July 2007
Panama has gained a phenomenal reputation over the last 24 months, and for those on the ground, its been a fantastic ride.  Economic growth is hovering around 8% (over 13 times better than the United States' feeble 0.6% annualized rate that has been most recently reported).  International rating agencies such as S&P, Credit Suisse, and Merrill Lynch have all rated the economic growth outlook as strong; the Canal expansion project passed its referendum, and foreign investment is flowing in from China, Japan, North America, Europe, and the Middle East.  Tourism is growing at double digits, among the fastest in the region-- flights to Panama from the United States are frequently sold out.  The government is devoting resources to some much needed infrastructure and public works projects.  A-list celebrities have visited and bought property; famed international speculator Doug Casey has even called Panama "the western hemisphere's Dubai", an accolade that underscores its investor-friendly government.  The flow of personal wealth into Panama is astounding; contrary to the rabid institutionalization of many North Americans, there are many, many, many wealthy Latin Americans.  Years ago, the place for wealthy Latinos was Miami; today, due to a variety of geopolitical reasons that are beyond the scope of this article, that migration has shifted to Panama.  As the wealth shifts south, the sophistication, class, amenities, and luxury of Panama City is rising.  If I were to compare Panama to a business, I'd say it would be similar to Google, right before it went public in 2004; needless to say those shares are worth quite a bit more today.

Many readers have made the short journey to Panama, perhaps multiple times, and noticed that real estate prices are certainly not what they used to be.  This fact is absolutely true.  But comparatively, aggregate prices are still a bargain; Miami and Costa Rica are both at least twice the price.  Nicaragua is cheaper, and while it is a beautiful country, the infrastructure and sophistication are lacking.  More importantly, though, if one considers long-term trends, migration patterns have barely scratched the surface of what Panama could actually be.  Consider key markets:

* Retirees: So many people are looking to leave their home country; in North America, many retirees are experiencing a growing dissatisfaction with society and sensing that the decline is permanent.  Others yearn for affordable living on a pension, or perhaps warm temperatures year-round.  Whatever the case, thousands of people become new retirees every day, and every day there seem to be more reasons to expatriate.

* Investors: The US Dollar has suffered significant losses against the Euro, Pound Sterling, and Canadian Dollar.  As the economy of Panama is on the US Dollar, the currency decline creates favorable investment conditions for Europeans and Canadians whose home currencies are realizing much more purchasing power in an already cheap market.  For many European investors, the buy-to-let model is familiar and profitable, and with double-digit tourism growth and hotel occupancy rates brimming at capacity, the Panamanian short-term/holiday rental market is prime for substantial growth.

* Part-timers: This group includes wealthy Latin Americans in search of a second home, businessmen who need a home in the 'hub of the Americas', and North Americans who want to brag about their vacation home in Panama while hanging out at the office water cooler.  Aspen and Florida may be out of their reach, but Panama is only 3 hours and $200,000 away.

* Relocators: $6 billion for the Canal Expansion creates a lot of jobs; the Panama Canal Authority estimates that over 10,000 jobs will be created in the near term, and as Panama lacks skilled labor and technical resources, much of the workforce will come from other countries.  Each of these foreigners will need a place to live, and many will come with their families.

Current supply: By 2011, current housing permits show that approximately 11,000 units are scheduled to come available.  The number may seem high at first glance, but considering the long-term demographic potential and the current numbers that reinforce that model, 11,000 may be far too few.

What to do? 
Prices of condominiums in Panama City have been bid up to dizzying levels over the last year because of baseless speculation and irresponsible developers.  With only a 10% down payment, buyers could secure as many condos as they wanted with the expectation of being able to ‘flip’ their investment to new buyers at a $50,000 premium.  These flippers have been so overzealous in buying out entire projects that they are pushing prices up without end user buyers.  Hey buddy, the State of Florida called, it wants its real estate crash back. 

Finally the banks have wised up and are now required 30% down payments; naturally, the additional 20% weeds out speculators from the ‘real’ buyers.  Prices in the city are now running $2,000 to $3,500 per square meter, significantly higher than they were at $800 to $1000 only 2 years ago.  We can thank the speculators for that. 

But a new trend has emerged: suburban living.  Think about it, do you really want to be smack-dab in the middle of Panama City?  It’s a fantastic place, but if you’ve never negotiated the traffic at rush hour, you might want to try it before you buy your retirement condo.  Noise, pollution, overcrowding are problems in all big cities, and Panama City is no different.  

Consider living a world away, but only about a half-hour from town.  Suburban living is an unfamiliar concept to Panamanians, but to foreigners, the concept is quite common.  A few foreigners have tried buying small parcels of land near the city and building a home, only to find out that dealing with the government, permitting, subcontracting, getting utility infrastructure established are all far too expensive, stressful, and time-consuming.  There are a handful of turnkey developments located within a 30-minute drive to Panama City that would be excellent alternatives to the busy, noisy, expensive city-life:

Villa Mitra (www.villamitra.com) is a new development of about 80 home sites, located 25 minutes to the west of Panama City; the community has spectacular views of the Pacific Ocean, the surrounding mountains, and a spring-fed lake on the property.  Lot sizes average a half-acre, and the community is designed to be environmentally friendly.  All utilities, including cable and internet are available on the property.  Villa Mitra is currently in predevelopment sales, and prices are competitive at between $150,000 to $250,000 for lot and home.

Brisas de los lagos (www.windlakeproperties.com) is another nice development located about 35 minutes from Panama City; the owners are also avid environmentalists and take great pride in the greenery of their development.  Phase I is currently in progress with 57 half-acre lots.  This community is not located near the ocean, though there are a few nice lakes on the property.

Hilltop is a small property of about 20 homes, also about 35 minutes from the city; the owner has made wonderful use of the natural wood available on his property to build cabinets and other finishes.  Hilltop has some nice views of the surrounding hills and valleys, though again, there are no ocean views with this one.  Prices are between $190,000 and $260,000 for 1,100 meter lots (just over ¼ acre) and homes.

Suburban Panama is a great choice to live if you want to be near the nightlife of the city but still able to have your private piece of paradise… orchid gardens, babbling brooks, and serene morning coffee watching the sunrise of the Pacific Ocean—all within a quick drive to shopping, modern hospitals, schools, banks, etc.

Given the price points, suburban Panama is an even better choice for investment; by comparison, prices in the city are several times the price of the communities I mentioned.  For investment purposes, suburban living taps each market I outlined above- retirees, part-timers, and relocators, as well as local Panamanians.  This trend is very new in Panama and has not caught on yet, but when it does, prices will assuredly rise as demand spikes.  At this time, supply is very limited, only about 150 units planned, compared to the 11,000 in the city.  Again, given the demographic trends, suburban Panama is a great way to buy into Panamanian real estate at ground floor prices and have a fabulous retirement, second, or investment home.

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