Written by Matt Landau
The Panama Report
Monday, June 01 2009
Exclusive statistics to The Panama Report show real estate listing prices in Panama decreasing for first time since boom. Panama City prices mingle with those in Miami, beaches and mountains not immune to drop. Cause for concern to developers and investors or natural correction healthy for Panama in long run? All-star Panama experts sound off as to what this means for Central America's most hyped real estate market.
No MLS – How about the next best thing?
One of the real estate market's greatest discussion points in Panama is the multiple listing service, or perhaps more accurately its lack thereof; a deficiency that antiquates even the most modern of projects.
Les deux principales fonctions d'un service inter-agences (MLS) sont (1) d'encourager la coopération courtier dans lequel une commission unilatérale est partagée et (2) de donner aux acheteurs l'accès plus grand et le plus varié possible d'annonces disponibles. Ces fonctions jouent un contre l'autre dans les marchés où la MLS réussit: les acheteurs à faire l'achat idéal et courtiers réussis partager un morceau de la tarte. Comme on peut l'imaginer, dans un marché comme nulle Panama d'un MLS ou n'importe quel outil, l'inverse est très vrai: les acheteurs sont gênés dans leur recherche de biens immobiliers et les courtiers sont des salauds intrinsèquement avides.
Casey Halloran, a veteran in Costa Rica and Panama, was able to shed some light on why an MLS system hasn't worked in Central America. “Beyond poor organization and cooperation,” Halloran told us, “they like it this way. There is power in hoarding information and if it were free to everyone, some would stand to lose power.” Halloran believes that Panama's lack of transparency starts at the Public Registry where properties are never accurately valued because everyone wants to avoid taxes. “It's hard to imagine having a giant database of real estate transactions and property values if it all starts with a lie.”
With the feasibility of an MLS in Panama so slim, and the accuracy of Panama real estate sales so marred, The Panama Report went with the next best thing: comprehensive, unbiased and independently collected data that represents the widest swath of real estate for sale in Panama today. We enlisted the help of Reveal Real Estate , a market research company specializing in real estate data for Central America, who spent months collecting all kinds of Panama statistics – some easy to obtain, others more difficult – in an effort to shed light on an otherwise dark and capricious information market.
“When doing some research into real estate investing Central America, we found it hard to get hold of objective market data,” says Claudia Gonella, co-Founder of Reveal Real Estate. “It takes time and effort to pull together this kind of information and no one had done it before. We launched Reveal Real Estate to fill this gap.” From consultations with experts to good old-fashioned legwork, Reveal Real Estate provided The Panama Report with exclusive and telltale trends in the Panama real estate market in 2009.
Part of the allure of the data below is that it's inarguable: a collection of scientific data, not manipulated or laden with any kind of predictions or intangible trends. It's also been collected by a third-party, which avoids any bias or conflict of interest. A third, and perhaps more valuable aspect of this work, is its ability to finally put a broader (albeit precise) finger on where Panama's real estate market stands in the bigger scheme. A chance to clear up an otherwise severe lack of transparency.
The Findings
While it's been projected now for over a year that Panama's market is due to bust, there still exists, as of May of 2009, a dimension of incongruity between buyers and sellers: sellers want to sell high, buyers want to buy low, and no one really knows an appropriate price. Unlike more developed markets where a sense of reality and facts preside, we believe Panama's disparity between buyers and sellers to be attributed to one main liability and that is the inability to obtain real comparative selling data. In other words, buyers and sellers aren't on the same page because…well, there's no same page to be on.
The data below should act as nothing more than a resource to buyers, sellers, and brokers: a way of structuring choices so that investors have the right to make a more educated decision. It's important to note that the data quoted in the following charts reflect listing prices not sales prices. The data does also not include re-sales (which we can only assume are being sold for less). The results are not earth shattering or rocket science, but they do give us an idea of where the market was (2008 data was collected over the period July to September), where it is right now (2009 data was collected April to mid-May), and where it may be going in the future: something no resource focusing solely on foreigner-interest real estate has offered yet in Panama to date. It was featured in our last Panama Investor Circle newsletter.
Note: The vast majority of the developments in this database target the international buyer seeking a second home investment or lifestyle buy. Some of the projects are in a pre-construction phase while others are well advanced in the roll out of their master plan. Most of the developments in the sample have a dedicated website. The sample size is 107 developments and this covers Panama's four main real estate hotspots: Panama City, Bocas del Toro , Boquete/Volcan, and Coronado /San Carlos.
Panama's Top 10 Most Expensive Projects
Panama's real estate market, when it began to grow a number of years ago, was alluring because it was cheap. This brought in a wide array of buyers, primarily for investment purposes, who didn't mind picking up a condo in a good location or cheap piece of farmland destined for development. But with the swing in hype and buzz, Panama real estate prices shot upward to first-world levels.
Perhaps Panama's most famous project, Trump Ocean Club, tops the list at a price of almost $5200/m2 (that's $482.56/ft2). Six of the ten most expensive projects in Panama reside on Avenida Balboa, with one on the Amador Causeway and the number two spot allocated to the Los Faros project, in serious financial trouble: while no longer working with Panama City brokers, the Los Faros developers still have not officially cancelled the project (perhaps because that'd mean giving buyer deposits back?)
The only project outside of Panama City that made the list was Azueros , a beach project in the isolated hills of Los Santos. As say their reps, prices have risen justifiably as things like location, quality, and ground-up infrastructure are paramount. “Since the inception of the project, prices have increased approximately 20%. This has not been due to speculation but to a revision of the costs of materials, some imported, as well as the specialized artisanal craftsmanship.” As validation to their pricing, Azueros cited hand-made furniture, attention to detail, and customization as differences between them and the other nine projects on the list.
Panama City: More expensive than Miami?
To highlight the backwardness of the Panama City condo market, data shows that listing prices have actually increased from 2008 despite a serious dearth of sales. As a note, the price/m2 of condos in the capital was one of only two increases documented in our entire data collection (the other being lots in Boquete/Volcan). Some experts wager that these numbers represent the maximum peak in a curve that will soon begin its downward slope (as supply continues to increase and demand appears to be tapering off): if true, these would represent the most expensive prices Panama has ever and will ever (at least for a long time) experience. Others believe that prices have increased due to the draw from Latin Americans who have difficulty entering more northern markets.
It can be useful to note that today, a large percentage of condos in Miami, Florida are priced equally (if not less expensive) than those in Panama City. Take for example a project of average price and quality in Miami, Opera Tower (located on Bayshore Drive). Prices for condos in this building range from $120-$187/m2. In a list of various other Florida condos ( as the one here ), you can see prices all rest below Panama's mark. One has to question why, when an American has the option to buy (what many would call) a better product in the States, would they opt for Panama where the legal system, construction quality, and infrastructure are less impressive?
Boris Métraux, CEO of the Encuentra24 , one of Panama's top classified websites, sees prices in Panama City real estate listings about to drop and efforts from desperate sellers increasing. “We are getting a lot more paid listings as well as more individual users (as opposed to developers or agencies) from abroad,” Métraux said, signifying a distressed bunch of foreigners who once bought in Panama (for second home use or investment purposes) and are now looking to get out.
One such seller from Canada who preferred to remain anonymous, admitted he'd been too greedy over the past year in passing up several decent offers on his Avenida Balboa unit. He's lowered his asking price by about one third (down to the amount he originally purchased his condo for two years ago). Still, no one's taken the bait.
Bocas del Toro: Biggest drop per square meter
The Bocas del Toro archipelago has had one of Panama's more active real estate markets (outside of Panama City) over the past years, though a number of imperfections have seen it in the news for the less-savory reasons (drugs, crime, land disputes…etc). Don King of Bocas del Toro Realty Services Inc gave us some inside dirt.
“Few people are aware that the titling law was recently signed into law. Some of the foreign landowners with ROP land are hoping it will increase buyers for their properties and possibly allow them to increase their asking price. Those who are aware of the law and have (ROP), are very happy to see it finally come into existence. They see it as a way of finally removing any doubt as to land ownership.” As a side note, King sees it as a new revenue source that could be used for public works, education, etc. and as an avenue for Panamanians to acquire loans with their property as collateral.
Considering the data collected pertains mostly to real estate targeting the international buyer, King also offered a good explanation as to why Bocas del Toro prices may be decreasing. He said that most of the sellers in Bocas are Panamanians and because they don't have stock or retirement funds, they're not feeling the pain like everyone else. “Nor do they yet understand the connection between the financial crisis and the lack of current buyers,” King told us. “That realization will come in time. The ones reducing their prices for quick-sale in Bocas are 99% foreigners, who were affected by the market and need their money now. There have been isolated incidents where people have cut their asking price (which was in the hundreds of thousands) by half in one day. Other foreigners are slowly lowering (or re-adjusting) their prices as the months pass and probably will continue to do so until either the financial situation becomes better or their prices reach a level where buyers are willing to purchase again.”
Boquete and Volcan: Lot prices up, condo and home prices down
The Boquete/Volcan market has been, in many ways, a microcosm of the Panama real estate market as a whole. Sales have come to a halt because of the vast gulf between buyer expectations and seller flexibility. In this chart, notice how lot prices have actually increased since July of 2008 (one of only two increases the statistics showed).
Paul McBride, Sales Manager at Valle Escondido and fellow blogger, believes speculation in mountain regions such as Boquete and Volcan was limited mostly to property developers and, to some extent, land speculators. “End users drove the market and the booming real estate market in the US, Canada, Europe and Great Britain provided liquidity to purchase land and property here in cash,” McBride said. “Now that the real estate market has crashed overseas, the affects are being felt here. I tell my sellers, if they want to sell their home, they better be prepared to aggressively price it.”
McBride, along with several sales agents we spoke with, believes that prices in Boquete/Volcan will need to drop to 2001-2002 prices before any kind of buying strength emerges again.
Coronado and San Carlos: Beach not immune to the drop
Condos and houses in the beach areas outside of Panama City (spanning from Coronado to San Carlos) dropped by almost 9% and average sale prices dropped by almost 12%. Realtors like Kaye Ashbridge of Concept Panama , reported “the drop in pricing may be due to large pre-sale condos halting current activity, canceling scheduled 'second phases' and generally the public holding their breath to see if things sink lower.” Ashbridge, whose company focuses on North American listings, distinguishes them from listings owned by locals who, like King in Bocas del Toro said, may be less pressed to sell. She thinks this less-urgent demographic may create a false impression that there is a large amount of people selling, hypothetically to move out of Coronado. When in reality, such is not the case.
Lately, developers in the Coronado/San Carlos region have been offering discounts of up to 10% as incentive. They've also been throwing in little bonuses (such as electric appliances, air conditioning units) in an effort to close. “A lot of developers in this area are now more welcoming to brokers too,” says Jianella Torres, Sales Manager at New World Real Estate who has an office in Santa Clara. “Events, barbeques, tours of the project. These things never happened three years ago and now we're being treated like kings!”
The amount of interest in the beach areas still appears to be high with most agencies reporting a large amount of leads as well as a high “visit rate” of clients who come from abroad and physically visit the area for inspection. The opposite end of this spectrum, said Torres, is a place like Boquete where clients realize its distance and often times decide not to go. Jim Hawley, Founder of Panama Sol Realty , who has worked the Coronado/San Carlos region for almost five years, reaffirmed clients are still arriving on a regular basis, but with firm and unyielding budgets of $200,000-$250,000.
As a testament to our findings, Hawley gave the example of one 5-story project on the ocean. “They were marketing units from $475,000-$800,000. As you can expect the market did not jump at this building, but after discussions, they redesigned the building and offered smaller units starting at $220,000. They were listening to what the market was asking for (as opposed to what they wanted). In the end they will have sold more units on the same land and increased their profit line somewhat because they listened to the market.”
One main limitation to the Coronado/San Carlos area is a lack of good schools for foreigner children. With good education facilities, all of our experts agreed that people would begin to migrate even faster. And with such decreasing prices, more sales may be on the horizon.
Panama Property Prices Fall Between 3%-16%
This chart shows the decrease in average property prices (as opposed to price/m2) across all four Panama hotspots. It is an interesting group of numbers considering the financial crisis and investors' general tendency towards less expensive overall purchases. In the comparative scheme of things, the range of decreases Panama has seen is not terrible considering the downfall of other real estate markets (such as the USA where prices dropped more than 20%). According to the Florida Association of Realtors, the median condo sales price last month was $108,700; in March 2008 it was $172,300 for a 37% decrease. In Panama City, the median condo list price last month was $450,200; in July 2008 it was $466,400 for a decrease of 3.5%.
With a new administration on the horizon, Panama's leaders will be faced with cleaning up the mess a previous administration has left behind (sound like a familiar story?): one of hyper-supply, decreasing demand, and a ton of projects in limbo. According to Eric Sabo, Bloomberg correspondent in Panama City, the sweeping price decreases in luxury Panama real estate reflect a dependence on foreigner spending and a soon-to-be sticky situation for developers.
“What people within the government and banks are telling me is that the projects who will receive funding are going to be low-income housing and public works projects,” Sabo told our Private Investor Circle . “So unless Panama suddenly becomes the world's largest refugee camp for wealthy people, builders of luxury real estate are going to have a lot of trouble finding money.”
While our data does not reflect the amount or activity of actual sales in Panama, we spoke with several businesses in the industry and got a pretty straightforward answer. No one is closing.
Torres of New World Real Estate stated that while yes, market is very slow, some developers were dealing with it in innovative ways. “One particularly creative effort is by Grupo Shahani who is offering fractional ownership (lifetime shares in a particular condo) for people who cannot afford the entire price tag.”
Some of this panic-mode was echoed by Chad Smalley who's not in the real estate game per say, but rather alongside it. As CEO of GMG360 , a real estate internet marketing provider in Panama, Smalley says “both developers and brokers alike throughout Panama just seem desperate for new clients right now (especially compared to this time two years ago).” Smalley reports a boom over the past few months of agencies and developers looking for his assistance in customer relationship management. “Whether it's dropping sales prices or increasing advertising budgets, most companies we are helping just want to see some sales again.”
Amidst a widespread drop in sales and price points, hype about Panama still continues to circulate. Live and Invest Overseas, a lifestyle and investment resource lists Panama as one of their five Top Markets. In the world.
As a reference, here is the same chart as above but in meters2 (as opposed to total price).
An across the board decline in Panama real estate listing prices is no real surprise to people living here or working in the industry. As pointed out by Halloran, the only thing that could increase the demand again is to lower prices: “That's econ 101,” he says, “and anybody who disagrees is in denial.” Other markets that have experienced the boom and bust cycle reflect this: according to the Florida Association of Realtors, Florida's existing home sales increased 30% in March (compared to the same time last year), making it the seventh month in a row that sales activity demonstrated gains.
The numbers in Panama are not as severe as other countries where large-scale crashes have already taken place. Home prices in the USA, for example, dropped 18% in March of this year alone. Comparatively speaking, the decreases we're seeing in Panama run parallel (albeit on a less drastic curve) to those elsewhere in the world.
The general theme remains: Panama was promoted as a place to buy cheap real estate and, as our stats show, with a number of stars aligned, the trend may have been reversed. Paul McBride in Boquete concludes that Panama became popular for foreign investment because it represented such a large discount compared to property in the USA and elsewhere. “This is no longer the case,” he says. “Property in Panama (city, beach, mountains) has become more expensive than property in the US, Canada, and Europe.”
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