Panama's Real Estate Crash of 2009
(thepanamareport.com) Talk of Panama's potential real estate bust has dominated current event buzz over the course of 2008. Optimists claimed Panama was impervious to such a decline while pessimists damned everyone who signed pre-construction contracts. Regardless of ones take, a blow to Panama's real estate boom has always carried a negative connotation, a sign of worse things to come or proof that Panama was susceptible to failure. This article however will argue that an imminent correction to the market, above all other scenarios, will be the best thing for Panama since its Gaylord Cut.
The global credit crunch will knock Panama's most lofty of dreamers back down to earth, which is actually going to be a good thing. Risk takers will disappear from the market, monstrous real estate projects will be re-evaluated, and nearly everyone involved with buying or selling property will readjust their strategies drastically due to these downturns. New housing units will surpass demand by the second half of 2009 and result in serious price declines soon thereafter: the first tangible sign of a bubble "burst" in Panama.
Real estate sales are down around thirty percent from the year prior: but none of the players are calling it a bust, yet at least. Project construction is still visibly active and more visitors than ever arrived in Panama in 2008. To those who say Panama could be immune from the international crises, take a look the very breakdown of Panama's economy: a global trade hub, an worldwide banking center, and tourism/real estate sectors founded around foreigners: the definition, in my opinion of being internationally entwined.
Panama is currently amidst a flurry of infrastructure development, a growth that can be cited as aiding the economy as a whole. While diversifying Panama's portfolio outside the realm of "the Panama Canal" was a no-brainer, many of these sectors were hugely fueled by foreigners who, thanks to aligned stars, flocked to Panama to retire, invest, and vacation. With these foreigners' belts tightened in a global recession, how will Panama's satellite industries fare? With the banks more restrictive on loans, buyers will need more than just a pulse to qualify in Panama in 2009: read a giant drop in the luxury real estate market.
It's not really bad news though. This tightening will first elbow out the glut of flippers or speculators once invested in Panama purely for investment, with little to no interest in working or living in the Republic. This all while exists a genuine (albeit decreasing) demand in Panama and the economy is still growing at impressive rates.
Corrections will see prices fall and a rental market stabilize: a good thing for the country as long as it occurs in an organized fashion void of panic. Markets are not terribly evolved in Panama: could this immaturity have led to banks overextending themselves on feverish real estate construction? The building boom is so new to Panama that many of its loans are only beginning to be repaid. Could any potential slows in tourism expose vulnerability? More importantly, couldn't all of these corrections simply be the reality checks Panafantasy needed to bring everyone back to earth?
One particular reason Panama hasn't yet seen the panic associated with real estate busts is that it remains, albeit laws are changing, an offshore haven attracting money, whether legitimate or not, from pockets all over the world, including comparably less stable neighbors like Venezuela, Ecuador, and increasingly expensive Costa Rica. This money tends to move whether recessions are in effect or not. Further, much of Panama's development boom is held at the reins of Panama's elite: a small percentage of authoritative families interconnected with politics and Free Zone business. Hypothetically, with such a tangled knot of real estate magnates and politicos, Panama's top dogs could withhold projects from going live on the market until market conditions improve. We haven't yet seen many signs of distress however, with few if any developers lowering prices despite undisclosed debt numbers on the rise.
What made Panama's real estate boom so exciting and seductive was its spontaneous and reckless abandon. Not unlike a wild high rollers poker table, good times lured everybody in close. But the easy sale in Panama is long gone and with that has vanished part of Panama's wild wild west: in its place will arrive a sense of responsibility and consequence.
2009 will bring cautious and researched buyers to the market, buyers who'll breeze right over shallow sales pitches and incomplete track records. Developers in Panama should be careful not to adopt a "if you build it, they will come" mentality, but instead react closely to future population predictions and economic indicators. A market correction for Panama will be good: what goes up must come down and markets are often best left to their own devices. Continuing development at an uncontrolled pace could have caused grim long-term damage for Panama, whereas an unwanted bubble burst could be just what the doctor ordered.
