A construction boom in the Panama City metro area has sparked fears that the real estate market is becoming overbuilt. To investigate this phenomenon, NuWire asked local experts for their take on the construction activity they’ve observed in Panama City. While opinions regarding the short-term outlook for Panama City’s real estate market vary, experts generally agree that a period of high speculation and property flipping is coming to an end, and that the market now shows more potential as a location for long-term investment.
Construction in Panama City has been “incredibly active,” Paul McBride, CEO of Prima Panama, said. According to his company’s market research, nearly 50,000 new condominiums are being offered for sale in the Panama City metro area, but with fewer than 8,000 units completed in the past three years, the “vast majority of inventory is yet to be delivered,” he said.
The ongoing condo craze may prove to be problematic for Panama City’s real estate market because it does not necessarily reflect demand from the end user—the buyer who ultimately moves into the unit.
In the outlying area of Boquete, end user demand for residences has “slowed dramatically,” and developers have adapted to this trend by slowing down construction, according to McBride.
The majority of condo construction in Panama City, however, is based on speculation, not on end users. According to market research, investors and speculators make up nearly 70 to 80 percent of buyers in the Panama City preconstruction market, McBride said.
It is difficult to predict what will happen when the profusion of condo projects reaches completion, but current trends hint at the possibility of an excess of supply, resulting in downward pressure on prices.
“My suspicion is that when there is a large delivery of condominium units…in the city, which should occur [between] 2009 [and] 2011, that is when prices will begin getting tested,” McBride said. “Particularly if you have a large number of speculators who [are] unable to sell prior to the completion of the building [and] decide to walk away from their contracts, rather than come to the table with several hundred thousand dollars at closing.”
Other experts, however, believe that Panama City’s construction boom has not posed a huge problem for the local real estate market.
“I don’t think it’s getting overbuilt,” Jeff Duda of Panama Casa, a property management company, said.
One reason is that the quantity of units for sale relative to the actual population of the city—which numbers around one million people—is small, according to Duda. The quantity of units available seems even smaller in light of the international baby boomer population, an important demographic expected to flock to destinations such as Panama.
And given the small area and concentration of the city, “[construction] looks bigger than it really is,” he said.
The market has also stayed afloat as money pours in from foreign investors outside the U.S. While American buyers struggle to free up capital as a result of the housing crisis and strict lending standards, “Europeans…with their strong currency, have stepped in where U.S. investors could not,” Matt Landau, founder and CEO of The Panama Report and a real estate consultant based in Panama City, said in an e-mail interview.
Although some investors have already encountered difficulty in selling their new condos in Panama City “it’s not nearly as bad or drastic as anyone expected,” Landau said. “Not yet, at least.”
The bottom line for investors, however, appears to be that the sharp curve of growth in Panama City has probably seen its heyday.
“If you’re looking for purely high appreciation, it’s probably late in the market for that,” Duda said. “[The market holds] decent value but it’s not underpriced anymore.”
On the bright side, Panama City’s strong local economy and low-cost quality of living will likely drive positive long-term growth, and the market still offers significant—but different—opportunities for investment.
“Whether demand will actually materialize for all the construction that is currently planned, that’s a big unknown, and we’ll just have to see,” McBride said. “But [as a] medium and long-term [investment], we’re really bullish about Panama, and I think that it will remain a very attractive [place] for people to consider [for their] primary residence or second home.”