December 28th, 2012 report on Panama by Kent Davis

December 28th, 2012

2013 is primed to bring Panama one of it’s most explosive growth years in recent history. This month, learn about the power of Canada-Panama relations, a record-setting year with the Panama Canal, Panama’s people listed as “Happiest In The World” and of course the inside insight into the real estate market.

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Construction shifts following demand
New starts up by more than than 45%

The vast majority of the condominium projects that dotted the Panama skyline for the last six years are finally being delivered, with reports showing that there are less than 2,500 condo units still in development between the waterfront areas of Punta Pacifica, Balboa Avenue, and San Francisco.

The numbers prove that the pipeline for new residential projects in the Panama metro area is down significantly as developers shift their resources towards non-housing projects, which are up sharply from last year. We’ve seen that most of the nearly 8,000 new condo units that entered the market over the last 24-36 months have had little effect on overall pricing, with condos being generally sold in the areas mentioned above at around 2007 pricing levels. There has also been strong absorption of the new inventory and according to an article in Capital Financiero, over 70% of the 2,500 units in the areas mentioned above and currently in construction are either “reserved or sold.”

AIn the first seven months of the year the value of approved construction projects amounted to $918 million, 45.3% more than in the same period last year. Of the total number of permits approved, $705 million worth was for projects to be developed in the capital, being mostly non-residential. Hotel, office, and mixed use commercial space continue to drive the construction market and have helped keep unemployment below 5%.

While privately financed projects in these sectors have kept Panamanian workers employed over the last six years, we believe that as these projects come to an end there will be more to follow. The city continues to grow to the east and to the west, and we’ve seen the focus shifting towards logistics centers near the airport, an expanded port and marina presence on the Pacific side, and more development in the country’s “interior.” Public works projects also continue at full steam, with the Panama Canal expansion project and the Panama Metro initative approaching full capacity.

This bodes well for the market in 2013, as the supply of brand new condos will be down sharply in the Panama metro area. Assuming demand will be as good or better in 2013 than it was in 2012, pricing gains are likely for select areas for this sector.

In other news, the Panama Canal ended their fiscal year last month and posted a $1 billion dollar profit, nearly $50 million more than what was projected. This money will go directly to the national treasury and be used to fund projects like roads, hospitals, and education.

2012 GDP is predicted to come out around 11%, leading Latin America and driven mostly by construction, financial services, and mining.

Panamanians and 2013
Consumer Confidence nearing 12 month highs

Panamanians are optimistic about 2013. According to an article published in the December 16th edition of Capital Financiero, the consumer confidence index is at 122, or 22 points above the equilibrium level. This is a marked improvement over the 12 months running average of 98 points, indicating an improving perception for 2013. One reason for this higher figure coming out in December is the fact that $326 million dollars of liquidity got injected into the local economy this month as a result of Christmas savings plans being liquidated, government and private industry “third month” bonuses, and dividends being paid. Christmas savings accounts alone accounted for $98 million of those dollars, the majority of which will be spent on gifts, home improvements, travel, and other big ticket consumer items like new cars and down payments for homes.

This coincides with a non-related report just published from Gallup Polls that said that Panama is home to the “happiest” citizens in the world. They asked 1000 citizens in each of the 148 countries five questions related to their previous day: if they were well-rested, had been treated with respect, smiled or laughed a lot, learned or did something interesting, and felt feelings of enjoyment. According to the article, 85% of Panamanians surveyed answered “yes” to all five. [Note: They must not have been driving at the time. Or on the previous day because that can make everyone lose their mind.]

The Panama-Canada Connection
Strong Canadian Industry in the Isthmus

New Canadian companies are taking a serious look at Panama as they see their competitors who are quietly reaping profits. Canadian banking giant Bank of Novia Scotia, or as they are known locally, Scotiabank’s net income increased a whopping 45% this year, led in part by an $8.6 million dollar increase on net interest income. They’ve had a three year market expansion focused on residential and commercial lending that has enjoyed tremendous success. Other Canadian companies are enjoying similar success, including a handful of major mine operators as well as engineering giants like SNC Lavalin who have been focused on the energy and hydro sectors in Panama.

Bombardier Inc, a large Canadian manufacturer of trains is also looking into participating in phases two and three of the Metro project, whose first phase is more than 50% completed.

According to Sylvia Cesaratto, the Canadian ambassador, the free trade agreement between Panama and Canada is going to open up a myriad of possibilities for Canadian companies who want access to the Panamanian market, and vice versa. Canadian agricultural companies have had a long history in Panama, and Mrs. Cesaratto expects the newly-agreed-upon bilateral activity between Panama and Canada to exceed the $235 million dollars from last year.

The mining sector is another area that Canadian companies have enjoyed success in over the years. While enforcement of environmental standards has always been very weak in Panama, one of the goals of the Canadian ambassador is to work closer with both the national environmental board (ANAM) and the newly created Ministry of Natural Resources. Inmet, who is operating in the Donoso copper mines, said to be one of the largest reserves of copper in the world, is by Canadian law required to operate by the same environmental standards as if they were operating in Canada. Although the reality is that enforcement of environmental policy and regulation of mining projects often is underfunded and under prioritized in Panama, the Canadian representative says that one of their goals for this administration is to work bilaterally with the Panamanian authorities to increase training, awareness, and oversight.

Over 30% of Canadian GDP is based on exports, with over 75% of those exports going to the US, and this free trade agreement is another indication that the Canadian government is looking to open up new doors for Canadian companies. The new Panama Canada free trade agreement, due to be ratified and made official in early 2013 will be yet another country that Panama has forged stronger economic ties with and a new market for Canadian imports and Panamanian exports.

Thinking about bringing your business to Panama or importing Panamanian products? We’ve got the connections, contact us today.

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All the Best,

Kent Davis

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