Revisiting Panama Progress of 2008

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(thepanamareport.com) So last year I wrote what I called the State of Affairs in Panama, 2008 which was my list of predictions in the real estate and tourism sectors for the upcoming year. I wrote the article New Years Eve 2007 and figured it'd be interesting to go back and evaluate my predictions, if nothing else, as a bolster to my forecast for 2009. I have posted below my 15 predictions along with an academic grade (on a scale of A+ to F) and reasoning to back the grade up. I didn't write this review from the lookout on Ancon hill as the picture might lead you to believe, but from the bowels of my office library, the setting was almost as dramatic.

• Casco Viejo will persist as the only controlled real estate market in Panama City. (A-) 2008 saw more development in Casco Viejo than perhaps ever before. Prices also rose exponentially (maybe two-three fold) to a point that $2,500/m2 is more or less the standard for developed units. Thanks to its preservation laws though, Casco Viejo saw no over-production. New shops have popped up though many may regard the city as still "a work in progress" as very few completed projects came online in 2008. There is a small flurry of buildings set to be released in early 2009, and thanks to socially-conscious developers and sophisticated buyers, very little shady business has graced Casco's cobblestone streets.

•  Due to poor regulation, historic buildings in Bella Vista and San Francisco will be demolished in favor of high rises. (A) It's such a shame, but over the course of 2008, I watched a handful of my favorite architecturally-stunning buildings fall to their "tomb", the Spanish word for demolition being "Tumbado." Go for a walk in these once rich neighborhoods and now you'll see high-walled construction sites guarding deep holes. The few houses that do remain are being converted into quaint bars and restaurants or simply left to sit (for taking to the highest bidder).

• Too many high-end condo projects will exist on the market. (A) Everyone fails to accept this. There are too many high-end condos on the Panama City market. No one lives in the new buildings and people are backing out of the ones under construction. The glut of $300,000-$750,000 units arriving on the market are perhaps the worst product ever to arrive in oversupply during a financial crisis.

• A handful of interior towns will experience exponential growth. (B) Though not nearly as many as I expected, a small bunch of Panama's interior towns have started to see major signs of development. Pedasi (on Panama's Azuero Peninsula in the Los Santos Province), Santa Clara (in the coastal region of Cocle), and traditionally-popular places like Coronado have made major strides (for better or worse) in 2008. Coronado is even set to announce a new shopping center adjacent to its current one along with a hospital-arguably the first tourism-centered medical center in Panama. While these towns are certainly seeing a slowdown on the real estate front, there is no doubt they've grown a few inches.

• More tourists will enter Panama than ever before. (A) This one wasn't terribly hard to predict, and while the government's statistics are so far off that it's scary, Panama definitely saw more tourists in 2008 than ever before. 1 million or 1.5 million is a far cry to anyone who lives here and monitors the tourist destinations, but if 250,000 tourists entered in 2008, my prediction would still hold true.

•  Living prices will rise faster than years past. (B) While I think it's certainly coming soon, 2008 wasn't necessarily the year of increased cost of living in Panama. Things like transportation prices, food costs, and rental rates (for locals in suburb areas) increased but not terribly abnormally. Rice was the big story a few months back, when it shot up to record prices. But for the most part, only luxury items saw appreciation in 2008 and not all that unusually as per inflation rates.

• The government will develop few incentives for eco-friendly hotels. (A-) The Panamanian government and tourism board, amidst many large claims and glamorous publicity packages, still has yet to encourage eco-friendly hotels with anything more than a "go get ‘em scout" pat on the back. That being said, several small hotel owners have taken the initiative themselves and done what they want (with no help from anyone else).

• Petty crime will increase heavily. (A) Increased tourism was the main catalyst here. But suddenly, like a switch, we started to see more muggings, house invasions, and general hanky panky in tourist hotspots like El Cangrejo and tourist red zones like Chorillo. Whether tourists wander somewhere they shouldn't or simply look like good targets, I don't know. But more and more petty crime, specifically petty crime involving foreigners, had its heyday in 2008.

• Sex tourism will sky rocket. (A) I know this because I see them everywhere. Prostitution has simply become a regular component of Panama nightlife and entertainment. Anyone who tells you there aren't more whores at Sahara or Guru now than there were in 2007 is loony. Anyone who tells you places like La Bodeguita and Habanos aren't packed more than ever is nuts. And anyone who doesn't realize that more and more groups of horny guys are coming down to Panama for this attraction alone (much like they did/do in Costa Rica) is living in the back of a chinito. Whether anyone wants to acknowledge it or not, Panama's sex tourism is rising, visibly, one pop-breasted hooker at a time.

• Less American travelers and investors, than projected, will enter Panama. (B) I don't know exactly how to find evidence for this one, but having been around the industry, I didn't get the feeling that American travel interest had decreased too much. Real estate has certainly seen a decrease in American buyers due to the crisis. But whether it was less than projected is hard to say.

• 2008 will see the most failures in real estate projects to date. (C) I think many skeptics would have expected the Panama real estate burst to come sooner. But 2008 didn't see a whole lot of failures to the developers' credit. 2009 will be an entirely different story, but for the most part, projects in Panama in 2008 kept their noses above water (even amidst the beginning of a world economic crisis).

• Real estate agencies in Panama City will do especially well. (B) Agencies didn't do nearly as well as I had thought they would in 2008. I had predicted that whether or not the "bubble burst" there would be lots of unit transactions to be had. But what put a stop to that, irregardless of supply on the market, was the fact that no one was buying. The last quarter of 2008 was the best indication of this as the earlier parts still saw some carryover momentum from the 2007 boom.

• 2008 will see an increase in deportation of illegal immigrants. (B+) Not positive how to track this one either without shuffling through the files at our glorious immigration office, but from the flood of Columbian deportations (due in part to an increased drug presence) and the tourist visa debacle which saw innocent foreigners (albeit who'd forgotten their passports) put in paddy wagons and deported, I'd say that foreigner deportation definitely increased in 2008, just not sure how much.

• Water, specifically in the nation's interior, will continue to be a pressing issue for locals. (D) This prediction did not come to fruition and part of my flawed theory was in thinking that Panama's interior development projects would actually continue without a hitch. Visit several of the largest and it looks like time has stood still, with a dwindling sales department, the projects simply cannot afford to go on, meaning they're not taking up all the water from local communities like I had suspected.

• Vacation rentals of condos will increase tenfold. (B) Vacation rentals did increase in Panama in 2008, but not nearly as much as I had predicted. The numbers of tourists given by the government simply don't coincide with the amount of tourists seen here on the ground. Nor do Panama's hotel occupancy numbers hold much weight: if you live here, you know because the hotels simply don't feel full. Since the amount of tourists is far less than supposedly stated, the vacation rental industry has yet to really take off.

No one could have predicted the current financial crisis facing the world, or at least most of us couldn't have. But with Panama's momentum coming off a stellar year in 2007, 2008 was kind of a let down. Sure, some major infrastructure projects got started and yes, the economy grew to upwards of 9%. But the basic factors that contribute to healthy growth were somewhat disappointing in 2008 and depending on who you talk to, 2009 could be an extension of this weakening or it could throw the entire cycle in reverse for more unbridled growth.

There were relatively few project failures in 2008, which is a good sign, and credit to Panama's developers who I love to doubt. But 2009 will present more challenges than ever in this department from a number of angles. Tourism is showing great signs of progress but its not nearly at the point people rave about. Even I was naïve enough to bake a cake when the "1 million tourist mark" was passed, failing to realize this is substantiated...where?

Everyone likes to ask for statistics in Panama, which are not only hard to come by, but seriously erroneous when found. It makes legitimate predications and analysis almost impossible which is why I use the word "feel" so much, as in, it doesn't feel like a lot of this is actually happening. Panama's still developing at a rapid rate, with many fronts showing great signs of improvement. 2009 will be a serious test, perhaps the most telling year of all, in the fate of this little banana republic.