Pay Attention To These Green Construction Signs

By DON WINNER for Panama-Guide.com - Every construction site in Panama is required to display one of these green signs showing the basics of what's going on. This sign hangs in front of an empty lot that will eventually be the "Hotel Cosmopolitan" in El Cangrejo, on the same block as the Pomodoro restaurant, across the street from the old "Terazza." Every project has to have approval from the ANAM, and in this case you can see that they have a category 1 ANAM permit issued through resolution #560 on 19 October 2007. Most buildings in Panama City are category one, and I know that ANAM works on a "one-up" numbering system, meaning that as of 19 October 2007 they had already issued at least #560 permits of this type. (more)

Why This Matters: I'm going to start paying more attention to these signs as a way of determining how many buildings are going up. Yesterday an article came out saying that so far in 2008 there have already been 1,087 new buildings approved, above and in addition to the buildings that were approved in 2007. And, based on the sign hanging in front of this construction site in El Cangrejo, I know there were at least 560 building permits issued through October 2007. What I still have to nail down is the final 2007 number. If anyone sees a sign with a late December 2007 date on it, please let me know.

From ANAM: Panama's National Environmental Authority (ANAM) published a report in early 2008 entitled "Informe Estadístico Ambiental 2004 - 2007" (Statistical Environmental Report 2004 - 2007). The above graphic is taken from that report, indicating that in 2007 ANAM received 542 Environmental Impact Studies for projects in the Panama province, and of those 463 were approved. So maybe they use a one-up numbering system for all Environmental Impact Studies nationwide, and through October 2007 they had seen a total of 560 for the entire country. In all of Panama in 2007 there were 795 approved Environmental Impact Studies, so a number of 560 issued in mid October 2007 is about right. Also, it makes sense that the resolutions are issued "one-up" in the order they are approved and written.

The 1,087 Number is New for 2008: It's important to understand that this new number of 1,087 buildings caught my eye for one simple reason; this is not an accumulation of the total number of buildings that are in some phase of planning or construction in Panama over the past several years, but rather indicates totally new projects, not counting the almost 500 buildings that were approved in 2007. In other words, the rate of construction has doubled. Did you hear that? DOUBLED! Holy friggin' crap. If you think there's a lot of construction going on right now, then there will be twice as much in 12 to 18 months when these projects that have been approved are promoted, sold, financed, and the ground starts to move on the construction sites.

The Big Story That's Being Ignored: The Panamanian media is practically ignoring this story. Sure, they dutifully post the statistics and numbers when the reporters are invited to a "rubber chicken" press conference, but this big-picture view of the ongoing expansion of construction in Panama City is being wholly ignored or missed. I'm going to change that. I will be publishing on this issue frequently and in depth in order to draw attention and to find out what's actually going on.

Are There That Many Empty Lots? Nope. These buildings are going to be going up on lots that currently have smaller buildings standing. Investors are buying up smaller and older buildings that sit on larger lots in the middle of Panama City, and they are in the process of obtaining their building and environmental permits to be able to build the project they want to do. With those in hand, then they can start to promote and sell their future product, at pre construction prices, of course.

The Approval Process: Before a developer can offer a real estate project for sale at pre construction prices they first must have approvals from three organizations; the ANAM, the Ministry of Housing (MIVI), and the municipal government where they intend to build. This process starts with the developer creating a "master plan" which basically lays down the project over the ground, and consists of architectural renderings and drawings, depictions, and contains information like how many buildings or apartments are going to be built.

• MIVI Approval: One key piece of information (particularly for Panama City) is the population density and zoning - the developer has to be able to convince MIVI that the are going to be complying with the zoning for that particular parcel of land. All of Panama City has been zoned and every lot has a designation. Builders and developers can not put up a high rise building in the middle of a neighborhood that is mostly single family houses, for example. Now, granted, sometimes the developers (in tacit cooperation with MIVI) will design a building and promote it as "one bedroom apartments," but when you look at the building any fool can see that it's actually a three bedroom apartment with a maid's quarters. In order to skirt around the density limits builders are calling the second bedroom a "den", the third bedroom a "study" and the maids quarters a "storage area." If they were properly identified then they would not have received their MIVI permission because they are violating the density limitations. Who approved those? MIVI under Balbina Herrera. Expect to hear more about this in two years or so.
  
  
• Municipal Government: The builder or promoter then needs to obtain a permit from the local municipal government, and in the case of Panama City that comes from the Office of Construction and Works, whose director is (currently) Jaime Salas. They take their master plan and present it to his office and apply. They review the plan to make sure that it complies with all local laws and regulations with regards to things like water, electrical, sewage, streets and traffic flow, etc. Again, this is a concept drawing or master plan at this point, just to allow the promoter to begin to sell this product. He can't start building yet.
  
  
• ANAM: The "green signs" are a requirement from the National Environmental Authority (ANAM). Every construction project in Panama is categorized by ANAM as either a Category I, II, or III depending on the potential for environmental damage or impact. The Petaquilla gold mine will obviously be a Category III because they are going to strip-mine thousands of hectares of virgin jungle rain forest. But here we are talking about the construction of an apartment building. And, in many cases the lot where the apartment building will be built already has an existing structure. So, the environmental impact (on the ground) will be relatively small. Therefore, all of these projects are generally Category I. The promoter or developer has to have their ANAM permit in their hand before they can start selling or promoting the project.

The CAPAC Real Estate Fair at ATLAPA: The 21st version of the annual real estate fair sponsored by the Panamanian Construction Board (CAPAC), the "Expo Habitat 2008" will be held from 17 to 21 September 2008 at the ATLAPA convention center. The inauguration will he at 6:00 pm in the Teatro Anayansi on Wednesday, 17 September 2008. The fair will be open to the public starting on Thursday 18 Sept 2008 from 4:00 pm until 10:00 pm. The same schedule will hold true for Friday, 19 September. On Saturday and Sunday, 20 and 21 September, the fair will be open from 2:00 to 10:00 pm. There will be some 350 participants showing off their products, as well as an international section, banks and financing, heavy equipment, and more.

Go To The Fair and Search: If you go, please do me a favor and interrogate the developers and promoters. Here is a sample conversation with a hypothetical developer or promoter who has several buildings in the works at various stages of completion, development, and promotion. Take your time, and ask some of the same questions you see here;

• "Is the building under construction already?" - Yes.
  
  
• "What percentage has been completed?" 85% done.
  
  
• "When will it be ready?" We expect to be issuing occupancy permits (to allow you to move in) in March 2009.
  
  
• "How many apartments are in this building?" There are 80 total apartments.
  
  
• "How many are currently available?" There are only six remaining apartments available in this building. The rest have been sold. Here is what is available and the prices for those units. (Whip out your calculator, and figure price per meter.)
  
  
• "What about new projects - are you offering anything at pre-construction?" Yes, we have four buildings we are promoting, and here they are. (Whip out your calculator again, and figure price per meter.)

The Hunt for True Value: With more than 1,000 new buildings approved already in 2008, I really expect there to be a staggering offering of new and preconstruction buildings offered at this fair. I remember at the last couple of fairs there really was not that much new product being offered up, as promoters were basically concentrating on selling off the last of the inventory in their current projects. I think this show is going to be radically different in the product being offered up. The real trick will be to sort through the haystack to get to the gems - those with the best view, best location, best price per meter, etc. Learning how to find those will become the trick to learn in this market.

Too Much Inventory? I called Lucy Haines from Panama Realtor and threw the 1,087 number at her and we talked about it for awhile. Her initial reaction was "that's too much inventory" and she was concerned that the market might not be able to absorb that many apartments (possibly 100,000 new units approved for construction in 2008.) But, she said "let me think about it for awhile" which is smart. I started thinking about this stuff yesterday, and my first reaction was also "holy crap!" But when you sit down calmly and think about it for awhile, this just means that there will be more and better choices for buyers, and that more inventory will help to keep prices lower. And, common sense tells me that each developer should have two projects in preconstruction for every one that's already being built. I expect to find that overall strategic ratio among the products being offered at the fair. If that does not turn out to be the case, then something is seriously wrong with my understanding of this market.

Flippers Under Cutting Developers: One of the things that Lucy pointed out to be that's happening right now - those investors and speculators who purchased apartments two years ago at preconstruction prices are now selling those units for a profit as they are finished and delivered. Let's say they paid $190K for an apartment, and now they are offering it for sale at $260K. The problem (for the builder) is that they also have a handful of new units that were never sold, and almost always the investor who wants to flip his unit is under cutting the developer by enough to make his unit more attractive and the developers are getting undercut. So, if you fall in love with a building, you might want to check to see if someone out there is flipping a unit in that building, and you might save some money.

That's It - I'm Getting My License: I've been resisting the pull to go over to the "Dark Side" and sell real estate, but there's simply too much money being traded back and forth, and I'm working too hard for not enough money. I'm going to get dipped in Panamanian Real Estate Law and get my permit. Let's see, 5% of $900 million dollars - that's $45 million dollars (at least) that real estate agents are going to be making. Like I said - I'm in the wrong business. Wanna buy a condo? Don't worry, Panama-Guide keeps going. But now I'll be rolling around in the mud. Another quote from Lucy Haines - "pigs get fat, hogs get slaughtered." Sounds good to me. Maybe I'm just tired of getting treated like an anorexic distance runner...

Expect More: Right now people are not focused on this aspect of the building boom. The numbers are staggering, and basically flying below the radar to some extent. I'm going to be talking about this every day for the next few weeks. And the timing is excellent - leading into the Expo Habitat 2008. So, you will be hearing more details on this in the coming weeks.

Copyright 2008 by Don Winner for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.