It’s Still Early in Boom Town

Panama City right now is experiencing a construction frenzy. Highrises, hotels, towers, condos, apartments, office buildings…new ones are being added to the city’s skyline monthly. Can there be a market for all these new units, we’ve asked ourselves in recent months. As we’ve reported, we’ve become concerned that this city’s construction boom might be running amuck.

Kathie, our son Jack, and I arrived in Panama early July for our annual summer visit. The drive into town from the airport confirmed our suspicions and the reports we’ve been receiving from insiders in the country. Everywhere you turn, you see more cranes, more work crews, new foundations, and frames of steel rising ever higher. Every block of this city within any proximity of the waterfront and, increasingly, even regions well outside the prime Balboa address, are going vertical. What promises to be the tallest residential structure in the world is about to break ground…and brochures touting Donald Trump’s planned mega-luxury multi-use highrise are in wide circulation.

A month into our visit, what do we think now?

Well, we’re shopping to make another purchase here ourselves.

This country’s economy is beginning, finally, to get legs under it in the wake of the American military withdrawal in 1999. It has taken a few years, but Panama is filling the economic gap created by the loss of 50,000 well-paid foreign servicemen and their families. The Panamanians are today operating the canal as a profitable business, the banking industry is thriving, and, most interesting to me this visit, long-discussed infrastructure projects are looking surer and surer. All this local activity is being accompanied by an ever-increasing influx of tourists and retirees…and creating an ever-increasing demand for new housing.

Panama’s Tocumen International Airport is more than halfway through a renovation and expansion project that will help Copa expand its coverage in Latin America and increase capacity for the growing number of businessmen and tourists coming to Panama City, increasingly the recognized hub for business activity in Latin America. A new bridge across the canal was finished late last year, and, now, this year, there are finally roads leading up to it. (The country’s last president wanted to be the one to cut the ribbon on the opening of the bridge, so she pushed that project ahead, even though there was no time to build the road on either side.) As we’ve been reporting to our “Panama Alert” readers, a referendum scheduled for October will ask Panamanians to vote on the idea of expanding the Panama Canal by adding a new, larger lock. If approved, this would be a $5 billion project that our contacts in the city say “will guarantee this country’s economy for the next 10 years.”

All of these infrastructure projects will continue to aid the economic expansion going on in this country…an economic expansion that led to an increase in GDP of 6.4% in 2005 and a reduction in unemployment, which has fallen from 12.6% to 9.8%. The Panamanian middle class is growing. I’ve noticed this visit more locals taking taxis rather than buses, as well as a number of new buildings and neighborhoods being constructed for this local middle class. And, all the while, there is the growing influx of foreigners, taking up residence either full- or part-time.

Right now, more than 100 new buildings are either under construction or in planning stages for Panama City. That’s a big number for a city this size. However, not all the buildings will make it through planning…and certainly not all at the same time. Further, there are physical limits to the amount of new construction that can take place at one time. There are only so many construction workers and cranes to go around. A local developer told me over lunch the other day that 25% of the world’s cranes for building highrise towers are in Dubai today. I would have to guess that another fair percentage are in Shanghai. In other words, there are only so many available for Panama City…

The buildings under construction are a mix of products geared toward different markets. Some are all one-bedroom units geared toward retirees and North American second-home buyers. Others are targeting upper-middle class locals (both Panamanians and expat workers). Many, as I said, are being built for the growing local middle class.

Absorption rates are high for new buildings, and sales are mostly to single buyers--that is, to end-users rather than investors, which indicates that there shouldn’t be a big glut of units coming back on the resale market down the road. Finally, the timing for completion of much of the construction currently under way bodes well for the housing need that would be created should the canal expansion referendum pass in October.

What’s my point? Well, you can connect the dots as well as I can.

If you have been considering buying in Panama City, you’re not too late. Remember location above all else…and pay attention to timing (that is, when construction will be completed), as well as amenities. This is how all these new highrises are now competing…on special building services, extras, and amenities. Our in-country team is well-versed and up-to-speed. They’re planning a third Real Estate Tour in a few weeks. The first two sold out in a matter of days.

There’s no more cost-effective way to get a handle on this market than to join one of these excursions. Space is limited to 40. Full details here: http://www.il-ireland.com/il/promos/pan_re_aug06/all.html , or contact events@internationalliving.com ; tel. 1-866-381-8446.

Regards from your scout, currently on his way out the door to the airport for a plane to Buenos Aires,

Lief Simon
Real Estate Editor, International Living