Developing Real Estate in Panama (Part Two)
Approval Process & Finding The Right Partners
There’s a saying in Panama “Lo barato sale caro,” which literally translates “the cheap ends up being expensive.”
In other words, you get what you pay for and when it comes to choosing the right partners for developing real estate in Panama, it’s wise to do your homework, ask around, and choose your partners carefully.
“We hit a home run with our current builders, but it wasn’t easy finding them,” says Brian Wagner, principal with Basis International managing director of the Casco View development just outside of Panama’s historic district Casco Viejo. (See part one for a biography on Brian Wagner)
“At the end of the day, Panama is a small country and word gets around quickly. Everyone knows who the bad guys are. The problem is, the ‘good guys’ are few and far between, and often you have to lobby to get them to bid your project.
We ended up getting some really good intel from the cement guys, who knew which builders were good and which builders had a reputation for doing sloppy work.”
Gema Fercasa, a Spanish developer who came over with her family from Spain in 2011, suggested speaking with the inspection agencies, in her case the firm Avance who are responsible for construction oversight and building code compliance. According to her, “The agency had a presence on job sites for years, and they knew who did good work and who didn’t. We valued their insight on builders and even suppliers.”
The bank was also helpful in vetting potential partners.
“Banco General is really difficult to work with because it was always one document after another, but at the end of the day, we found out that was pretty normal for banks in Panama. We found Banco General to be really valuable partners because of the demographic we were targeting, which was the Panamanians. They were eager to get our business and helped on the construction financing and also by making credit available to our buyers. They ended up being fantastic partners and were even able to give us a few builder recommendations.”
On the legal side, both developers had retained several attorneys each. In Gema’s case, we “have one attorney who deals with all of our labor and supplier contracts, another one who has connections to help speed up permits, another one who is in charge of the real estate sales side, and several others as back up just in case one is overwhelmed.
The Start Of Construction
Once construction financing, approvals, and presales are in place, it’s time to start building.
Off to the races?
Not so much, as time is never on your side in Panama, it seems.
At some point along the way, every project will inevitably have to sludge through a rainy season or two or three or four….
Both developers mentioned, during the course of our research, the inexplicable delays that they faced when dealing with parts and service on equipment. Gema recalls “finding parts can really kill your construction schedule in Panama. I remember we were stalled for almost two weeks because one of our machines broke down and there were no parts available locally. We had to find it overseas and fly it in, and it went through customs first. We sure weren’t planning on that, and we came to find out that it was going to be a common occurrence throughout the project.”
Labor is also always going to be an issue in a country where protectionist laws exist and unions are strong. Panama is no exception.
Gema laughs when recalling days that she had only 35 of her 150 workers show up. “One day, the water was out in San Miguelito, and most of my guys live in that area, so they just didn’t come to work. Another day, there was a big traffic jam on the way to work, so again, they skipped out. By law, Panamanian workers can miss three days per month with no motive or permission and not be fired.”
The unions are also very strong in Panama. The law is that for every 100 workers, a union official must be present. Suntracs, the local constructors union is a powerful organization in Panama and when they go on strike, which fortunately is not too terribly often, work can be lost for days and even weeks at a time.
Bringing The Product To Market
Both developers reported strong sales. In fact, Gema’s project sold out within 8 months and Brian Wagner’s development is just over 60% presold before construction on Casco View has even begun, and both developers plan on doing it again once their current projects are completed.
Mortgages in Panama are still relatively easy to obtain, and most of the buyers in our two developer’s cases purchased with help from a local bank.
“We were really successful with Tribaldos, who did a great job on the marketing side for us” reported Gema, who’s project was designed to go after the local market of buyers under the $150,000 price point.
And according to Wagner, they have had success with local real estate fairs like ExpoVivienda along with onsite marketing at the project.
“In our case, we’ve got two very distinct markets. The project was designed for the Panamanian buyer, but we also ended up getting a lot of foreign investors who appreciated the price point of our project and saw the potential on the rental side.”
“The fact that we plan on offering onsite property management really appealed to buyers looking at renting out their properties after they closed.”
Foreigners have been successfully developing real estate in Panama for years, and for every success story there are at least three failures. As is the case with any business, real estate or otherwise, anywhere in the world, choose your partners wisely, do your homework and understand your market.