The Panama real estate market took an uppercut to the jaw with the release of the Panama Papers, back in 2016.
A subsequent series of financial scandals, an inept president, and a strong US dollar that kept traditional Panama property buyers, such as Canadians and Europeans, on the sidelines continued to pummel the country.
A soft local economy, market inefficiencies, and an increasing supply still loom over this expat haven.
Despite this, construction continues, and the economy is set to grow by 4 percent in 2020.
But will the recovery happen fast enough? Will this allow sellers who’ve had properties on the market for 24 months or more able to find a buyer? And can Panama, like boxing great Roberto Durán, recover and come out swinging in 2020?
Factors at Play in Panama’s Real Estate Market 2020
In 2019, rental prices continued to slide. Property owners engaged in cannibalistic competition in the former Trump Ocean Club. (Now known as the J.W Marriot). This drove rental prices and the underlying value of the asset down to levels not seen for more than 12 years. Leaving a building that was once touted as ‘investor-friendly’ now worth less than the pre-construction cost.
Market inefficiencies have clouded buyer’s and seller’s abilities to assess the market. This is due to duplicate listings, scarce and often inaccurate (or inflated) post-sales data, and a fragmented and under-regulated marketplace.
Yet this has always been the case for Panama. Right from when it first landed in the international investor spotlight back in 2006.
Can the property market recover, and what will be the catalyst?
Market Inefficiencies
Opportunities for Buyers and Frustration for Sellers
When a property owner in Panama decides they would like to sell, they do not have access to market data. For example, how many days a property sits before it sells, or the final sales price. Both are metric comparables that North American and European investors take for granted.
To determine a selling price on their properties, owners generally have to rely on hearsay. Such as what the neighbors supposedly sold for. They then draw inaccurate conclusions based on mispriced properties published online. Or rely on a potentially uninformed real estate agent who is so eager to get a new listing they list the property at any price.
As a result, the property enters the market at 10-30% higher than true market pricing. So their property sits on the market and nothing happens. There could be dozens of buyers who would be a perfect fit for the property and even a negotiable seller. Yet the conversation never happens because the sellers are so far off the line that a deal fails to materialize.
No accurate real-time source for closed-sale metrics creates an opaque market. Sellers price properties based on subjective information. And buyers have few credible sources of market pricing to base decisions on and truly know if something is a good deal.
Transparency and efficiency are still missing in the Panama real estate market. And that will continue to suppress sales volume, with the main detriment falling on the seller’s side.
One solution that has been considered by past administrations was the creation of a public registry monitoring system. This system would log and categorize all property transactions into a public-facing database. This database could be organized by date, property type, area, size, and price. That would, of course, be tremendously useful for sellers (and property agencies) looking for real-time closed-sale pricing. As well as buyers seeking comparable-property stats.
Excess Inventory and What to Expect
In terms of new supply heavily outweighing demand, downtown Panama’s worst days appear to be over.
Take, for example, Avenida Balboa. The main thoroughfare stretching from east to west along the Pacific Ocean, next to Panama City’s banking district.
According to Galeria Inmobiliaria, there are a total of 1,309 units planned for delivery in the next three years along Avenida Balboa. The current number of units for sale on encuentra24.com ranging from $100,000 – $2,000,000 is 1,347. That’s out of a total of approximately 9,000 total constructed units in this neighborhood.
Based on these numbers, future supply represents roughly 15% of the existing units along Avenida Balboa. And at any one time, the same percentage of existing units are available for sale.
Fortunately, the absorption of existing units is starting to catch up with new construction. This bodes well for new projects and stronger pricing all around. You can see this by looking at the same figures in the prior 12 month period. It had 1,642 units planned for delivery. As well as 2,000 existing units for sale, or roughly 18% and 22% of supply, respectively.
Yields on property rentals are likely to continue their soft patch in 2020 in this neighborhood as well as other downtown Panama City areas historically known for attracting expat tenants. That being said, as the multi-billion-dollar infrastructure projects break ground and more multinational corporations enter the market, rents are likely to find a bottom this year. And will likely start to recover in mid-2021.
Considering available land and zoning restrictions in this upscale district of Bella Vista, this would be the strongest case for any neighborhood with near-term (12-24 month) appreciation. Especially if the much-touted beach recovery project moves forward.
As is the case in most Latin American countries, the development cycle from inception to execution depends on many factors. Including budgetary restrictions, political tugs of war, and resident opposition.
All indications, however, show strong momentum for the urban facelift since Lewis Berger won the initial environmental impact study bid. Here a 2020 budget of $30 million was allocated for the project. Panama Real Estate Market 2020
Panama Real Estate Market 2020
Panama still has all the underlying fundamentals that sparked a property boom a decade ago. It’s a US-dollar based country, has a territorial tax system, a competitive geographic location, and great lifestyle factors. Including great private schools, a year-round tropical climate, and it’s still one of the safest cities in Latin America.
Overseas investors who are looking to diversify out of a stagnant Eurozone, cash out of a peaking property market in Canada, or flee turbulent domiciles such as South Africa and Hong Kong continue to come to Panama in even greater numbers. Yet many leave frustrated because they have found prices are still high or they were never exposed to sellers who were aware of market conditions and willing to sell at a true market price.
Professional property agencies that can offer transparent, market-focused data to sellers and connect them to informed, qualified, willing buyers are the solution to this problem. Yet only a few exist in Panama.
Economic Cycles at Play
Make no mistake, while certain areas of Panama City’s property market are heavily dependent on foreign buyers and foreign renters, the vast majority of Panama’s property transactions still involve Panamanians. And while they are not necessarily the majority in the high end, $400,000+ category, locals still comprise the largest single demographic of buyers and sellers in Panama.
Since unemployment is at a 10-year high of nearly 7 percent, incoming president Nito Cortizo has already started to address this figure in the form of job-creating policies and initiatives such as infrastructure projects and new legislation designed to lure in more multinational corporations, all of which will be good for the real estate market, including both buy-to-let properties as well as first-time homebuyer sales.
GDP is expected to grow by nearly 20 percent on the heels of strong canal traffic and new inflows from gold and copper mining. What’s more, the agricultural and industrial sectors are set to see improvements as the new administration focuses on increasing exports and courting new manufacturers.
All of these sectors fuel property demand, both in the form of job creation (first time home buyers), corporate multinational rentals, and foreign direct investment into the property market. Panama Real Estate Market 2020
Tourism as a Bellwether
Never before in Panama’s history has the recovery of the tourism sector been such a national priority. And one can argue that there is no single industry that contributes more to foreign direct investment in Panama than tourism both at the beginning and the end of the property sales cycle.
And as the saying goes, a rising tide lifts all ships.
Simply put, an influx of tourism dollars often begets a scale-up on hiring and an increased exposure of Panama to new potential buyers visiting for the first time. And then, of course, all of the revenues created from any subsequent real estate transactions, not to mention an increased demand (created by job growth) for rental properties. Needless to say, said influx could have a ripple effect.
New alliances with airlines such as Lufthansa, Emirates, and Air China combined with the opening of the expanded Tocumen International Terminal 2 could mean that Panama’s tourism sector will finally start to see positive numbers after a nearly six-year lull.
For the last 15 years, foreign buyers have comprised a large part of the property owners for the downtown and beaches areas. And as tourism numbers increase, more foreigners will be exposed to Panama. This means excess supply is likely to disappear if Panama plays its tourism card right.
Tourism’s effect on unemployment is just as important which, when considering secondary industries such as retail and transport/logistics, comprise more than 20 percent of Panama’s overall economy. Panama Real Estate Market 2020
Disruption in the Industry
The planned beach along Avenue Balboa will move the needle on property prices in and around the city, particularly along the Cinta Costera. And of course, there will be sellers who decide to rent and wait to take advantage of the rising values, but there will also be property owners who cannot afford to wait for the project to be completed.
Other megaprojects that will finally come to fruition and have a direct impact on both rental and purchase demand are the one-two punch on the Amador causeway that is the opening of the new Cruise Ship Terminal (April 2020) and the opening of the Amador Convention Center (March 2020). But again, the effects will be more mid-term.
On the supply side, traditionally generic, copy-cat developers who for years have been installing the same modular kitchens and designing buildings with the same cookie-cutter amenities are finally starting to break the mold with innovative projects and tried-and-true celebrity endorsements.
Projects such as DAO Panama have taken a page from New York developers and will install keyless-entry systems throughout the building. Onsite pet-care and pet-friendly facilities are slated for the new Velure project in El Cangrejo and rooftop community gardens in the new Casa Parque are all expected to break the mold as well.
Construction Quality as a Benefit
Ever since the 2006 boom, the quality finished product has been in short supply, as developers were more focused on churning out a product to an indiscriminate buyer than they were on creating long-lasting, aesthetically pleasing properties.
Savvy developers have realized that reputation and build-quality are both factors that influence buyers in a competitive market. Considering that, it’s no surprise that a handful of forward-thinking, mostly second-generation builders are finally starting to spend time and resources on delivering quality products in the form of durable building materials and superior construction oversight.
New Legislation
Project finance legislation slated for 2020 could also disrupt the industry by allowing a banking product for developers to unlock the equity tied up in unsold units by converting them into rent-to-own properties. It remains to be seen how this increased supply in apartments for rent could affect the overall market, as the reduction in for-sale properties would see a directly proportional increase in the offer of rental properties and corresponding pressure on rental prices.
What’s more, the traditionally tenant-leaning leasing laws are also up for constitutional review in 2020 and, if changed to favor the owner’s side, could have a very positive impact on conservative investors who have sat on the sidelines because of eviction and truancy concerns.
In Conclusion
Panama has always benefited heavily from major infrastructure projects like the expansion of the canal or the building of a Metro Line. Jobs are created, executives relocate to the region, and businesses open to support the billion-dollar megaprojects that can take years to complete. Panama hasn’t seen one of those projects start for more than five years, and bids have just been awarded for two such projects, both likely to start in early 2020. That will help, but that alone will not be enough.
Increased tourism will directly benefit the property market across nearly all price points and areas in Panama City and the beaches areas, bringing an end to a 3-year correction.
And if multinationals establish corporate headquarters and bring foreign direct investment (and then manufacturers follow suit) it will likely shore up and ultimately increase rental prices and property values for the downtown and fringe areas of Panama City.
And finally, geopolitical instability and a weakening dollar are also always good for the property market in Panama as investors and end-users continue to flock to Panama as a stable and conservative play.