Real Estate In Panama City (read it all and comments)

Panama City: the reality

Wednesday, July 07 2010 @ 09:30 AM EDT
Contributed by: Don Winner
Views: 25
By Catherine Deshayes for www.themovechannel.com – Before you consider investing in Panama, follow these tips from Pathfinder’s Margaret Summerfield, who has lived in the country for the last three and a half years… Margaret says, “I’ve lived in Panama City for the last three and a half years. And I started studying the real estate market here four and a half years ago. I love living in Panama City, but I still haven’t bought a property here. And you shouldn’t either-until you read this. Sure, you’ll see those headlines about Panama’s strong economy (forecast growth this year: 5%). And you’ll hear the talk about all those multinational companies relocating their regional headquarters here (Caterpillar, Proctor & Gamble), and the properties their workers will need. Next it’s the mega-projects…the new Metro, port expansions, and the granddaddy of them all, the Canal Expansion.
The argument goes like this. A country with all these positive factors must have a strong real estate market. Therefore buying property for investment here makes sense. But that’s simply not the case. Back in late 2004 and early 2005, prime city waterfront condos in Panama were selling for £668 a square meter pre-construction. Fast forward to 2008, and those now-completed condos had price tags of £1671 a square meter. Then the cracks started to show. And I’m not talking about shoddy construction…

The asking price for new pre-construction condo projects on Avenida Balboa reached £2340 a square meter in 2008…but they were alongside those brand-new, finished units for £1671 a square meter. Built by the same developer, with the same amenities, finish quality, and views (and located only yards apart)-it didn’t add up. Why would anyone pay £2340 a meter…taking a calculated risk and waiting three years for delivery…when they could buy the same unit, finished, for £669 a meter less? The answer is, they didn’t. That price differential flagged up a market anomaly…a sign that something wasn’t right. The city condo market was saturated…over-supplied.

Then the economic slowdown in the US hit. Americans comprised up to half the buyers of prime city condos at the height of the boom. That pool of buyers dried up. Coupled with that, banks here tightened their already conservative lending policies, leaving buyers without the funds for purchasing property. So the market slowed. It hasn’t crashed Florida-style, though. You don’t see foreclosure auctions (the banks handle foreclosed properties so discreetly, you’re unlikely to know that your neighbour’s in foreclosure, unless he chooses to tell you). You don’t see properties advertised at 50 cents on the dollar, either. A chunk of property owners (Venezuelans and Colombians) don’t want or need to sell. They see their Panama property as a safe haven for parking money…a better bet than banking in their home countries.

What you do see are fire sales, from owners (usually American) who bought preconstruction 3-4 years back, and now can’t afford to close. Their circumstances changed…or the banks’ tightened lending means they can’t get financing now. They stand to lose the 30% of the purchase price they’ve paid to date if they don’t close, and they’re looking to claw some of that back. And to do that, they’re offering properties in some cases for less than they agreed to pay 3-4 years ago for pre-construction. Yet their units are now finished and ready to move into… So, my advice is this:

Don’t buy here for investment right now. Don’t buy pre-construction (it always carries a risk…which is not worth taking in a stagnant market). Don’t buy for flipping, or short-term capital appreciation. Don’t expect the double-digit short-term rental yields we saw in previous years. More completed condos come on the market daily. Their owners can’t sell, so they decide to rent. Many property managers won’t take on new condos. They’re trying to shore up occupancy rates for existing owners. Hotel occupancy is down around the 50-60% mark (from a high of 84.7% in 2007). The hotel lobby wants short-term condos (which they see as unfair competition) registered with the tourism authority, and paying the 10% a night tourism tax. Worse than that, they want a minimum 45-day stay in short-term rentals. We’re still waiting for a decision on this.

Having said all that, buying in Panama may still be right for you. If your plan is relocating to Panama, or spending a chunk of the year here for the longer-term, then buying here makes sense. But look around, and find yourself a fire sale-a property at an unbeatable price. There is no MLS (Multiple Listing Service) here, so you’ll have to contact different real estate agents to see what they have. P.S. Don’t get me wrong. Panama is by far the best country in the region for living, setting up a business, or moving with a young family. It boasts the only truly cosmopolitan capital city, the best infrastructure and medical facilities in Central America…all with a very exotic Latin flair. I love living here…but Panama’s not an investor’s market right now.

Written by Margaret Summerfield for TheMoveChannel.com

Editor’s Comment: Most of the time when I read these kinds of articles, I cringe. Let me start by saying that I agree with about 95% of the content of this article. There are a few details I would quibble with. For example – the issue of the hotel owners wanting to make apartment owners register their apartments as hotels, pay the 10% fee, and all of that. They tried it, I called them on it, and it’s now a dead issue. The Tourism Administration tried to slip in a quick Resolution that had the actual affect on the ground of changing the basic property rights of all property owners in the country. It was a stupid idea to start with, they did completely wrong, and once we started holding their feet to the fire they backtracked and quickly issued another resolution to nullify their first resolution. In other words, it’s not going to happen.

Rental Market Softens Anyway: Regardless of the whole short term rental issue, there are literally thousands of units that will be delivered in the next year or so, and the return on short term rentals will be coming down due to oversupply and very basic rules of supply and demand. Also, back when hotels were at very high occupancy rates everyone all had the same bright idea at the same time – build more hotels. Now there are dozens of new hotel projects under construction, and when all of those rooms come online that will add further downward pressure on the short term rental market. So, it’s not a good idea right now to buy an apartment if your only intention is to rent that property out in order to make investment income. However, if you’re looking at retirement ten years down the road and if you think you might want to have an apartment in Panama City as a retirement pad, then it might be a good plan to buy an apartment and rent it out, with the intention of simply having the property pay for itself over time. Even if the rental market softens substantially, you should still be able to get enough of a return to break even, pay all fees, and the property pays for itself. The “return” or “income” is a free apartment in the long term. But, you have to think strategically, and not tactically or short-term.

About the Value of Real Estate: The builders and developers first sell about 50% of the building at cost – at “pre construction” prices – in order to raise enough money to actually build the building. The remaining 50% of the apartments are their profit. The initial buyers foot the bill for the building, so the rest is just money in their pockets. Want to know why there hasn’t been a price crash in the Panamanian real estate market? Because the guys who are holding all of those apartments see them as money in the bank. They don’t have to sell them any time soon. They’ve seen demand come and go, and they are certain that eventually the buyers will return. When they do, they have a product to offer them. Prices only “crash” when the owners are either forced or compelled to sell for some reason at a lower price. If you are living in your home the value of that property might go up and down, but since you’re not selling – what do you care? It’s your home, not a piece of real estate on the market. The only people who are really getting hurt in this market are the speculators who bought up a bunch of apartments intending to flip them in a hot market and to make a killing. Now, they have already committed large amounts of cash as down payments, they are committed in contracts to follow through and buy those apartments when they are delivered, and some of those will be coming up for sale by people who just want to get their capital back out of the market and to walk away relatively unscathed.

Buyer’s Market: Right now there are deals to be had, and there will be more coming available soon. If you’re a buyer you have a virtual buffet of properties to choose from. The properties in the $200,000 to $300,000 range are still moving well. The higher priced $600K and above market is very tight – and almost nobody can sell anything at those prices. The few buyers that exist have hundreds of newly built luxury apartments to choose from. So, if you are thinking about buying something, take your time, shop around, and bargain hunt. If you’re not below $1,500 per meter, you’re not trying. Anyway, other than that, great article…

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