Perils Of Purchasing Pre-Construction Condos In Panama City, Panama
In the 80s it was junk bonds. In the 90s it was day trading and the dot-com boom. In the 2000s it was housing. I am not alone in predicting that in the late 2000s the hot investment will be "international real estate". Before I get too comfortable on my stump I must disclose, I was involved in the dot-boom and now the international real estate trends. But I've learned that whether dancing Salsa or investing, timing is everything. And unless you pay close attention regarding when to get in and get out, the toes being stepped on may be yours.
This brings us to the current condo boom in Panama City. The volume of construction here, the ambition of these projects and the luxurious amenities being promised is really awe-inspiring. Panama City is not some third-world town just being discovered. It is a modern capital enjoying a full-tilt gold rush. Dozens of skyscrapers are in progress and many more awaiting approvals. Big names like Trump are here, in addition to investment groups from South America, Spain and the Middle East. Innovative exterior designs, opulent materials, slick brochures and well appointed model units are all being utilized to sell pre-construction units like Budweiser at a tractor pull. Some buildings have sold out within weeks of the initial offering. Buyers are snatching up units with little more than rough renderings and a price list.
So why am I skeptical? First, I'm cautious because my Irish-American parents taught me healthy skepticism. Second, I have been both a buyer and agent involved in the sale of these condos, so I understand the current relationships between buyers, realtors and developers in Panama. I also have a tourism business here and observe that there just are not THAT many foreigners traveling to Panama for pleasure or to live/work/retire. So here are my concerns about this condo boom:
Hyper Supply - The pace at which construction is occurring is staggering. A new project is announced every week. The developers generally got the land cheap or owned it for years, have excellent credit and/or seats on the board at the bank and know how to make deals happen. The biggest families in Panama are doing the majority of the developing and just cannot seem to build these condo towers fast enough. The result is an enormous amount of condo units coming online in the next 48 months. Can the market absorb this supply?
Promises, Promises - As developers jockey for customers, they are making increasingly lofty promises for amenities (you need to see what Trump "guarantees") such as marinas, imported materials, elaborate social areas and beyond. As construction costs rise and margins shrink, I would not be surprised if corners are cut and amenities vanish.
Delivery Timelines - I bought a pre-construction condo almost two years ago. I moved in this week, a year after the promised completion date. While developers juggle so many jobs and materials, machinery and talented work crews become scarce, one can only expect delivery dates to get stretched out even further.
Construction Costs - As the workforce sees developers getting fat, they will no doubt want to dine at the same troth. The project where I purchased my condo had several strikes. As for materials, with rising demand, suppliers can naturally adjust prices, resulting in shrinking margins for developers. A contractor I know in Costa Rica recently told me it is nearly impossible to get steel there because Panama is consuming so much.
Over Estimating Demand - Aside from speculators, who is really buying all these condos? As a realtor and travel agent, most of the buyers I have met are purchasing units for investment or part-time living. Panama is a great place, but it's not Miami…and the condo market imploded there not long ago. To demonstrate comparable demand online, where many travel and real estate searches begin, take a look at these stats. These numbers are from Yahoo's keyword estimator service.
Key Phrase / # Searches Last Month
Miami travel / 33,419
Costa Rica travel / 9,851
Panama travel / 2,913
Miami FL real estate / 85,959
Costa Rica real estate / 24,766
Panama vacation / 6,531
These numbers put this Panama boom in perspective, no? Could it be that the boom is developer driven and not demand-driven?
Unrealistic Prices - The run up in prices for new units in Panama has been startling. Prices for some projects have doubled before breaking ground. Prices have risen to a point where foreign buyers will begin to compare prices here with those in their home cities or more fashionable locations. It is one thing for Panama to be hyping $150,000 ocean view apartments. It is quite another to expect foreigners to snap up $500,000 units by the bushel when Panama still does not have wide brand appeal.
Greed - At the core of any bust is good old fashioned greed. Let me tell you amigo, I've seen greed rear its nasty head here in Panama. Developers are pulling nasty tricks to squeeze a few extra bucks out of buyers now that they believe they're in the driver's seat. For buyers who secured pre-construction units "too early" and paid "too little", developers are enacting clauses to raise the price or even find ways to cancel contracts so they can resell units for higher prices. Regarding amenities and detail work, basic items are suddenly considered extras. I personally had to pay a multitude of oddball fees and fines, although some were dropped with some minor efforts from my attorney. When buyers start getting a bad taste in their mouth, this boom could end even faster than it started. As the old adage goes, a satisfied customer tells one person. An angry one tells everybody. While Panama is still fighting the ghost of Noriega with one hand and climbing to success with the other, it is in no position to get greedy.
So what's my advice? To quote the Greeks, "A bird in the hand is worth two in the bush". Finished product is out there and often represents hidden value. There will be opportunities to snag completed units in the next few months as I believe some speculators have over extended themselves and will need to put their condos on the market. Units in older buildings and in less hip areas like Bella Vista and El Cangrejo offer excellent upside while the market fixates on newer, shinier product. There are still opportunities to make money in this market. But analyze worst case scenarios and make sure you can live with them. For as sure as gravity, for every boom…there's a bust.
Related Tags: panama real estate, panama city panama
Casey Halloran has lived and worked in Costa Rica for nearly a decade and now resides in Panama. He operates a travel and real estate agency, http://www.panamarealestatepros.com
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