| Panama:
Investment and Real Estate Update |
| You’ve heard
the talk. . . Panama is investor friendly. Open for
business. Economically ripe and growing so quickly that it has generated
tremendous interest in business, investment, and real estate opportunities.
To this day I continue to receive frequent questions about these topics
from an article I wrote over a year ago… and what a difference a year makes.
Both the real estate market and overall investment climate in Panama have
changed significantly over the past year, and since interest level is so
high, I felt compelled to make a few comments.
The first thing
to know about investing in Panama is that the moneymaking opportunities
abound to a staggering degree. |
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| Think 19th
century Chicago swallowing up the prairies and birthing the biggest and
best meatpacking industries, lumber yards, skyscrapers, public transportation
system, department store businesses and futures trading. Better yet, think
of the American Wild West - a place where anyone with a bit of cash
and a lot of tenacity could become very successful.
The second
thing to know about investing in Panama is that you’re not the only one
thinking about investing in Panama. In fact, if you’ve never been
there, you’re about two years behind. Don’t worry, there’s still
plenty of opportunity available, but you need to use your head. Americans
have made so much money in real estate over the past several years - legions
of agents, analysts, bankers, brokers, developers, gurus, and guys on TV
in Hawaiian shirts all perpetuated cheap money loans in irrationally explosive
markets. It was so easy to make huge returns, and now that the boom
is over, real estate investors are looking elsewhere to sustain the money
machine.
Welcome to
Panama, where the cost of living is cheap, the economy is booming, and
the government supports business and foreign investment. |
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| The country
is posting such tremendous growth numbers in real GDP, per capita income,
foreign investment, tourism that Panama is becoming the envy of the developing
world. The main city is elegant and sophisticated with daring skyscrapers
and an oceanfront, international flavor. In April of this year when
Donald Trump announced his quarter-billion dollar luxury development in
Panama, he essentially put to rest any argument about systemic emerging
market risk.
Add to that
the looming approval for a $5.3 billion Canal expansion project and you’ll
see why the investment floodgates have opened.
Real estate
developers have been the first to profit - demand has been so high
in the last twelve months that prices have doubled in many parts of the
city. |
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Offshore Resources Gallery
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| Buyers are
rushing down to Panama, desperate to speculate on new condo projects, and
there are plenty of developers happily willing to sell properties to international
buyers who don’t do their homework. During the ‘preconstruction’
sales phase, many projects have not even secured funding, allocated capital
resources, or contracted material prices; they have simply drawn a picture
of a tower and proposed floor plans, and yet, that seems to be good enough
for foreign investors, most of whom want to purchase multiple units for
speculative investment purposes.
And some developers
will gladly sell 5, 10, 20 units, even whole projects at a time, regardless
of what the speculation might do to the condo market in the long run (anyone
been to Miami lately?). On the other hand, there are some developers
who maintain sound business practices while still building quality projects.For
example, Procasa Panama’s Jonathan and Elias Mizrahchi are men of integrity
who know how to deliver to their residents.
The real estate
boom in Panama (among other factors) has caused a rise in the price of
local construction material. |
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| Many developers
have gone back to their buyers to demand more money in order to fill the
void. Procasa, rather than soil their reputation, completely re-engineered
an entire project from the ground up, utilizing new technology, cutting
costs, and significantly reducing their profits in order to deliver the
expected quality at the agreed-upon price.
They understand
that the long-term success of Panama depends on precise, thoughtful investment
strategies across markets, not some condo flipping fad.Don’t think that
there still isn’t money to be made in Panama City condos; on the contrary,
the long-term outlook looks great (just read the Credit Suisse report from
March 2006).
But ladies
and gentlemen, the days of being able to purchase an oceanfront penthouse
for $80,000 are gone. |
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Offshore
Resources Gallery
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| Welcome to
2006 when that same condo will set you back a cool 300 grand.
Consequently,
you can’t expect to throw your money in market that is widely self-perpetuated
by consumer optimism and expect the same huge historical returns without
doing your homework… as with any investment, convince yourself of the fundamentals:
is the price run-up based on a legitimate gap between supply and demand?
Are the developers credible and reliable? Are there any local legal or
business conventions that could create additional risk? Or hey, maybe you
were one of the people who paid $350 for a share of Amazon.com when it
had no earnings in the 1990s and feel comfortable just following the crowd.
For those of
you who are even more intrepid, the serious money in Panama is far beyond
real estate - business ventures and other financial opportunities are waiting
for bold investors and entrepreneurs with expertise and determination.
My investment group has been doing business in Panama for more than four
years. With our ‘boots on the ground’ approach to international investing,
we take the time to conduct the local research and networking to be successful
in a foreign business environment… and believe me, the Panamanian business
environment is challenging. During our Panamanian tenure, we’ve met
the good, the bad, and the ugly - everyone from developers to physicians
to bankers to lawyers to local artisans to laborers to everyone in between.
Unfortunately, as of late, the list of “DO NOT DO BUSINESS WITH” has been
growing rapidly. Seemingly every day we uncover new business opportunities
and local partners for everything from consulting services to assisted
living. Financial instruments such as commodities and public equities
also pose significant potential.
Overall, the
economy is still at the beginning of a high-growth phase. But profiting
from it takes research and careful analysis, regardless of the market -
real estate, equities, bonds, or small business. Don’t simply rely
on “instinct” unless you pick stocks by having your dog lick parts of the
WSJ. You are clearly someone who doesn’t follow the crowd, otherwise
you wouldn’t even be interested in international investing. There
are still plenty of deals and great opportunities out there for smart investors
who do their homework.
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