Various anomalies appearing in the condo market in Panama City over the past few years should have investors thinking twice about investing in the area. However, with a continuously growing economy in Panama, a profit opportunity could arise in the near future — keeping an eye on the market could prove to be beneficial. For more on this, see the following article from Pathfinder International.
The condo market in Panama City has been showing anomalies for the past three years. Anomalies can mean one of two things: profit opportunity…or something’s not quite right with the market. In the case of Panama, my view is that something’s not quite right.
I exited the market here two and a half years ago. A unit I had bought pre-construction for $1200 per square meter was valued at $2100. Nice, considering I only put 5% down and made 3 further payments of 5% during construction. Next door, the same developer was selling pre-construction units in an identical new development for $3000 per square meter. It just didn’t make sense. So I sold…walking away from incredible short-term rental yields.
Today, the “official” price per square meter of a condo in Panama City is $2,742. This means an average 100-square-meter condo will set you back close on $280,000. This represents a 2.9% increase on last year.
The past five years has seen an unprecedented boom in the construction of condos in Panama. The skyline has been transformed with cranes and new construction. As condo buildings complete, some buyers (mostly from the U.S.) find themselves unable to raise the funds to close on their condos. They need to sell–or they will lose their deposit, and maybe more. Many buyers had planned on raising funds from lines of credit in their home country. This route is no longer available to them. They are joining the growing ranks of motivated sellers.
A motivated seller will sell for much less than the “official” price per square meter. With the right contacts and information, you can buy a quality condo for $1,500 per square meter–more than 40% less than that “official” price.
Finding deals can be difficult. There is no MLS in Panama…and real estate agents guard actual sales prices and volumes like state secrets. Agents and sellers use this secret information to keep prices high for the general public. Many sellers continue to be unrealistic about the prices they are demanding. Buyers are negotiating hard. The result is that sales volume is substantially down. Something’s gotta give. Sellers will need to be more realistic. A stalemate between buyers and sellers can only go on for so long.
Three to five years ago, the opportunity in Panama was to buy pre-construction. Today, I recommend avoiding pre-construction here like the plague…unless you get your hands on a distressed sale.
The volume of supply coming on the market here in the next two years is alarming. It’s very difficult to get reliable information on how much supply will be delivered. Volumes quoted are typically based on permits applied for or received. This is a not an accurate indication of true supply numbers. Looking at Panama City’s skyline, you don’t need to be a rocket scientist to know it has been overbuilt in the past three years. Most of the new condo construction is priced substantially above what a middle class Panamanian can afford, limiting the market to wealthy locals and foreigners.
Where next for the market in Panama?
The key question: What will be the impact of all the new supply coming on the market in the next two years?
Rental yields are still strong. The short-term rental sector has seen increased competition, though, as more supply came on the market but the influx of foreign multinationals has increased long-term rental demand, picking up the slack. Meantime, the hotel lobby is pushing to make short-term rental less attractive (for us investors) by requiring that short-term rentals comply with the same regulations as a hotel. That would mean a tourist tax and paperwork to deal with. A growing local middle class is also helping to fuel rental demand. When I was in Panama a few weeks ago, it was announced that the group that recently won the contract to expand the Panama Canal needs up to 1,000 rental condos to house workers for the project. The mood on the ground is positive. Panama’s stellar economic performance continues.
I’m bullish on Panama’s prospects. They have continued to grow throughout the recent crisis despite their exposure to banking and global trade. Their financial system is solid and they are extremely well-placed to capitalize on a global recovery.
Too much supply is too much supply, however. There’s no getting away from that.
Even assuming the economy continues to grow I expect the next 3-5 years here will be spent absorbing this supply. There’s a lot going on here, and this is very much a market in flux.
I’ll be watching this market carefully…I’d jump on the right distressed deal… but for the moment I won’t be investing in the Panama city condo market.
This article has been republished from Pathfinder International. You can also view this article at Pathfinder International, an international real estate news site.