Casco Viejo Fighting Off Panama's Real Estate Bust
(costaricapages.com) Panama City is featuring in the news of late for its real estate boom that spanned the past several years, and is marked to result in empty units and falling prices. Due in part to speculation, and exacerbated by the global financial crisis, downtown Panama’s busy skyline of cranes and construction sites is all but at breaking point: however a sub-market is trying valiantly to weather the storm.
Panama City’s historic district of Casco Viejo, featured recently in The New York Times, International Herald Tribune, and US News and World Report as one of the continents most up-and-coming neighborhoods, has long been thought to behold various traits resistant of unstable outside factors.
The UNESCO World Heritage Site of Casco Viejo, not unlike the remainder of Panama City, saw more real estate development activity over the past years than ever before. Now, with it’s prices having doubled and tripled, some are tipping it as just another faltering sector while others still stick to their belief that this niche market is independent of so many others. As the owner of a small business in Casco Viejo, I have had the pleasure of seeing these four differences emerge first hand.
Supply. The factor most point to as the major crux of Panama City’s luxury tower demise is oversupply. It’s said that far too many projects were put on the market, which far outweighed demand. Casco Viejo however, as it’s advocates point out, boasts a strict limitation on supply, the number of possible completed buildings and units in the zone tightly restricted by historical preservation boards. This means that building up (as skyscrapers do on Avenida Balboa) and building out (as island creation proposes off Punta Pacifica) are not viable or legal options. From a buying perspective, having a fixed supply reduces risk on investment.
Niche factor. What made the units in Panama City’s boom special? It wasn’t particularly Panama City’s character (as there are many other far more sophisticated capital cities), nor was it the craftsmanship or boutique appeal. In a word, it was price: people came to Panama City to buy sleek, modern, and generic condos because they were cheap. Comparables existed in Miami, in Dubai, and elsewhere, but Panama had some pretty good deals. The City is now feeling the wrath of having objected itself to this indulgence as everyone decides, amidst rising prices, that the condos nor the capital are so special after all. Casco Viejo, also known as Casco Antiguo, is on the opposite side of the spectrum. As far as history, culture, and diversity, Casco is about as good as it gets in the Republic of Panama. While it might not be for everybody, Casco Viejo is the quintessential niche market that so many experts believe is able to defy general odds.
Speculation. Panama City’s boom and bust was one based on speculation, with investors buying real estate purely with the intention of flipping it for more. Casco Viejo, however, has in place a restrictor called Ley Nueve or Law Nine which prohibits the act of speculation by forcing owners to do something with their property within a defined timeframe (as opposed to just sitting on it and watching the price rise). This law is most notable on the neighborhoods plazas where notable pieces of real estate have been challenged (and or seized) for disobeying the mandate.
Comparables. We’ve always preached on this site that Panama’s luxury tower market grew so irrationally that it lost all reference to comparable real estate in other countries. As a result, there is soon to be a glut of empty units so expensive that they out price even luxury options in the USA. Casco Viejo real estate, compared to historic real estate elsewhere, even though it’s risen multi-fold over the past three years, is still extremely low by comparison. The market price for a finished unit in the desired heart of Casco Viejo is around $2,300/m2 (plus or minus $150): a price that gives credence to its allure both as an up-and-coming cultural hotspot but as an investment goldmine.
Prices in Casco Viejo are widely thought to be increasing slower than they were before, but it’s unlikely that they will ever drop, citing the general properties of limited edition goods. I was going to point out also that construction in Casco Viejo is usually of superb quality and detail, however I’ve come across a number of examples recently that would sharply disprove this point (ie. a bevy of new units with severe integrity flaws). There are also a number of additional downsides to investing in Casco Viejo that you don’t deal with in the City proper such as gangs, lack of supermarkets, parking, lack of restaurants, distance from city center, closeness to Chorillo, high rents…etc. Yet in reality, these imperfections are what have kept the prices so low. And don’t get me wrong: prices in Casco Viejo have certainly slowed, sales have dropped significantly, and a number of projects have stalled. The argument here is that the impact of outside variables will not be as severe or as tragic as the rest of luxury-tower Panama City.
Do you think Casco Viejo will be able to weather the impending real estate bust storm, and maintain it’s unique investor market?
