The cranes are back in full force! Panama is experiencing a second wave of pre-construction development and absorption of the new inventory has been strong. According to one builder, pre-sales in their Santa Maria golf community project are coming in at a rate of 5-6 units per month with more than 70% of phase one already sold out. Many believe that the doubling of Panama Canal revenues combined with the completion of the massive infrastructure projects by the end of next year will be the catalysts that drive real estate prices, which is why smart investors are once again looking at projects in construction due for completion around the end of 2014.
Why buy pre-construction? As an investor, the potential upside is huge, but there are also some downsides. If you are in a position to put down 10% on a $400,000 condo to be delivered in — say, three years (which we all know in Panama means four) — you are essentially optioning at 2013 prices and banking on an increase over the time that the project takes to complete. As an investor looking to flip before completion, timing is critical.
For the example above, if you sell your position in three years’ time for, say, $440,000 then you just doubled your investment.
Let’s take a look back in time: real estate prices in Panama doubled and in some cases tripled between 2005 and 2007. Pricing on condos for sale in Panama City, Panama have been flat over the last 24-30 months, but we have been tracking a noticeable uptick in certain areas of the city, meaning the timing may be interesting to once again consider an investment in a development under construction.
For the end user, if you are planning on living in your condo once it’s completed, putting down 10-30% towards the purchase price may make financial sense. Maybe you would like to invest the balance of the purchase prior to closing and liquidate when funds are needed, or maybe you are planning on selling other assets between deposit and closing so a longer payment structure suits your financial position.
Either way, there are also risks when purchasing pre-construction condos in Panama.
The inherent risk of purchasing pre-construction is that you cannot see, touch, or feel the completed product. The quality of construction and finish level vary tremendously in Panama, and it is important to only consider pre-construction condos from reputable builders who are well funded, have all of their approvals and permits, and who provide detailed, unbiased contracts. Don’t believe the promises about “high quality” building materials, extra amenities, the best parking spaces, etc. and make sure to get everything in writing!
According to a country-wide real estate agent survey conducted by Panama Equity Real Estate last year, the estate agents we interviewed said that the three most reliable developers “completing the best product in Panama” were Bern, Corccione, and Aleman Arias/Grupo Los Pueblos Developers. There are a handful of other reputable builders out there, and there are also several that you should avoid.
Another factor to consider is timing. Most if not all new developments in Panama are delivered late, so don’t plan on two years being two years.
While the benefits of purchasing pre-construction in Panama have proven to be strong, the key to selecting a good pre-construction project is to do your homework and work with an informed, impartial Panama real estate agent.