Friday, July 01, 2011
Panama’s Casco Viejo is unique…but what about the real estate market here?
Dear Reader,
I’ve written before about the real estate market in Panama, and how it’s struggling with a shortage of buyers and a glut of city condos. But I haven’t written about my own neighborhood, Panama’s historic district, Casco Viejo. I’ve lost track of the number of times I’d heard that buying a home here is a sure fire winner, based on the limited supply of property. But how does that pan out in reality?
This month saw Panama’s growth rate hit 9%. There are mega-projects planned or underway: a new metro, port and airport expansions, and the mega-project that beats all, the $5.25 billion Canal expansion. Unemployment is at an all-time low. Foreign direct investment is on a high. Around two million tourists will visit the country this year.
You can see there’s more money here. Gleaming new SUVs cruise the city streets. The malls are a shopper’s paradise…and they’re crowded. Most of the busy shoppers tote a designer purse and a shiny smartphone. A new mega-mall opened this year to cater to growing demand, and another is underway west of the city.
Normally a booming economy signals a strong, rising real estate market. But that’s not the case in Panama. Looking around, you’d think all is well in paradise. Here in the Casco, the hammering and drilling of construction surrounds me. Local developers and brokers present a pretty picture of bohemian living, steady property prices, and rental opportunities. But dig a little deeper and the picture isn’t quite so perfect…
When I moved to the Casco in 2007, property prices were soaring. In 2008, they hit an average $2700-$2800 a square meter for renovated property. Today, the price averages $2000-$2200 a meter, back to where they were pre-boom. That’s around a 30% decline in values.
Now, the Casco is a great place to spend time…having dinner in the plazas…listening to live jazz or catching a show…soaking up the historic past and the arty present. I love living here. But the Casco isn’t for everyone. Many tourists catch a brief romantic glimpse of this place and decide they could live here forever. Many quit after a few months, frustrated by the lack of basic amenities (no bank, supermarket, doctor, dentist…the list goes on) and the fact that this neighborhood is a work in progress. That means noise, dirt, and inconvenience.
But this place is unique in Panama. Height and density restrictions, coupled with a lack of developable land, mean you won’t see condo towers or busy subdivisions here. The idea of a moat…something that protects property values…does apply to the Casco in the long term. The Casco only covers a tiny area. But in the short to medium term, most of the large single family houses or former commercial buildings become apartment complexes when renovated, increasing the available inventory. And the market of buyers for the Casco seems to have dried up.
A chunk of owners in the Casco came from the US. The downturn back home means that many now need to sell or rent their units. Rental rates have fallen in the last two years as more owners (who can’t sell their units) switch to renting instead. Prices have not crashed, however. Many owners don’t need to sell. I have seen recent listings from $1500 to $4000 per square meter, and everything in between. A few desperate owners have slashed prices. But the majority of owners seem content to list at a high, unrealistic price, and wait (and hope) for a naïve buyer to come along.
Bottom line, it’s still not a buyer’s market in the Casco. You won’t get strong appreciation in the short to medium term. Rental yields are low, and falling. If you like the idea of Casco living, rent first. If you last at least six months, and want to stay here longer term, then look for a distressed sale, and pay a decent price. You’ll find that much easier if you are already living here.
Plus, we’re all waiting to see if the Casco retains its World Heritage status. The government has plans for a new road that would wrap around the Casco. UNESCO had threatened to remove the Casco’s World Heritage status if the road went ahead. We’ll have to wait to find out what happens…but losing the World Heritage ranking could affect property prices here. We’ll keep you updated.
Margaret Summerfield
P.S. Distressed opportunities are coming to the fore in my home country, Ireland, with another fire sale auction next month. Ronan McMahon will write about what’s on offer in the next fire sale auction to his Real Estate Trend Alert members in the coming weeks. Find out how you can get in on the action here.
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Booming Times - But Not for Rentals
Posted Under:
panama, rental yield, distressed
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