Panama: Boom or Bust?

While most of the world faces downward-sliding real estate markets and a global credit crunch, it is easy to assume that Panama’s real estate market will follow. On …

While most of the world faces downward-sliding real estate markets and a global credit crunch, it is easy to assume that Panama’s real estate market will follow. On the other hand, perhaps a speculative real estate boom has coincided with a variety of real geopolitical events that enhance the intrinsic value of Panama’s real estate market in the wake of new trends related to globalization.

Boom potential

Panama has been posed to grow exponentially in terms of tourism and real estate, particularly with baby boomers and other retirees and expatriates looking for affordable alternatives to well-established markets such as the Caribbean, Mexico and Costa Rica.

Over the last several years, Panama has emerged as one of the hottest international destinations for tourism, real estate and business investment. Panama City hotels have doubled their rates and still there is almost no vacancy. Million- and billion-dollar projects are scheduled throughout the country, and real estate agencies have sprouted up on every corner.

Condo prices have doubled and in some cases tripled and land prices in some areas have appreciated 10 times or more. Taxes have increased.

In the eyes of much of the world, Panama City is not the same city it was even just five years ago. Panama has entered the world stage in terms of business activity and is rivaling Miami as a regional hub for Latin American business and finance. It is also just 2.5 hours from Miami and there are direct flights available to almost every capital city in Latin America.

Some of the factors pushing jobs to places such as China and India have also pushed companies to set up regional headquarters in Panama, pushing Panama’s GDP growth to the highest in Latin America during 2007. Extreme growth in the global economy increased traffic at the Panama’s Canal more than ever, and the Colon Free Trade Zone has continued to flourish in the wake of increased activity from China, India, Brazil and other rapidly expanding economies.

Panama City speculators

For those who believe in an impending crash, there is no doubt that much of the investment in Panama was based on speculation. That is, many buyers purchased property simply to re-sell at a higher price later, with no intention of using their condo or no plans to build on their land.

Most speculative investments in Panama occurred in the Panama City condo market. International investors could fly in and buy multiple units with 10 percent down and no credit check of any kind. In some cases, buyers wired money based on a picture and a price list without ever visiting Panama.

The U.S., Canada and most other advanced economies were still undergoing an unprecedented real estate boom at the start of Panama City’s real estate frenzy back in 2005 and 2006. Many North Americans withdrew freshly-discovered equity out of their homes to put deposits down on Panama condos.

Billed by some as the number one retirement destination, the media picked up on Panama and North Americans flocked there. Towers sprouted up and developers threw up renderings of new projects faster than you can say “overbuilt.” In some cases, prices doubled before any construction began.

Many people have forgotten the details of the last real estate crash in the U.S., back in the early 1980s when interest rates rose to double digits. The burst of the housing bubble in the U.S. has trickled down to Panama, as there is no denying that the Panama real estate rush has slowed, but this does not necessarily mean prices will crash as they have in other markets.

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Traditionally, Miami and South Florida were the hub for Latinos for stable banking, investment, shopping and lifestyle opportunities. After Sept. 11, Miami began losing its luster as a place for wealthy Latin Americans to park their money and/or start businesses. U.S. visa laws inhibited the ease of travel for many Latinos and real estate prices in South Florida rocketed to astronomical levels. And after a few treacherous hurricanes were accompanied by exorbitant increases in property taxes and insurance premiums, South Florida had become far less favorable for many Latin American investors.

As the South Florida real estate market began its rapid decline, Latino investors looked to Panama for rising investment opportunities. These same factors also drove a lot of non-Latino Americans to look at Panama for investment instead of Florida or the Caribbean, a more traditional location for retirement in the tropics.

Hugo Chavez’s socialist policies drove many Venezuelan buyers to escape to Panama with their families, their money and their business ideas. Panama’s stable banking system made for an ideal alternative for Venezuelans to get as much money out of Venezuela as possible. Although most Venezuelans do not get along with their Colombian neighbors, and vice versa, Panama is seen as a neutral place for both parties.

Colombians have always affected Panama City real estate, which is an ideal place to launder money. Why store money in a bank when you can store it in a condo tower? Ecuadorians, Brazilians, Argentineans and many other Latin American nationalities played a role in Panama’s growth, particularly in Panama City.

Dollar decline good for Panama

As the U.S. dollar declined sharply against the Euro, Panama’s real estate prices began to look attractive to Europeans. With real estate opportunities evaporating in Spain, large-scale Spanish developers wielding Euros stepped in and pushed demand for Panama real estate much higher.

Several large-scale projects in Panama are being developed by well capitalized Spanish developers with the marketing muscle and contacts to promote their projects to buyers from Spain. New direct flights from Amsterdam will make Panama even more accessible to major sources of second-home buyers in the United Kingdom and elsewhere in Europe.

Related to the decline in the U.S. dollar is the appearance of inflation in Panama, particularly building costs. The fact that building costs have increased 40 to 60 percent over the past three years (some materials have increased that much in just a few months) and that land costs have risen at least that much, this raises the floor for Panama City real estate because builders cannot build at the old prices and still make a profit.

City planning, although chaotic and hardly controlled, is starting to tighten, thus raising development costs. Rental rates in Panama City are still high relative to purchase price and rental availability is low, offering some support to price levels. Compared to almost any major city in the world, real estate per square foot in Panama City is still cheap.

Potential correction

There may be a correction for Panama City real estate in the next couple of years in which some speculators will be forced to sell at less of a gain than they expected. Purchasers buying at today’s pre-construction prices may even experience a loss if they try to sell in the next two years (that is how long it will take for many of the buildings under construction now to be completed, and that is when the developers will discover who is actually able to pay the balance due for their condo and who cannot).

With bank financing tightening around the world, Panama’s banks will not be dishing out loose loans to foreigners with weak credit based on super-high sale prices as they once did. Some speculators are bound to get caught with their pants down. Those with a longer term outlook—say, five to 10 years—will probably find that their Panama property has appreciated nicely.

Panama won’t bust as bad as the U.S.

In Panama, most foreign buyers were not in need of the 0-percent-down mortgages, cash back incentives or 3 percent interest rates that were integral to the U.S. housing bubble. Loans where the monthly payment does not cover the interest (and the unpaid interest is then added to the principal) do not exist in Panama as they did in over-leveraged markets. Most foreign buyers of condos in Panama put down at least 30 percent cash, and in the case of land, they often have no financing at all.

Of course, many U.S. buyers refinanced their properties at home in order to free up cash for their properties in Panama, but for the most part, buyers in Panama would not be considered sub-prime borrowers. Typical American sub-prime borrowers do not drop $50,000 cash into a project such as the Trump Ocean Club or any other distant real estate investments requiring large cash deposits. Most buyers plunking down deposits on Panama property are working with risk capital and are not entirely dependent on easy credit.


A much bigger threat to Panama City real estate will be the strain placed on water systems, demand for electricity, traffic congestion, parking issues and other infrastructure that was not designed to handle a large and swift increase in growth.

One would expect city planners to be on top of calculating the future needs of the city’s infrastructure, but in reality planning was never one of the Panamanian government’s big strengths. Usually, something must break in Panama before anyone bothers to fix it.

With an election looming in 2009, many costly infrastructure improvements may be shelved and left for the next administration anyway. Without proper planning by Panama’s authorities, all those people who flocked to Panama will desert it and run back to where they came from.

Where to buy now

There are still areas of Panama that have not been overly speculated and may still be considered bargains relative to parts of Costa Rica or Mexico. These locations are where retirees and snowbirds would enjoy living and where highrise towers are not springing up by the dozens, areas that offer a quiet, peaceful existence and a growing expatriate community in which to live. With the retirement wave still in its infancy, locations that deliver from a lifestyle point of view are still good places to invest.

Far from fully exploited, underdeveloped resort areas including Pedasi, the Chiriqui coast, Coronado-Farallon and the Caribbean near Portobelo will continue to increase in value as those areas develop.  Raw land in these areas should continue to appreciate over the mid- to long-term as tourism and retirement infrastructure develops.

Real estate prices in more established destinations such as Boquete, Sora and Bocas Del Toro will probably plateau in the near- to mid-term. Of course, much will depend on the government’s new master plan for tourism development. Any time the government steps in to regulate things, both problems and new opportunities inevitably pop up.

Farm land and agriculture

Agriculture, water and other commodities could be the star investment performers in Panama for at least another five years and probably more. Farm land prices will continue to rise as demand increases and supply stagnates. Interestingly, farmland prices throughout Panama have increased by at least the same percentage as a Panama City condo in terms of price per square foot. Persistent food shortages in Asia will put more pressure on food prices worldwide and therefore land that grows food will increase in value.

Farm land in Panama is relatively fertile and productive, with an abundance of water, and will likely appreciate alongside the commodities that it produces. Future U.S. dollar weakness may fuel this fire. Teak is happens to grow well in Panama and is a good commodity investment for many. Local builders are already using locally grown teak for construction in their housing and resort projects.


While Panama is not the bargain it used to be, remarkable changes have taken place to help shelter Panama from any dramatic form of real estate crash. The most exposed investors are those who speculated on more pre-construction condos than they could afford; the more recently they engaged in this investment, the more difficulty they will have finding a buyer to save them from losing their deposit money.

Panama’s coastal areas and cool highlands are still much cheaper than those in Costa Rica or Mexico and are likely to continue to increase in value as baby boomers retire. Over the next couple of years, Panama’s government will play an important role in the rise or decline of Panama, depending on how well policies and planning are implemented to balance its economic and infrastructure development.

Regardless of the outcome, Panama’s lifestyle advantages will still attract many newcomers from all over the world contributing to its diversity and cultural evolution.


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