Boom, Burst, or Bingo - The Panamanian Real Estate Miracle
Monday, July 09 2007 @ 06:48 pm EDT
Contributed by: Don Winner
Establish Some Controls: After the meeting Panama City Mayor Juan Carlos Navarro said that it's important to ensure that builders and promoters are following existing Panamanian laws to increase the level of confidence among international buyers. Panama's Housing Minister Balbina Herrera recognized the chilling effect of the cancellations of the Palacio de la Bahia and Ice Tower projects on the overall market.
Now 400 Projects? When the meeting was over I caught up with Lic. Iván Carlucci Sucre, President of the Asociación Panameña de Corredores y Promotores de Bienes Raíces (ACOBIR) (Panamanian Association of Real Estate Agents and Promoters). He said "we think we're doing very well. There are currently more than 400 projects being built in Panama, so if one or two of them cancel the overall effect is minimal." That's as far as I got. What? 400 projects? Holy crap!
Can You Elaborate On That A Little? On 4 January 2006 I published this article which said there were 155 high-rise towers that were going to be built in Panama. So, when I heard that number jump from 155 to 400 I immediately forgot all about the Ice Tower and Park 32. Lic. Carlucci gave me the following statistics:
- Now Being Built: There are currently 180 buildings under construction, mostly in Panama City but also some in other places such as condominium buildings near the beach resorts. These buildings are going up just as fast as the construction contractors can put them together, and they account for the dozens of construction cranes currently dotting Panama City's skyline.
- Approved, and Ready To Go: There are another 120 high-rise buildings that have already been approved for construction, but the actual work on the buildings has not yet started. There are already shortages of equipment, manpower, and materials so it makes sense that builders will have to finish one project before they can start on the next. But in any case, these projects have already gone all the way through the approval process and construction can start on them at any time.
- In The Pipeline: There are another 80 projects (at least) that are going through the approval process right now, and are in varying phases of approval. Some have just started the process, and some are much further along and are almost ready to be approved. Most importantly the plans and details for these projects have already been defined and they are clearly defined and packaged.
- On The Drawing Board: There are dozens more projects on the desks of developers, architects, and promoters that have not yet seen the light of day, but that are being "worked" to get them ready to start the approval process. The developers and promoters have taken significant steps such as purchased the land or lot where the building will be built, defined things like the size of the building, and are preparing the packages necessary to take them through the governmental approval process.
Yup. That's More Than 400: Considering the number of projects being built, the number of new apartments coming on line, and the sheer volume of residential and commercial space that will be built in Panama, Lic. Carlucci said "the cancellation of one or two projects will have a relatively insignificant when viewed as a proportion of the overall market. Overall, we're doing very well."
Looking For A Weakness: This amount of growth and expansion in the Panamanian real estate market is clearly unprecedented. The overall retail value of these projects will be more than $8 billion dollars to the end user. Now that two of these projects have cancelled, the "Chicken Little's" of the world immediately start to describe the Panamanian real estate market as a potential "bursting bubble." According to Felix Carles of Bienes Raices y Seguros Carles Realtors, "what's important to remember is that we have been building in Panama for years, and people should describe the current situation in Panama in responsible terms." Felix has been promoting Panama all over the world, and most recently organized Panama's participation in SIMA 2007 in Madrid. According to Felix, the shrill voices responding to the cancellation of the Ice Tower and Park 32 projects are creating a level of concern disproportionate to the actual situation in the market.
Where's The Loss? The people who were invested in the Ice Tower and the Park 32 projects are getting their money back. They are not going to lose a dime in actual funds, but one could easily argue those buyers have lost a significant position in terms of the time/value of investment. They laid down money on those projects sometime last year and now prices across the board have risen substantially. So, if they had chosen different projects then maybe they would eventually be moving into a project that will be built. And consider this - the buyers probably looked at many projects and choose the one that had the lowest cost per square meter, and that's the real reason why the Ice Tower and Park 32 got cancelled.
Rising Construction Costs: The numbers you plug into your calculator when figuring construction costs for a high-rise building have all gone up significantly in the past eighteen months. There are increasing demands for all raw materials, both in the local market and internationally, which have driven up prices for steel reinforcement bars, cement and concrete, as well as costs for things like prices for rental equipment for earth moving, cranes, and construction elevators. And, with 180 buildings under construction prices are rising for manpower as well.
Cancelled for Economic Reasons: The Ice Tower was cancelled thanks to purely economic reasons. Something else will be built on that lot, and it will sell for more than $1,500 per square meter. Who has the legal power or right to force a businessman to lose money? If you plug the numbers in, you simply can't build a profitable 104-story building at those prices. So, they cancelled the project. The bottom line for the Palacio de la Bahia project was similar, but they just got to the same conclusion in a different manner. Want to know if "your" project might get cancelled? Do the math. Did you get a deal that's too good to be true? If so, then your project might be at risk of being cancelled.
Only a 0.5% Failure Rate: If two or three buildings cancel out of 400 overall that's only a 0.5% failure rate. And those are not even failures in which the investors lost all their money and were totally screwed. They are getting refunds.
More Than $8 Billion Dollars: Considering the total number of buildings that are either under construction or that have been approved, retail value of those properties to the end user will be more than $8 billion dollars total. Most of that will be "new money" to circulate through the Panamanian economy. Say about $5 billion or so of that money (if not more) is from foreign direct investment. Those funds will recirculate through the entire economy three or four times. Builders will use those funds to build more buildings. All of the people who sold materials, provided services, or worked on those projects will get paid. And in a small economy such as Panama's the injection of an additional $8 billion dollars or more has a tremendous impact. Add to that the $5.25 billion dollar expansion of the Panama Canal, another $8 billion dollars for the Oxy-Dubai refinery, another $1 billion (at least) on road and infrastructure spending, another $1 billion on resort projects along the Caribbean coast, the clean-up of the Bay of Panama, the mega-port, gold and copper mining projects, and the list keeps going. Things are still growing along quite nicely, with no signs of slowing.
Asking For Some Controls: People are a little nervous and there's nothing wrong with that. The laws are in place, and government and lawmakers should play their roles of umpires and referees to keep things on track and to ensure that the primary players are doing the right thing. But this market is a virtual feeding frenzy of pure, unadulterated capitalism, a manifestation of free-market economics. As long as the wheels stay on the train we should be just fine, all around. And still, the only people who are exposed to substantial risk are the speculators. Everyone else is on pretty solid ground, especially in the 20-year view. It's all good. Wanna buy a condo?
Copyright 2007 by Don Winner for Panama-Guide.com. As usual, go ahead and use whatever you want as long as you credit the source. Salud.