The property market is expected to grow stronger in the medium-term, amidst the opening of the Panama Canal and the continued influx of foreign investors into the country.
Panama´s economy grew by a robust 6.2% in 2014, after real GDP growth rates of 8.4% in 2013, 10.8% in 2012, 10.9% in 2011, 7.5% in 2010, and 3.9% in 2009, according to theInternational Monetary Fund (IMF). The economy is expected to expand by 6% this year and by another 6.3% in 2016.
Tourist numbers have risen by 83% over the last five years, according to Panama America. In 2014, the total number of tourist arrivals rose by 4.7% to 2.3 million people from a year earlier, according to the Panama Tourism Authority. Of the total, 48% came from South America, 24.3% from North America, 12.7% from Central America, and 2.5% from the Antilles.
Likewise, tourism revenues increased 5.5% to US$3.23 billion in 2014.
Corrupt, with lots of poor people, Panama is on FATF´s money-laundering "grey list"Despite strong economic growth in recent years, Panama continues to face worsening poverty and social inequality. Elite families of European descent control most of the country´s wealth and power, while about one-third of its total population lives below the poverty line. There were about 3.9 million people in Panama in 2014, with a GDP per capita of US$11,145, according to the IMF.
In addition, Panama is a major transit point for U.S.-bound drugs and illegal immigrants, and has an international reputation as a haven for money-laundering. Since June 2014, Panama has been on the "grey list" of Financial Action Task Force (FATF) of countries not doing enough to fight money laundering.
Local property price variationsPanama City is divided into two main areas – the old colonial town of Casco Viejo, and the modern business and shopping district of high-rise buildings and malls.
House prices vary considerably depending on the location, size, and quality of the property.
- Santa Maria, the capital city´s most exclusive and best planned residential golf community, has an average property listing price of US$3,250 per sq. m. and final sales price of just under US$3,000 per sq. m. in Q1 2015, according to the Panama Equity Real Estate.
- In the prestigious neighbourhood of Costa del Este, newly constructed luxury apartments sell for about US$2,800 per sq. m.
- In Punta Pacifica and Balboa Avenue, two of the capital city’s high-end residential areas, property prices have now reached around US$3,000 per sq. m. Three-bedroom oceanfront condominium units in these neighbourhoods are priced at about US$350,000.
- In San Francisco, newly built houses are generally priced from US$1,750 per sq. m.
- In the city centre´s Calle 50, the price of newly built houses can go as high as US$3,000 per sq. m.
- In Los Altos de Cerro Azul, a private, gated community that sits on Panama´s undiscovered mountain paradise, three-bedroom houses with ample garden space can be bought for just US$100,000.
- At the Trump Ocean Club, one of the most expensive residential buildings in the city, one-bedroom unit on the 50th floor costs about US$350,000.
“There are so many new businesses moving to Panama,” said Kent Davis of Panama Equity Real Estate. “It’s one of the reasons people are coming down – because there is still money to be made, locally, and as a regional base of operations.”
Panama draws multinational companies and foreign investors with significant tax breaks, the free-trade zone, improved infrastructure, and a low cost of living. The expansion of the Panama Canal, scheduled to be opened in 2016, is expected to double the country´s annual revenues.
Panama had the highest foreign direct investment (FDI) share of GDP in Latin America in 2013, at 10.8% of GDP, according to International Monetary Fund (IMF). Over the past 3 years, foreign investment was US$7.7 billion—iof which mining was US$4 billion, energy projects US$2.2 billion, new hotels US$650 million and US$500 million at the Port of Corozal. The net inflows of FDI into the country increased 3% y-o-y to US$5.2 billion in 2014, according to the World Bank.
“People aren’t just moving here to relax,” Davis added. “They’re coming here to work because there is so much business around.”
Construction spending increased 32% in 2013, including US$1 billion non-residential spending, mostly hotels and offices, plus a 21% increase in residential spending.
For what it is worth, the country snagged top spot in International Living’s Global Retirement Index as the world’s best place to retire, due to its convenience (ease of access from US, currency in US dollars, English is widely understood), world-class amenities, good beaches, and affordability.
Residential construction activity mixedThere has been a construction boom in recent years, fuelled by an investment and tourism boom, and by major government infrastructure projects (the expansion of the Panama Canal, the construction of Line 2 of the metro rail system, the port of Colon upgrade, etc.).
The number of residential buildings under construction dropped 2.8% y-o-y in 2014, after annual rises of 20.4% in 2011 and 21.4% in 2010, according to the Instituto National de Estadistica y Censo (INEC). In the second quarter of 2015, the number of residential units under construction dropped 5.1% to 2,577 units from the same period last year.
However, the total number of dwelling units constructed actually surged 18.7% to 12,091 units in 2014 from a year earlier, according to INEC.
Panama had more than 900,000 occupied housing units in 2010, up by 31.5% from 2000, according to the National Censuses.
Gross rental yields are good in PanamaPanama makes excellent sense for property investors, as gross rental yields range from 6.82% to 9.52%, with smaller sized apartments yielding more.
Most properties in Panama City are apartments. According to Global Property Guide figures, average prices for Panama City in November 2013 were:
- Inland apartments (120 sq. m.) –US$218,880
- Inland apartments (175 sq. m.) –US$298,900
- Inland apartments (300 sq. m.) –US$513,000
- Beachfront apartments (80 sq. m.) –US$170,560
- Beachfront apartments (120 sq. m.) –US$240,120
- Beachfront apartments (200 sq. m.) –US$370,000
- Beachfront apartments (370 sq. m.) –US$767,380
Boquete, in Panama’s mountain highlands, has a fast growing expatriate community. The popular option here is to buy land and build a home, but there are many completed homes on offer. Sample property prices for Boquete are as follows:
- 2-bedroom, 1-bathroom home, about 1,600 sq. ft. –US$90,000
- 3-bedroom, 2-bathroom home, about 1,500 sq. ft.–US$179,000
Another desirable location is Coronado, a popular beach town and relaxed community for expats, and only an hour from Panama City.
Sample property prices for Coronado are as follows:
- 1-bedroom, 1-bathroom home, about 1,000 sq. ft. –US$100,000
- 2-bedroom, 2-bathroom home, about 1,050 sq. ft. –US$140,000
However the economy is expected to expand by a robust 6% this year, and by another 6.3% in 2016, according to the IMF.
The ongoing US$5.25 billion expansion of the Panama Canal, which began in 2007, has experienced delays and cost overruns amounting to US$1.6 billion. Now 70% completed, the project will allow the canal to accommodate larger ships, and is expected to more than double average annual canal earnings from US$2 billion, to around US$5 billion in 2016.
The United States and China are the principal users of the Panama Canal. In 2007 Panama and the United States signed a Trade Promotion Agreement free trade agreement. Panama approved the TPA the same year, and the U.S. in October 2011. The agreement took effect in October 2012.
Other major infrastructure projects include Panama’s metro rail system, the first in Central America. Line 1 was completed in April 2014, while the second line is expected to be completed in 2017. There is also a planned US$8 billion upgrade of the port of Colon.
New President, continued supportOpposition leader Juan Carlos Varela won the presidential elections in May 2014, inning 39% of the vote, compared to 32% for outgoing President Ricardo Martinelli´s choice José Domingo Arias, a result interpreted as a rebuke for Martinelli.
Martinelli was a dynamic and pro-business president, but was widely seen as authoritarian, and in 2011, The Economist described foreign investment as hurt by "doubts about the rule of law", citing suspected corruption in the bidding for the metro contract and the flooding of a wealthy Panama City neighborhood with sewage due to a lack of enforcement of planning laws. Reports of Martinelli receiving a bribe from Italian president Berlusconi featured prominently in the election campaign. There was intense bitterness between the candidates. Hearing of Varela´s win, Martinelli said "I know the candidate, and really, may God help us!".
Varela, a former Martinelli ally, is a free-market conservative, but he takes office with a legislative minority that will force him to negotiate with the centrist and centre-left politicians that dominate Congress. Despite winning the presidency, Varela´s Panameñista Party only got 11 of the 71 seats in Congress which were also up for election.
The new president promises continuity, and a reduction of tensions with Venezuela. More specifically, Varela is expected to continue former President Ricardo Martinelli’s investment program that maintained strong economic growth for Panama, but also pledged to reduce inequality and help the poor.
Panama’s economic growth is expected to remain buoyant over the medium term, as it continues to enhance its regional and global logistics role for the movement of goods, capital, and people and its moderating inflation. The expansion of the Panama Canal, which is scheduled to open in 2016, will boost annual revenues. Together with other major infrastructure projects, it will also improve the country’s connectivity, and breathe new life to the economy and the real estate market.