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PANAMA REAL ESTATE 3: How 2012 could unfold

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By Kent Davis*

2012 WILL BRING new challenges and opportunities to Panama. As Panama City moves forward on a massive adjustment of its urban transportation system, traffic in an already congested city of  1.5 million people will get worse before it gets better.

The good news is that by mid-2013 we believe that the real estate market will once again begin to appreciate and will do so in a manner never seen before due in part to a completely modernized transportation system and increased revenue from an expanded Panama Canal.

This year, however, we believe that city real estate prices across the board will come down by at least 10% and as much as 20% due in part to the massive amount of residential condominiums in construction and their timeframe of delivery, specifically along Balboa Avenue, San Francisco, and Punta Pacifica.

The district of Bella Vista known as  Avenida Balboa,  will experience the largest increase in supply (in proportion to existing inventory) than any neighborhood over the last five years.

People have been talking about Panama being “overbuilt” for a long time now, and this will finally be the year when the lion’s share of inventory that has been in construction finally hits the market.

One would have to assume that an unprecedented dump of new inventory onto a relatively stable market will have downward pricing pressure on the market as a whole. This pricing correction will inevitably affect the “luxury” market of $2,000-per-meter-and-up condominiums in other areas of the city and will also have an impact across other market categories in Panama City including more moderately priced condos in areas like El Cangrejo, Obarrio, and other parts of Bella Vista.

Avenida Balboa has been for the last 5 years one of the most recognized areas of Panama, which is the main reason why so many developers decided to build along this iconic waterfront strip.

Balboa is one of Panama City’s prime spots for ocean view condos and – with the newly constructed Cinta Costera remains a very attractive area. However, almost half of the buildings that line Balboa Avenue are in construction, and 2012 is the year that the majority of the new inventory will finally be completed and released on to the market. The good news is that after this final wave of new deliveries, there will be only a handful of empty lots for future projects.

Back in 2009, one would be lucky to find a brand new high-rise condo on Balboa Avenue for less than $2,500 per square meter ($234 per square foot). In 2011, the average price for a two year-old condo was right around $1,900 per meter. This represents a 25% price correction over a two-year span.

In  December, 2011, there were approximately 1,498 completed condo units on Balboa

Avenue. Due for delivery in the first quarter of 2012 are four new condo projects totaling 744 new units and due for delivery over the next three quarters of 2012 are an additional 898 units.

That means that at the beginning of 2012, there ere roughly 1,500 condo units and by the end of the year we are looking at 3,142 completed condo units. This represents a DOUBLING of  available, completed, move-in-ready condos in a very finite area of the city.

Not all of these condos are going immediately to market for sale or rent, but some will. Exactly how many? We have no idea, but based on the general demographic of sellers who we are representing, we estimate that at least 50% of the condos in construction were purchased between the years 2007 and 2008, just before the financial crisis.

Some of these new Balboa Avenue condo owners are not going to be in a position to come up with the balance that they owe the developers and will be forced to liquidate their contract positions and take whatever percentage of their deposits that they can recover.