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Year-End 2017 Panama Property Report

Year to date, total sales of Panama properties either in pre-sale or in construction have topped just over US$2 billion, with an average of 1,300 units sold per month.

That figure is down by 11% compared to the year prior, when a total of 14,839 units had been sold at this point in 2016.  The majority of the reduction came from the US$400K+ segment, which has been affected by a strong USD, conservative bank lending policies, and ineffective government support of the tourism industry.

 

Despite the Lackluster Headlines, There Were a Few Points of Optimism

  • Of the 574 residential projects on the market (which represent a total of 29,152 total units), only two projects were taken off the market.ew supply has been reduced by 8% since this time last year.
  • Of the 29,152 units currently on the market, 59% of them are still in the pre-sale stage, meaning they have not started any construction (and thus will not affect actual supply if the projects are put on hold or canceled altogether)
  • The sub-US$120K sector continues to show strong numbers, with nearly 8,326 units sold year to date

It comes as no surprise to anyone following Panama’s pre-construction market that the numbers are soft. The short term forecast for appreciation and absorption will depend on how Panama fares in terms of executing infrastructure projects and how trends in the global economy shape up in general.

 

A few questions to consider:

  • How will the 50% reduction in the property tax, which is now law and will take effect in 2019, affect the market in terms of liquidity?
  • How will the market react to improved sidewalks, new parks, better lighting, and eased traffic conditions in neighborhoods like El Cangrejo, Marbella and Bella Vista?
  • What will the impact on the rental and sales market be once Panama City’s mega projects (Amador Cruise Ship Terminal, Metro Line 3 and the 4th Bridge over the Canal) start and are ultimately delivered?
  • How will the Ministry of Transport’s initiatives (new buses, Metro Line 2, new traffic routing patterns and parking enforcement) affect quality of life in Panama City?

In general, the pre-construction market has always been of interest to far-sighted investors and those looking to leverage capital, so it’s a good indicator of overall interest in Panama’s property market.  But given a 2+ year supply, it’s hard to count on appreciation over the construction stage, which is one reason we’ve seen sales in that segment slowing down this year..

As Warren Buffet once said, “Sometimes a bird in the bush is actually worth more than a bird in the hand.” And right now, Panama is full of birds in bushes 🙂

What We Can Pretty Much Count On

  • The USD$ will go down.  When it does is anyone’s guess, and what the world will look like at that time no one knows.  But when the Dollar gets devalued, Panama gets cheaper for non-dollar based buyers from countries like Colombia, Brazil, and Canada (three of Panama’s biggest buyer demographics over the last decade).  And that buying activity extends throughout all sectors of Panama’s property market, including the pre-construction market, the rental market, and the market for existing properties
  • Panama City will have completed a total face lift over the next three years.  New green spaces, improved pedestrian infrastructure, a vibrant Old Quarter, and a massive new cruise ship terminal — these are all projects that have already started and are guaranteed funding through completion.
  • Panama has yet to reap major benefits from the expanded Canal orthe robust mining sector..  Assuming production numbers from Canadian giant First Quantum are accurate, the mining sector will go from 4% to 12% of Panama’s GDP.  Numbers like that tend to move the needle across the market, including real estate.
  • Panama’s major crime rates are dropping and new policing initiatives are being rolled out to the tune of hundreds of millions of dollars to ensure that crime stays low.
  • President Varela’s focus on social initiatives like health care, schools, and urban renovation are long term plays, a sharp contrast to his predecessor who threw money in the air (and coincidentally into his own pockets) for five years.  Results will be felt over the next 20 years and may improve upward social mobility for Panama’s middle class (read: more first time home buyers and higher purchasing power overall).  
  • The new dawn in diplomatic relations with China will have an impact in Panama.  Whether from shiny new infrastructure projects (like the train proposed to run from west to east), or from capital injections in stalwart industries like logistics, Panama is likely to see an uptick in job creation and all of the other benefits that come with a new, rich best friend in tow.

 

The Rest of the Property Market

Moving away from pre-construction, downtown condo rentals are soft, as is the resale market of properties listed at over US$250K.

According to in-house sales results, MLS reports, and conversations with fellow real estate agents, the market seems to be picking up slightly, but still nothing like the boom days of 2008.

During the month of November, Panama Equity received accepted offers on over US$5 million worth of properties (across our three offices), including three US$1 million+ sales. That figure is higher than our six month average and the number of property showings is up by nearly 100% compared to the prior six months.

The most surprising trend we’re seeing is that the local market of Panama-based buyers is starting to pick up, which is a great sign for a market that’s been fairly cautious these last few years.  That could be due to improving business conditions, optimism about the future, financing support or just plain coincidence and not a trend at all (because I can only speak for us and not the market in general).

For-rent, investment-only properties remain soft, given the declining returns due to a rather stagnant rental market. This segment should, however, pick up as Panama’s major projects of 2018 break ground and engineers come in from overseas.

The market is still absorbing all of the new supply that came on over the last few years in places like Balboa Avenue, Punta Pacifica and El Cangrejo, where rents are down by as much as 20% and vacancy is up by a similar figure.

Larger investors chasing yield are going after multi-family properties with 20+ apartments, which usually start around US$2 million andare still relatively scarce in terms of supply.  In these types of investments, gross returns can reach as high as 9% and economies of scale on the property management side start to kick in to juice cap rates.


Conclusions

Has the Panama City US$250k+ market hit bottom?  From a pre-construction standpoint, I would say no.  There is nearly four years’ worth of inventory given current demand and while some of the projects in pre-sale may never make it to the construction phase, many of them will push forward with bank-required minimums and limp along with 1-2 sales per month until well after delivery.  There are, however, a few bright spot projects in the pre-construction market that are either about to hit the market or are already selling, so that market is by no means toxic.

From a resale (existing inventory) standpoint, I would say we may be flirting with the bottom, but it’s still a buyer’s market, so having an informed, savvy, and aggressive buyer’s agent is key.  .

And, we believe in the potential of China — so much so that I’ll be heading to Shanghai in December to participate in a luxury property show.  During my visit, I’ll be meeting with investment groups, real estate agencies, and immigration specialists in the hopes of planting seeds for Panama’s next wave.  Wish me luck!

Thanks for taking the time, and thanks as always for your business.

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