manage and resell those properties should they have to repossess.

And now that banks have begun to lend to foreigners again, we may start to see new demand.

That, combined with a pretty massive drop in current as well as future supply could create some tailwinds for pricing gains in the market.

Panama’s Most Popular Buyer of Real Estate is NOT Panamanian

Immigration has been and is likely to continue to be Panama’s principal driver when it comes to real estate market appreciation (or lack thereof).

Right now, it’s the Colombians who are bending over backward to get their families, businesses, and capital out of Petro’s left-leaning government. He is seen as a threat by many, and his policies are causing quite a fervor with Colombia’s high net worth and upper middle class.

And with a population of 51 million, that’s a very big potential market. Many of them have a good perception of Panama and may even have family living here already.

Colombians have started gravitating to preconstruction projects for sale in Panama because they understand the process and because they are looking for a Plan B. Same thing with folks from Peru last year. And South Americans starting in 2019, most notably Venezuelans.

Panama is also starting to get on the radars of our neighbors in the good old US of A.

Whether due to a wavering stock market, a slow housing market, divisive politics, crime, or a desire for a change of scenery, people are increasingly talking about Panama as a safe, stable, cosmopolitan place still in growth mode.

Copa, Panama’s flagship airline and proud anchor tenant of the newly expanded Tocumen Airport Terminal Two just added nonstop flights from Austin in February. Yeehaw!

Canadians are also immigrating to Panama in large numbers, due in part to increased flight availability, political differences, and of course the weather.

Not to mention large companies that are either relocating or expanding their footprint in Latin America. Companies like the Unilevers and AmBev’s of the world continue to move executives to Panama, all of whom need somewhere to live.

Plus, as location-independent, work-from-home positions gain steam, Panama is one of the very few places that check many boxes, so we’re starting to see some uptick there as well.

That immigration, compared to 0 immigration over the two-year stretch from 2020 – 2022 means Panama is currently catching up. And if the trends above continue, we are poised for record immigration.

Inflation and The Economy in Panama

Somehow, Panama has also managed to dodge the inflation bullet. Meaning despite a run-up in prices from 2005-2015, Panama is starting to look cheap again.

In fact, prices of housing, food, and most services have remained relatively unchanged post-pandemic. Year over year Panama has seen a rate of inflation at just under 3%.

Immigration in the form of incoming cheap labor has been one factor to keep the cost of services flat.

Slow job creation has kept wage increases relatively low.

And while the tourism industry has started to make a comeback, it hasn’t been strong enough to drive up income for local Panamanians or for shop owners who count on foreigners for their livelihood.

All of these have kept the prices of goods and services from skyrocketing as they have in around the rest of the world.

A strong dollar has kept consumer goods prices in Panama relatively stable, despite most goods being imported. Plus, subsidies on things like fuel and pricing caps on food products have staved inflation just enough to keep the general population happy and things humming along, relatively undisturbed.

Unemployment is back to single digits after hovering around 15% until just last year, so that should help the sub $180k real estate market pick up some steam.

2024, however, is an election year and that tends to slow things down a bit in terms of economic activity unless of course, you  happen to be in the advertising business….. ?

Also, keep an eye on Panama’s mining sector, most notably the mines owned by First Quantum. The government is looking to carve a bigger slice of the pie in what has been a very active gold and copper mining industry.

Here’s to hoping the two sides resolve, as that mine had the capacity to increase Panama’s GDP by a full 20% for the next 10 years.

The takeaway in terms of potential property appreciation is twofold

1. Panama is regaining its status as inexpensive. It lost that perception around 10 years ago when prices started going through the roof, mostly in food and restaurants.
2. The international real estate buyer in Panama needs to see stability. Not too many protests, and low crime, and Panama continued to protect and solidify its position as “attractive” for big business and easy living.

Tourism

Casco Viejo

And of course, then there’s the bellwether industry of tourism which still makes up a relatively small part of Panama’s diverse economy but that plays a major role in Panama’s real estate market.

An increase in visitors usually means increased demand for properties for rent in the future. IE, “Wow Panama is awesome, I had no idea. Let’s come back next year and rent something to try it out.”

And in a market as small as Panama, 1,000 new families deciding to “give Panama a try” in a year can have a considerable impact on real estate prices. And when rents in Panama go high enough for long enough, investors are willing to pay more for said property.

Rental prices on residential properties in Panama have started to go up since mid-2022. About a year after Panama opened its international borders for tourism. Go figure.

And finally, brand new hotels like the Sofitel and La Compania, both in Panama’s historic district, are already seeing high occupancy. And at an average of $250/night and up, the offering is bringing in a more monied traveler who may end up converting into a buyer.

These two hotels along with the building of a cruise ship terminal all began 5+ years ago and are all hitting the market right around the same time. IE, right now.

Conclusions

It’s always “too early to tell” when it comes to real estate predictions. It feels like things are falling into place, and Panama’s property market,

especially in Panama City, is gearing up for a more sustainable long-term run.

Rents are starting to come up. The streets are packed with tourists. Prices on goods and services haven’t changed much over the last 3 years. The economy seems to be humming along.

And we haven’t seen that combination of factors since 2006.

Kent Davis

Kent Davis, founder of Panama Equity Real Estate, is a leading expert in Panama’s competitive real estate market. Originally from Honolulu, Hawaii, he holds a Marketing Information Systems degree from James Madison University. After a successful corporate career managing multimillion-dollar inventories at Hajoca Corporation, Kent pursued his dream of living abroad, moving to Panama in 2007.
Driven by an entrepreneurial spirit, he established Panama Equity to connect buyers, sellers, and investors with Panama’s top properties. Known for his transparency, expertise, and market insights, Kent has helped hundreds navigate Panama’s real estate landscape. Fluent in Spanish, he frequently publishes market reports to empower clients with informed decisions.
Beyond real estate, Kent is passionate about Panama’s culture, landscapes, and surf-friendly beaches. He lives in Panama with his wife and three sons, embracing the vibrant lifestyle the country offers.