Zero activity in Panama

Lalaine C. Delmendo | October 02, 2020

Panama’s housing market is now depressed. Homes sales and residential construction activity are both declining. Property prices have fallen in most major cities.

Foreign buyers have buoyed Panama’s housing market in recent years, pushing up prices by 5% to 10% annually. Foreign buyers tend to be from the United States, Europe, Canada, and Latin America.

However this year, there is almost no market activity due to the coronavirus crisis. “At this time the decline in our sector may be between 87% and 90% of activity because we are simply not working,” said Elisa Suárez, executive director of Convivienda.

“Practically, we have had almost zero activity this year,” Suárez added.

In Panama City, the country’s capital and largest city, the average price of apartments fell 4% y-o-y to US$2,007 per square meter (sq. m.) in August 2020, according to classifieds platform encuentra24.com. On the other hand, the average house prices increased by a minuscule 0.8% y-o-y to US$1,501 per sq. m. over the same period.

In Panama’s other major cities:

  • In San Miguelito, the country’s second most populated city, apartment prices fell by 1.3% to US$1,790 per sq. m. while house prices dropped 9.2% to US$1,129 per sq. m.
  • In David, the capital of the Chiriquí province, the average house price fell by 15.6% y-o-y to US$784 per sq. m. in August 2020
  • In La Chorrera, the capital of the Panamá Oeste province, houses prices fell by 13.3% y-o-y to an average of US$752 per sq. m. in August 2020
  • In Santiago, Veraguas province’s capital, the average houses price plunged 36% y-o-y to US$460 per sq. m.
  • In Penonomé, the capital of Coclé province, the average house price surged 80.7% y-o-y to US$1,339 per sq. m.
  • In Colón, the capital of Colón province, house prices more than doubled to US$1,511 per sq. m. in August 2020

Residential construction continues to fall. In the first five months of 2020, the value of residential construction plummeted by almost 35% y-o-y to PAB 162 million (US$ 162 million).

The previous year was unusual. House sales rose strongly by 30% to 8,034 units in 2019 from a year earlier, according to the National Board of Housing Developers (Convivienda). Likewise, transaction values soared 58% y-o-y to PAB 875.83 million (US$ 875.83 million) last year.  But construction fell 14.3% in 2019 and 40.5% in 2018, according to the Instituto National de Estadistica y Censo (INEC).

Panama residential property prices

Tourist arrivals ground to a halt after Panama President Laurentino Cortizo declared a total lockdown and suspended international flights in March 2020 to contain the rapid spread of the virus in the country. The government has recently announced that international aviation and tourism activities will resume on October 12, 2020.

Foreigners can own real properties in Panama, and are accorded with the same property rights as Panamanians. However, mortgages can be difficult to obtain, especially for foreigners, and the purchase process can take two to three months. More than 80% of real estate transactions involving foreign buyers are in cash.

Panama City’s top area

Panama City is divided into two main areas - the old colonial town of Casco Viejo, and the modern business and shopping district of high-rise buildings and malls. House prices vary considerably depending on the location, size, and quality of the property.

Panama foreign direct investment net inflows
  • In Santa Maria, the capital city’s most exclusive and best-planned residential golf community, average property prices currently range from US$2,800 per sq. m. to US$3,500 per sq. m.
  • In the prestigious neighbourhood of Costa del Este, newly constructed luxury apartments sell for about US$2,300 to US$3,000 per sq. m. this year, according to Panama Realty Zone. Costa del Este hosts the headquarters of many multinational companies.
  • In Punta Pacifica, Punta Paitilla, and Balboa Avenue, property prices range from US$2,400 to US$3,000 per sq. m. Three-bedroom oceanfront condominium units in these neighbourhoods are priced at about US$350,000. In YOO and Villa del Mar, two of the most expensive buildings on Balboa Avenue, average property prices were about US$,3000 per sq. m.
  • In San Francisco, newly built houses are generally priced from US$1,500 to US$2,700 per sq. m. In Coco del Mar, prices can go higher with starting prices of US$2,100, according to Panama Realty Zone.
  • In the city centre’s Calle 50, the price of newly built houses can go as high as US$3,000 per sq. m.
  • In El Cangrejo, known for its vibrant nightlife, hip bars, restaurants and cafes,  and busy casinos, prices currently range from US$1,800 to US$2,800 per sq. m.
  • In Cinta Costera, a 26-hectare land reclamation project in Panama City, apartment prices vary from US$2,000 to US$3,200 per sq. m.

2019 was a great year

Last year saw a surge in housing demand. House sales rose strongly by 30% to 8,034 units in 2019 from a year earlier, according to the National Board of Housing Developers (Convivienda). Likewise, transaction values soared 58% y-o-y to PAB 875.83 million (US$ 875.83 million) last year.

Panama home sales

Beach apartments were in demand by both local and foreign buyers last year. The most popular areas include Punta Chame, Playa Blanca, Farallon, El Palmar (Hato River), Santa Clara, Coronado and Rio Mar (San Carlos).

The business environment really wows foreign investors

Panama’s business environment has really been improving. Last year, starting a business took an average of only six days, far lower than the region’s average of 28.8 days, according to the World Bank’s 2019 survey. Likewise, registering a property requires 7 procedures and 22.5 days only, a lot faster than the average of 63.7 days in Latin America and Caribbean region.

However in terms of overall competitiveness, Panama slipped two notches to 66th rank out of 140 countries last year, according to the World Economic Forum’s Global Competitiveness Report 2019.

Panama draws multinational companies and foreign investors with its significant tax breaks, the free-trade zone, improved infrastructure, and a low cost of living. The expansion of the Panama Canal, which was opened in June 2016, is expected to bring in over US$2 billion in annual revenues by 2021.

“There are so many new businesses moving to Panama,” said Kent Davis of Panama Equity Real Estate. “It’s one of the reasons people are coming down - because there is still money to be made, locally, and as a regional base of operations.”

Panama required days start business

Panama encourages FDI in real estate by offering various incentives such as property tax exemptions, according to Jeff Barton of Punta Pacifica Realty.

“People aren’t just moving here to relax,” Davis added. “They’re coming here to work because there is so much business around.”

Panama has the highest foreign direct investment (FDI) share of GDP in Latin America, at about 10% of GDP, according to a United Nations ECLAC report. Panama was also the only country in the region to attract increasing investment in the past decade, rising from 9th to 5th largest recipient of FDI in the region between 2010 and 2018.

“The Panama Canal expansion and the country’s development as a logistics and transport hub, together with a sustained defined strategy to attract investment in services, have driven FDI growth and positioned Panama as a platform for access to the region,” said UN ECLAC report.

For what it is worth, International Living’s 2020 Global Retirement Index names Panama as the world’s second best place to retire in 2020, due to its convenience (ease of access from US, currency in US dollars, English is widely understood), world-class amenities, good beaches, and affordability.

But let’s look at the dark side too. Despite economic growth and a GDP per capita of US$16,250 in 2019, poverty and social inequality continue to worsen in Panama. Elite families of European descent control most wealth and power, while about one-third of the population lives below the poverty line.

Panama back on FATF’s "grey list" for money laundering

No real controls prevent funds moving through Panama to terrorist organizations, nor do money laundering prosecutions actually take place. Moreover, Panama’s powerful criminal syndicates remain fully operational. Panama is a major transit point for U.S.-bound drugs and illegal immigrants, and has an international reputation as a haven for money-laundering.

In June 2014, Panama was placed on the "grey list" of Financial Action Task Force (FATF) of countries not doing enough to fight money laundering. Two years later, FATF officially de-listed Panama due to the government’s series of legislative reforms.

But in June 2019, FATF put back the country on the grey list, demanding further reforms, including introducing an adequate verification and updating of beneficial ownership information by obliged entities; establishing effective mechanisms to monitor the activities of offshore entities; assessing the existing risks of misuse of companies and other entities; and introducing measures to prevent the misuse of nominee shareholders and directors.

In its March 2020 review, FATF still retained Panama on its grey list as it must “continue working on the implementation of its action plan to address its strategic deficiencies.”

An earlier report by the Latin America Financial Action Task Force (Grupo de Acción Financiera de Latinoamérica - GAFILAT) enumerated the sectors of real estate, banking and corporate services, and free trade zones as the most vulnerable sectors to money laundering.

Good rental yields

Panama’s gross rental yields are still good, despite having declined over the past few years. Rental yields are range from 5.7% to 7.3%, with smaller apartments tending to yield more, according to a research conducted by the Global Property Guide.

Most properties in Panama City are apartments. Based on the figures from Encuentra24, the average price for apartments in the city was US$2,007 per sq. m. in August 2020, down by 4% from a year earlier. According to International Living, the top three city spots to live in are Cerro Ancon, Casco Antiguo, and San Francisco.

Cerro Ancon is a lush and green neighborhood filled with wildlife. It is popular with both expats and Panamanians because it is close to the city but at the same time offers plenty of outdoor space. Most of the properties in Cerro Ancon are single-family homes, sometimes divided into apartments. Sample property prices for Cerro Ancon are as follows:

  •  A 7-bedroom plantation-style house with large covered terrace - US$370,000
  • A modern 4-bedroom, 4-bath house with 2 terraces - US$875,000

Casco Antiguo is Panama City’s historic district. Its candy-colored buildings, plazas, restaurants, cafes and bars, and historic places such as the San Jose church are a tourist must-see. Sample property prices for Casco Antiguo are as follows:

  • 1-bedroom condo, about 96 sq. m. - US$295,000
  • 2-bedroom condo with a private roof terrace and parking - US$650,000

San Francisco, known as the heart of creative Panamanian cuisine, is a chic metropolis area in Panama City comprised primarily of higher socioeconomic class. Sample property prices for San Francisco are as follows:

  • 2-bedroom condo, about 70 sq. m. - US$155,000
  • 3-bedroom, 4-bathroom penthouse condo with 2 large terraces, about 340 sq. m. - US$470,000

Outside Panama City, the town of Boquete in Chiriqui province and the country’s Pacific coast are also popular among North American retirees and second-home buyers.

Boquete, in Panama’s mountain highlands, has a fast growing expatriate community. The popular option here is to buy land and build a home, but there are many completed homes on offer. Sample property prices for Boquete are as follows:

  • 2-bedroom, 2-bathroom single-family home on a quarter acre of land - US$199,000
  • 1-bedroom, 1-bathroom condo - US$147,000

Another desirable location is Coronado, a popular beach town located in the country’s Pacific coast. It is a relaxed community for expats, and only an hour from Panama City. Sample property in Coronado is as follows:

  • 4-bedroom, 4-bathroom home on a quarter acre lot - US$310,000

Residential construction remains depressed

Residential construction activity in Panama continues to fall. In the first five months of 2020, the value of residential construction plummeted by almost 35% y-o-y to PAB 162 million (US$ 162 million), following annual declines of 14.3% in 2019 and 40.5% in 2018, according to the Instituto National de Estadistica y Censo (INEC). Likewise, the area of residential construction also fell by 47.6% y-o-y to 311,539 square meters (sq. m.) in Jan-May 2020.

During the first five months of 2020:

  • In Panama City, the value of residential construction fell by 28.6% y-o-y to PAB 97 million (US$ 97 million) while the total area plunged 34.7% to 148,872 sq. m.
  • In Colon, the value of residential construction fell sharply by 43.6% y-o-y to PAB 3.96 million (US$ 3.96 million) while the total area dropped almost 69% to just 10,742 sq. m.
  • In David, Chitré, Santiago, Aguadulce and La Chorrera, the value of residential construction fell by more than 35% y-o-y to PAB 48.9 million (US$ 48.9 million) and the total area dropped almost 58% to 114,540 sq. m.
  • In Arraiján, the value of residential construction fell by 59.3% to PAB 12.1 million (US$ 12.1 million) and the total area dropped 38% to 37,385 sq. m.

From 2013 to 2015, residential construction activity in the country grew by an annual average of 33%, all of which follows a decade of breakneck building which raised occupied housing units by 31.5% between 2000 and 2010, according to the National Censuses.

Panama value residential construction

Total credits granted to the construction sector rose by a meager 0.1% y-o-y in July 2020 to around PAB 6.6 billion (US$ 6.6 billion), according to Superintendencia de Bancos de Panamá.

Mortgage market vibrant

The total mortgage credit outstanding rose by 5.2% y-o-y to PAB 17.41 billion (US$ 17.41 billion) in July 2019, following annual growth of 5.3% in 2018 and 8.5% in 2017, according to the Superintendencia de Bancos de Panamá (SBP).

Banco General, S.A. accounted for about 23.4% of all mortgage credit outstanding, followed by Banistmo, S.A. (with 12.5% share), Global Bank Corporation (11%), Caja de Ahorros (10.1%), Banco Nacional de Panamá (7.1%), The Bank of Nova Scotia (6.6%) and BAC International Bank Inc. (5.5%).

Panama mortgage market reference rates

In Q3 2020, the domestic mortgage market reference rate was 5.75%, unchanged since Q2 2019, based on figures from the Superintendencia de Bancos de Panamá (SBP). The domestic mortgage market reference rate, which is updated quarterly, is an interest rate benchmark used to set mortgage loan rates.

Through Panama’s preferential interest law, first time buyers of new homes can avail of lower mortgage interest rates. However, the property must be for residential purposes and the amount financed must be between US$35,000 and US$120,000 after the down payment. The law also requires that the loan should not be more than 95% of the property’s appraised value and should not exceed a 15-year term.

Export-oriented Panama is Latin America’s Hong Kong

The Panama Canal accounts for about 40% of the country’s economy.

For the past decade, Panama was hailed as one of the fastest growing economies in the Central American region, with an annual average GDP growth of 6.2% from 2000 to 2019, based on figures from the International Monetary Fund (IMF).

“This increase is explained primarily by the behaviour of economic activities related to the external sector. Among them, those of the Panama Canal, air and financial services stand out positively,” noted a recent report of the Comptroller General of the Republic.

Panama gdp inflation

The US$5.25 billion expansion of the Panama Canal, which began in 2007, has experienced cost overruns amounting to US$1.6 billion. But the expansion, which started operations in June 2016, has doubled the Panama Canal’s capacity, with wider and deeper lanes and locks, and a new lane of traffic allowing more and larger ships. Last fiscal year’s tonnage of 469 million Panama Canal tons (PC/UMS) was the highest in its history, and a 6.2% increase from the prior year.

However the COVID-19 pandemic, trade wars and the suspension of the cruise industry have taken a toll. Transits through the Canal fell 8% y-o-y to less than 2,800 in Q2 2020.

The government is optimistic. “Despite the challenges faced earlier this year, I am confident we will see a steady recovery going into our 2021 Fiscal Year for both the Canal and its customers,” said Panama Canal Administrator Ricaurte Vásquez Morales.

Panama gdp inflation

Recently, the Panama Canal Authority decided to extend the temporary relief measures for shippers introduced in May 2020, including the suspension of advance payments for transit reservation fees and other changes.

In Q1 2020, Panama’s economy grew by a minuscule 0.4% from a year earlier, a sharp slowdown from annual expansions of 3.3% in Q4 2019, 2.7% in Q3, 2.9% in Q2 and 3.1% in Q1.

The economy is expected to shrink by 2% this year, its first contraction since 1988, according to the IMF. Unemployment is also projected to rise to 8.8% in 2020, up from 7.1% in the previous year and the highest level in 15 years.


Sources:

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