This “Real Estate Market Report Panama” gives an overview about the development of the last years and describes the current situation. In 2010 I started to focus on the real estate market in Panama and then in 2013 I made my first real estate purchase. After years of research and network building in Panama, my own real estate company “FRAPAN-Invest” started operations in April 2017 and at the beginning of 2018 we started together with “arsago Real Estate” to build up a real estate portfolio (link). In the meantime, we have successfully completed various property purchases and also manage the properties.
To understand Panama and the real estate market in particular, I start with the main events in Panama in the last century:
1903 / Panama declares itself independent of Greater Colombia with the help of the USA. At the same time Panama adopts the USD as its currency and the construction of the Panama Canal by the USA begins
1914 / Completion of the Panama Canal
The basis for a solid and sustainable economy was set by the introduction of the USD and the construction of the Panama Canal.
1977 / US President Carter and Panama General Torrijos agree that the Panama Canal and the entire Canal Zone will revert to Panamanian sovereignty and control
1989 / The USA deprived dictator Noriega of power and Panama decided in the referendum to surrender its own military and to place itself from now on under the protection of the USA
2000 / The USA hand over the Panama Canal to Panama and all associated rights and assets
Panama was established in 1903. However, the country was “reborn” after the takeover of the Panama Canal on New Year’s Eve 1999 / 2000. Because now the country was additionally entitled to the income from the Panama Canal and the new opportunities resulting from it. In the first three years, investors still held back, because they wanted to wait for the development of the “new” Panama.
Panama already had a considerable skyline before. But starting in 2003, a real estate and construction boom began, as a result of which a large part of today’s known skyline Panama City was created.
Early 2000s / Establishment of the Real Estate Tax Law, which states that all properties completed by 31.12.2011 remain exempt from property tax for 20 years
2003 – 2008 / Construction boom and massive rise in real estate prices. Real estate investors from North and South America invest in Panama. Increase in prime locations (Panama City, apartment, ocean front) up to 3,000 USD / sqm
2008 – 2011 / Decline in real estate prices due to the international financial crisis and the oversupply of real estate to prices in the low of approx. 2,300 USD / sqm for prime locations. Due to the conservative business policy, Panama’s banks will not experience a crisis during the financial crisis, as they are not invested in “US subprime”.
2012 – 2016 / Recovery of real estate prices to 2,700 USD / sqm in 1A locations.
April 2016 / The scandal of the “Panama Papers” shakes the country’s reputation and arrests it with prejudice. Although the “Panama Papers” do not have a major impact on economic growth (IMF forecast remains at around 6% p.a. for the next few years), real estate investors are holding back for the time being
2016 – today / Due to the Panama Papers and the completion of major real estate projects, prices tend to move sideways or slightly lower (currently approx. USD 2,300-2,500 / sqm). At the same time, banks are now also more restrictive in granting loans and opening accounts for foreigners, also in order to no longer appear on the OECD and EU blacklists
For real estate buyers and to build up our real estate portfolio, we currently find a buyer’s market in Panama which, with the right strategy, delivers very interesting yield figures. While most real estate locations in the world have to struggle with very high purchase prices and correspondingly weak rental yields, we buy in ocean front prime locations at approx. 2,300 – 2,500 USD / sqm and rent at approx. 15 USD / sqm. This enables us to achieve rental yields of approx. 7% (net approx. 5%) in USD in the fastest growing country in the western world.
Property developers are currently going through a challenging phase in Panama, as they are facing a weaker market with the completion of their projects. We are not currently buying from property developers, but are buying finished properties in attractive locations at lucrative prices. We select the locations and properties in which the employees of multinational corporations and international organizations are expected to rent and live. Panama City is the headquarters of 250 multinational corporations, half of which have their operational headquarters for Central and South America in Panama (Nestle, Roche, Adidas, Bayer, Total, P&G, etc). The third largest United Nations headquarters in the world is in Panama. It is from here that they manage their activities in Central and South America. These are our target tenants and also the current tenants of the purchased properties.
Rental prices have come back slightly in the last two years, but with approx. 15 USD / sqm in the prime locations are still very attractive. In Panama, people are waiting for new government-driven projects that will boost the economy, bring people to Panama and have a positive impact on the rental market. In Panama, the 5-year presidential elections will take place next year. Currently we are in the pre-election year, which historically is always a relatively weak economic year, as new projects are put on hold until the new government. This is how Latin America works…The IMF forecasts GDP growth for 2018 at “only” 4.6% after a 4-week strike by the construction union in May. According to the IMF, this will be made up in 2019 with growth of 6.8% and in the following years between 5.5% and 6%.
After diplomatic relations with China (Link) were closed in 2017, China is investing heavily in infrastructure in Panama. China has appointed Panama as its location for its silk road project due to its geographical location within Latin America and Air China has been flying to Panama twice a week since March 2018. What does this have to do with the real estate market? Because the Chinese are now allowed to travel to Panama with visa facilitation, they are now also acting as real estate buyers and through the infrastructure projects there are new jobs, which in turn generates rental demand.
Basically, Panama’s economy has to struggle with the following problems:
Poor education system of the population
Reputation as a tax haven, although Panama is no longer on the EU or OECD blacklist (Link)
Furthermore, a widening trade war between the US and China would affect the profitability of the Panama Canal.
Nevertheless, Panama’s economy is currently growing faster than most of the rest of the world and according to IMF forecasts, and the Panama Canal has closed the fiscal year with a record year (Link). These are important elements for the attractiveness of the investment location and the real estate in Panama.