Panama City’s Skyline Growth Is Slowing
As Panama’s real estate boom teeters ever closer towards a little town I call “Bustville”, I am amazed by those in denial, who still shout to the rafters such brilliant defense as, “the fundamentals are still strong!” or “this is a different market”. These and other lines are too reminiscent of those I heard parroted by other fellow deniers during the dot-bomb disaster of the 90s.
Still, since nothing’s shocking to me anymore in Panama, I have to wonder if I’m the crazy one. What are those folks seeing that I’m not? I have lived in Latin America for the last 11 years, the majority of my adult and professional life. I reside full-time in Costa Rica and Panama (How can one person have 2 primary residences? — another article). Since I first arrived in Panama around 6 years ago, I’ve never understood how prices here went from very reasonable, to very….well, NOT reasonable.
From the vantage of my modest 12th story apartment in El Cangrejo, where I regrettably pay a king’s ransom to rent, I can see a good 2 dozen cranes and projects in various stages of “almost complete”. I confess, I too was lured by the pre-construction pied piper, but that was 4 years ago. Back then, prices seemed too good to be true ($80k for a condo with views!?), loans were easy, taxes were cheap, and few expats had much interest in Panama. Even so, I warned against the perils of buying pre-construction over two and half years ago. Typical to form, my condo was over a year late on delivery. I moved in and resided there for about a year, then sold when I thought asking prices were getting nuts. So I counted my chips and have since been waiting on the sidelines, suffering through outrageous rent, waiting for sellers to lower prices. Hopefully a few wake up soon and realize there are no more easy loans nor foolish buyers.
When I get really curious, I climb up to my building’s rooftop and use a set of cheap binoculars to survey the entire city and the progress of the many buildings in construction. For fun, I make notes about the progress from the previous time I check. Lately, a whole lot of ‘em are not going anywhere. Unfortunately, a good friend of mine bought one directly in front of my apartment. For the past 3 months, it’s been nearing the end of “grey phase” and yet, there hasn’t been a worker in site. The scary thing is, this is a mid-priced building that was started WAY back before all the mayhem ensued. Now, correct me if I’m wrong, but if all these units were pre-sold as we’ve been told, why wouldn’t the developer want to hurry up and finish, hand over keys to the buyers and get paid his hefty ransom by the banks who underwrote the building? Call me naive, but I would think this is how things would work. Ok, so maybe not…
So, could somebody please explain to me why condo towers in Panama aren’t getting finished?
Among my own theories:
1. Bank never made the loan
So the story we were told was that the developers had to meet a certain % of pre-sales, then the bank gave them the money to build. So did the developers not hit the required figure? When they did hit the number, was it at a difficult time and maybe the bank didn’t have it?
2. They spent the money on another project!
I’m not saying developers in Panama would ever co-mingle funds, but a lot of these guys had 5-10 buildings going up at the same time. Could it be that some of them spent the funds on a different project?
3. They are way over budget on the project
Having personally gone way over budget on my only 2 construction jobs, I can imagine that with rising steel and concrete prices during the construction boom (now seems like a distant memory) that prices for everything from supplies to wages
4. Banks are withholding money for some reason
The banks were supposed to fork over the balance of the loan to finance construction once the buildings had met pre-sale requirements. But maybe the banks are re-thinking these loans to developers in the current market conditions?
5. They can’t multi-task
Some of these developers simply took on more simultaneous construction than they could possibly manage. That makes it tough to manage costs and quality. Could be that some got smart and decided to finish one at a time?
6. Developers are stalling until they know buyers will be able to get loans?
Maybe the developers are crazy like foxes and know that if they were to hand over keys to buyers today, a good portion of them would not be able to either obtain the bank loans or make the payments on said loans. That could cause rapid devaluation of the units inside the building, many of which developers held on to themselves, thinking they’d make a killing in the long run when they flipped their own units. Perhaps the developers’ strategy is to just slow everything to a crawl to avoid flooding the market with condos nobody wants or can afford today?
So what’s your theory…when are all these new homeowners going to moving in?
|Written by Casey Halloran|
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