The Beat Goes On
Panama is a very small nation, easily missed when looking at a global map. Its real estate market is dependent in great part on its ability to demonstrate that it is a good place to invest. If we had a big economy with a big population, like Brazil, we would get attention for that alone. But given our size, we need to be special, we need to stand out from the crowd of other small nations. And that is exactly what has been happening for several years and continues to happen today. This is a time of global financial crisis and everyone knows it. So let us begin from that global perspective and then discuss Panama.
This can be summarized briefly. For nearly three years, we have been watching North America, especially the US, and Europe as they pay a terrible price for what can be most kindly referred to as their foolishness in prior years. It has done them huge economic damage and caused considerable damage elsewhere. It has not yet run its course. It is unknown how much longer that will take, but efforts to slow it will probably simply extend it. We can expect that it will be some years before the final results will be known. Crises this massive simply do not end either well or quickly.
What makes this one especially serious is that it is based on massive debt accumulation in the past, continuing debt accumulation today, and likely far more to come in the future. Rather than discuss this here, I would suggest that you check out Britain's Economist and its Special Report, Is there life after debt?, if you desire a more complete discussion. You will find a link to the full report in the second paragraph. Once there, the links to other sections of their report are listed in a box titled, "In this special report", on the right-hand side.
We continue to do well. As in past commentaries, we still have no bank bail-outs at taxpayer's expense and no government takeovers of failing businesses as they are not necessary and even if they were, the Panamanian taxpayer would not pay for them. Banks and businesses (hold onto your hats!) are held responsible for their own failures, not the taxpayer. As a result, our banking system is conservative in practice, highly liquid, and very successful. They still require substantial down-payments for mortgages, do extensive credit checks, and otherwise act in a financially responsible manner, as they have for many years.
We have no "stimulus" bills intended to artificially and temporarily increase spending in a vain attempt to "jump-start" our economy because our economy doesn't need them. We do have very substantial public expenditure programs underway to build new airports, new bridges, new hospitals, a new Metro system for Panama City, and a host of other infrastructure improvements for a total of about $3 billion this year out of a larger total of about $13 billion planned during this administration's term in office. These are not artificial attempts to stimulate economic activity due to a recession; they are very important investments in the national infrastructure during a time of continued economic growth.
We are pleased that the three international rating agencies have all chosen to raise Panama's bonds to "investment grade". Panama is only one of five nations in all of Latin America, both South and Central, to reach this level. The other four (Mexico, Brazil, Chile, and Peru) are much larger nations in terms of population and their economies. Some of you may think Peru is "small", but it has nine times Panama's population. Small nations tend not to be raised to this level, so this is a huge step up. It means Panama's taxpayers will pay less interest on government loans and even foreign businesses in Panama will pay less interest as they are operating in an "investment grade" nation. Our neighbors in Costa Rica and Colombia remain graded as "speculative". Some others like Venezuela and Ecuador are in much, much worse shape.
In part as a result of all this, it is nice to note that the private sector's investment in Panama has tripled this year from the same period of last year and that direct foreign investment in the first quarter (the statistic currently available) is up 56% from a year earlier.
I have a pile of other economic statistics from a wide variety of sources and, in the past, I have listed many of them to give an overview, but this is extremely tedious and individual statistics mean very little to many who do not live here. For those of you who love a little statistical overview, I compare the GDP of Panama and the US over a thirteen-year period separately. That link will open a new page that you can delete when you're finished.
For the great majority of you, I will leave it at this. Our financial system is sound, our economy is growing, economic activity slowed down during the last couple years, but is growing again faster than most nations, we are attracting approval globally for our growth which further enhances that growth, and our is far more manageable than that of most "First World" nations when compared with our wealth (GDP). This year, the government's debt will equal about 44% of GDP. That percentage has been falling for several years. You can compare it to some other nations in this Bloomberg chart.
By the way, our "jobless" (unemployment) rate is less than 7% and our First Quarter GDP growth is 4.9%.
Enough. We are doing fine. Wherever you live outside Panama, the odds are very good that we do not envy your economy and for good reason.
There has been a huge increase in private sector spending, including construction, in Panama in comparison to past years, particularly in the Panama City metro area. In the metro area, private investment as of early June was $868 million as compared to $280 million in the first six months of last year as reported by the Ministry of Commerce and Industry recently. However, only a portion of that is going into residential construction. Much of it is going into the construction of office buildings, hotels, and other commercial buildings. The huge private firm, the Blackstone Group, has no less than four Hilton Hotels under construction or soon to be in Panama City, plus a fifth hotel, the first Waldorf Astoria to be built anywhere in Latin America. That is just one example of many.
As mentioned in prior real estate commentaries here, prices have been "soft" in Panama during the financial crisis, but how soft depends on where you are looking. Properties further west of Panama City, especially in Chirqui province (Boquete, Volcan, David, etc.) but in other areas as well, have been especially hard-hit for the simple reason that they are primarily sold to expatriate retirees who do not mind being several hours from Panama City. This minority segment of the total market has been under particular stress during the global crisis and there are no other segments to pick up the lost momentum.
As you get closer to Panama City, the closer the better but at least close enough for a reasonable commute, prices are less soft because there are other buyers to replace retirees. Some areas near the city, Arraijan, La Chorrera, and Tocumen are examples, have seen continued growth in real estate activity, but much of it is directed toward what we call "social housing", houses for 80K or less that are subsidized by the government to make it possible for working class Panamanians to get their own home.
People who were predicting three years ago that the global crisis would lead to 40% and 50% discounts on condos and homes in Panama City have been sorely disappointed. Your best bet remains today as it was when I wrote my last commentary. Look for expatriates who came down, carrying the "bubble mentality" of the north, bought a home, often without doing much research, in expectations of making big money in a few years and who now are facing personal financial problems of their own. You can often negotiate a good price, depending on their level of desperation.
But if you expect the major Panamanian developers to fall to their knees and beg you for your best offer, forget it. They are too busy building office buildings, hotels, bridges, and god-knows-what-all. If they were going to "crack", we would have heard it some time ago. On the other hand, prices are not rising as they once were and there is a chance that you will be able to negotiate some kind of smaller discount, maybe 5% or even 10%. This is especially true if the developer only deals in residential housing and is a relatively small developer whose "pockets" are not "deep" as is true of many of the big developers. Again, expat "developers", many of them amateurs who made money in the bubble up north by luck more than expertise, are your best bet.
This is actually not a bad time to come down to find a home in some locations. During the summer up north (we call it "winter" down here, but I will use the northern terms for this essay), traffic traditionally slows down, only to climb steeply as the winter comes to the north and folks want to get away from the cold weather. I used to call the May to September period, the "Dead Zone", for this reason. This was an annual event and I could count on my real estate friends here tearfully moaning that the gringos were not coming.
That is not the case these days as people from other Latin American nations and those coming for business reasons do not arrive on the basis of temperatures, but on the basis of need. Still, this can be helpful to you. Once more, especially so in those areas of the nation further from Panama City where retirees are a critical market segment. However, you may not want to live that far from the metro area's amenities as is true for many, so it depends on your perspective.
The same thing I have always suggested. Look for a home that you like, in an area that you like, with the amenities (hardware stores, shopping malls, hospitals, airports or whatever) nearby that you feel you need. Choose a home where you would be happy living indefinitely. It is just like buying an antique or collectible. Do not buy it for what it may be worth in the future, buy it because you love it and are willing to live with it, even if it doesn't increase substantially in value.
And when you find your location, check several possibilities. That way, you avoid paying too much for your "ignorance". You will get a feel for the prices locally and be in a better position to walk away from a home that is seriously over-priced. And remember to talk to others, Panamanians and expatriates, who you meet and ask for their observations. Just be careful that you are not talking to someone who has something to sell, themselves! And of course, never forget that expatriates can mislead you in English just as easily as a local person can mislead you in Spanish or "broken" English. This tendency to think that someone who speaks your language well, especially someone who is from your home nation, is more honest than someone else is very well-known and is one big reason why so many real estate agencies hire foreigners as their sales agents.I have included quite a few other comments in my last real estate commentary, As We Near the End of 2009, and do not want to repeat them all here, but I encourage you to read those, if you have not already.
For your own sake, stop trying to "time" the Panamanian real estate market, if you find yourself doing that. In the six and a half years since I first arrived, I have read endless messages on forums, articles at news sites, and so forth predicting the market's future. The one thing they have in common is that they are almost always wrong.
Most of you are far from Panama at the moment. You are trying your best to make judgments often based on Panama news sites, forums, chat rooms and the like. The best news stories and the best forum gossip often relate to expectations of terrible times for Panama real estate. The level of analysis is typically extremely weak, more opinion than analysis. The worst thing you can do is to allow an Internet debate over the future of a specific project determine your attitude toward the total market. That is silly on the face of it, but it is unfortunately a common theme here.
A few years ago, we had two very ambitious condo projects underway, one called the Ice Tower and the other called the Palacio de la Bahía. They were in a race to see which would be the tallest, pushing to 100 floors. Both projects were called off, but for very different reasons and for reasons specific to each project, not the entire market. But the Boo Birds as I call them (those who spend their time down here predicting the crash of the real estate market) were convinced that the "end" had come and their predictions were finally coming true. They were wrong. The two projects were just tiny slivers of the total market. We are likely to go through this silliness again, so I might as well mention it now.
One of our best-known current condo projects is the Trump Ocean Club. It is planned to be finished later this year. Much has been written and much will be written on the potential problems they may face.
When buying a condo pre-construction, as has been common here, there were many payment plans offered by developers. For example, you might pay a 10% down-payment, another 30% when construction began, another 30% six months later, and the final 30% upon final inspection and delivery. This is just an example, there were variations on this theme.
Trump did things differently. They required a 30% down-payment with the remaining 70% to be paid on final inspection and delivery. Quite understandably, there has been plenty of talk that the global financial crisis may have hurt many who bought there, especially the dreaded "speculators", so that they will be unable or unwilling to pay their 70% in a few months when it is due. Maybe so, maybe not, we will know soon enough.
If there are a large number of failed final payments, this project will be in real trouble. The Boo Birds will once again announce the end of Panama's real estate market. Nonsense. This project is both blessed and cursed by its association with one of the world's most famous names, but it is not representative of the national real estate market or even the city real estate market. It is just one project, as the Ice Tower was and the Palacio de la Bahía was. It will be a project that will be soundly criticized for leaving 70% of the purchase price to be paid only when construction was finished, and logically so, but it just one project, not the Panama real estate market.
If the Trump project is successful, never fear, the Boo Birds will move onto the next project. My guess is that they will focus on Los Faros de Panamá, a Spanish developer's project that has had its problems already and where the pre-construction prices are especially high (ridiculous, if you ask me). So do not shed tears for the Boo Birds! They will have something to talk about.
But do not let the noise surrounding the Trump project or any other individual project influence your decision to relocate. The price you pay for a home in Altos del Maria, Cerro Azul, Boquete, Bocas del Toro, Las Cumbres, La Chorrera, Pedasí, or any of a hundred other locations will be unaffected by whatever happens to the folks at Trump. Do not mistake a single tree, no matter how tall, for the forest.
I am sorry to have spent so much of your time on a single item, but it is precisely this sort of thing that can disturb members from a distance and leave them with fears and concerns that are simply unnecessary and irrelevant to their needs and desires. By focusing on this example, I hope to encourage you not to focus on single projects, but approach Panama as a nation with many opportunities and much potential.
Panama is a nation entirely populated by humans, just like yours. It has its problems, it has its joys, it is a human society. If you are looking for a non-human society, you will have to go elsewhere. Good luck with that.
Panama offers some nice benefits to retirees, both Panamanian and foreign. It offers a special retiree visa, as well as other visas useful to non-retirees. It has warm weather when northerners are scraping ice off their car windows. As North Americans will be reminded in the weeks to come, it does not have hurricanes. Panamanians have a very long history of living successfully with foreigners and it has earned the title of "a nation of immigrants" as much as the US or Canada. It has mountains, two oceans, a couple large lakes, and its world-famous Canal. It has a capital city that offers just about anything you could want from expensive toys to high-quality medical care and daily flights to a variety of international destinations from an airport that just keeps getting bigger to handle the arriving crowds that just keep getting bigger.
Panamanians are the same as folks in your home nation. Ask them if there are "any problems in Panama" and they will be happy to fill your ears for an hour or more! But Panama has gained a great deal of attention in recent years for such a small nation. Plenty of professionals have arrived with much more money at stake than any of us who must look at Panama as objectively as possible. They are very complimentary in the most impressive way possible, they are investing their money, setting up regional offices, developing businesses, and a host of other activities.
Panama is growing and that growth brings challenges, disputes, concerns, and a whole variety of human reactions, just as it does everywhere, always has and always will. But I correspond with many of you by email. When possible, I talk to you when you visit. This is my sixth year of doing so. I often tell people that my Spanish is nowhere near as good as I want it to be because I have been busy learning "expat". That language has many dialects, each worthy of attention.
I hear and read the complaints of some who live here, both Panamanian and foreign, and I understand their various concerns most of the time. But you help me keep a healthy perspective on the global reality. You remind me how fortunate I am to live here and why I continue to reach out to you in the hopes that I can help you a little in return. Thank you for that.
Now comes the traditional end of a real estate commentary at Retirement Wave. Once again, I ask those who have read it a dozen times already to join me in reading it once more.
No one knows the future. Free markets go up and free markets go down. The future is not a simple extrapolation of the present. Anything can happen. Everyone has an opinion and those words above are just opinions.