“Is The Panama City Condo Market Going The Way Of Southern California?” Asks “The Panama Report”

 A recent post in The Panama Report investigates the current condo market boom in Panama City. The author of the article, a real estate development consultant based in Panama City, discusses the fundamentals of the condo market in Panama City, which have led him to conclude that the market may be on the verge of busting. Many condominiums are now selling between $300,000 and $600,000, with a median price per square meter of $3,000. The author worries that as banks in Panama become more conservative with loans in response to the conditions in the United States, it is likely that developers are going to take the brunt of the damage as speculators fail to make payments. Most deposits on units range from 10 – 30%, meaning many developers could be left with 70-90% of the cost if investors begin to back out of the market.

I have to say that I agree with what Mr. Quesada warns of in this article, and admit that I would be pretty nervous if I was developing upscale condominiums in Panama City right now. I do have a few caveats though. While I do think that there are similarities between the current situation in Panama City and in the United States several years ago, there are several important differences. Unlike the United States, Panama does not offer mortgage backed securities. While this will tighten lending in the country and decreases liquidity, it should prevent the bubble from becoming too large too fast as it did in the United States – particularly as it did with the subprime mortgage mess.

 Another potential factor in Panama City’s condo market are European investors. Depending on how the euro and pound sterling fare, Panama City could continue to be a relative bargain for Europeans. While the infrastructure in Panama City still lags behind cities such as London or New York, the cost of living is not likely to be quite as expensive as these cities.

There is no doubt that the condo market in Panama City is likely to cool off in the near future. Yet the city continues to be promising as a long term investment, particularly once the bubble begins to deflate and a better price equilibrium is reached in the market.

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More On The Panama City Condo Boom: A City With Growing Pains?

News about the real estate boom in Panama City seems to be in never ending supply (making this my third Panama City update this month, read here and here).  This week the honors came from the LA Times, in an article they ran entitled “Panama City: A Boomtown With Growing Pains.”  The title alone seems to sum up the situation in Panama City well.  Yes, Panama City is booming, but will it be a completely painless process?  Probably not.  The article goes on to discuss the overall positive economic situation of the city, such as the major canal improvements currently being undertaken, which should bring short-term construction jobs to the city as well as bolster Panamas reputation as an international crossroads of goods and services.  Multinational corporations such as 3M and Hewlett-Packard are also flocking to set up shop in Panama City to take advantage of the “location and friendly atmosphere” (which is apparently corporate jargon for ‘tax-haven’).

Yet, as the “growing pains” portion of the title from the LA Times article suggests, the arguments for economic prosperity in Panama City are not without caveats.  One of the biggest problems facing the growing city is that the growth seems to be outpacing infrastructure development.  Traffic congestion is horrendous, the electrical grid is extremely strained, and 6% of the Panama population is without running water.  This is not to mention the fact that Panama is still trying to separate itself from its historical reputation as a hangout for corrupt despots, drug lords, and sleazy businessmen.

So what does this mean for real estate investment in Panama City?  As a short term investment the city is looking increasingly risky.  The speculative nature of the condo market and lagging infrastructure development in the city are worrisome.  The canal project isn’t scheduled for completion until 2014, and while the influx of workers should keep segments of the real estate market booming, will these workers be in the market for the multitude of luxury high-rise condominiums currently slated for construction?

Fortunately, as a long term investment the situation in Panama City is looking positive.  As multinational corporations continue to move to the city, and the canal project goes ahead as planned, Panama City should be on track to becoming a world class city, and a major regional hub for cargo and telecommunications.  Yet given this, you still aren’t interested in weathering the fallout of a potential condo bubble in Panama City?  Investing in hotel and hospitality industry is always an interesting possibility… according to the same article a shortage of rooms has caused rates to double in the past year.

Source:

Panama City: Boomtown with growing pains (Latimes.com)

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