The Love Affair Between the Trumpitos and the Speculators
By Jerin Tate for Panama-Guide.com - About three years ago when the real estate boom was in full swing, suddenly a whole bunch of Donald Trump wannabes (I call them Trumpitos) sprang up all over Panama. The big problem is that none of these guys had any experience in any kind of real estate. The bottom line was making as much money as possible before everything came crashing down. Back in those days all you had to do was sell 30% of the building and a bank would finance you for the construction. Apartments were being snatched up at an amazing rate, but mostly by speculators. Their plan was to buy a few apartments, and then flip them for an immediate profit or hold on to them and double their money. This was actually making a lot of people a lot of money. Panama had a full on real estate boom, but actually had very few finished buildings. The buildings that were finished had been constructed by the guys who had been around for a while and were relatively good quality. This made the Trumpitos drool even more, and in 2006 the rush was on. (more)
I don´t recall the exact numbers but thousands of building permits were issued. In 2007, the speculators drove the prices to ridiculous levels which started to drive away the people who originally came for the good deals. In December of 2007, the world recession was starting, but Panama kept building (or planning). In February of 2008, I knew of a large apartment in Punta Pacifica that a client that had purchased in 2006 for $350,000. We had buyers lined up to get it, and it finally sold for $850,000. That was the peak of the Panama real estate boom. A few months later similar apartments in the same building couldn´t sell for $550,000.
The problem is that the wave of apartments that came available in late 2008 were the first ones built by the Trumpitos. The apartments were of rather poor quality, very late in delivery, and not even the same size and layout as purchased. Another thing started happening. The Trumpitos were discovering that apartments they sold 3 years ago could be resold for 3 times the original amount. They started trying to kick people out of their contracts in order to resell the apartments at current prices. This drove even more people away from preconstruction projects.
All of a sudden credit started getting tighter, buildings started to finish up one after the other, and the Americans and Europeans were mysteriously slowing down their buying habits. You had a bunch of apartments that were empty, owned by speculators, and very few buyers. The good deals (but advertised as Not Distressed!) listings started to come online. A lot of these good deals were actually equal or very close to the 2006 preconstruction prices. Right around the middle of August, it was obvious to anyone who had a brain (which wasn´t too many people at the time) that any pre-construction project not yet under construction was not going to happen. However, the powers that be kept pushing Panama as invincible. Finally in September of 2008, the whole world economy came crashing down.
Time to throw in the towel and try to salvage what little bit of a market (Venezuelans) was left, right? Wrong, full steam ahead. The Trumpitos started a campaign of, “What recession?” and claimed that things had never been better. Let´s get this straight: first home markets all over the world are falling apart; nothing is selling even for primary residences in the world´s strongest markets? No more SUVs, boats, or similar “toys” are selling anywhere? But by some miracle, Panama, with an overbuilt second home/luxury/ vacation home market is not affected in the least bit? “Not at all,” they would say. As a matter of fact, it´s better than ever.
The goal, get as many suckers as they could to sit money in a project that is never going to be built, and sit on that money until the last possible minute. This money is put in high yielding savings accounts and are a small form of profit for the Trumpitos. Imagine, you have 5 projects (a small number for a lot of the Trumpitos), and can find just 10 people in the whole world to buy preconstruction on your semi-ocean view city center built on 600 mts2 of land “Jewel of Panama”. Average cost of apartment is $350,000 and at 30% down for each apartment you have $1,050,000 per building, or $5,250,000 total sitting in a high yield account. Of course all 10 of your buyers think the building is 90% sold, so they put up with the delays in beginning of construction that seem to pop up every 6 months.
I am not sure whether the Trumpitos are in actual denial or know exactly what is going on and are milking it for everything. In my past experiences working with them I get the feeling that they are genuinely thinking that things are OK with the market, but that would seem unlikely unless they were all complete idiots (well, actually….never mind). None of the Trumpitos will admit that they are not selling anything, especially to each other. A strange phenomenon that I am starting to see lately is with the new buildings that are getting ready to come available. The speculators who purchased 3 years ago are about to owe lots of money when these buildings finish and they are scrambling to sell them off before they default on the contracts and lose their deposits. They are pretty much screwed and starting to sell with little or no profit just to keep from losing money, and we are starting to see 2006 prices resurfacing. Doesn´t matter, there aren´t many buyers even at those prices. But in the same buildings, you are seeing 2006 prices from the speculators and 2009 prices from the Trumpitos in denial on the units they never sold. On the same floor of the same building, you can see one apartment for $400,000 and the one right next to it for $225,000. Everybody has heard of those, right? Oh wait, the real estate agents, who work on percentage commission, never said anything about the apartment next door that is nearly half the price? That´s strange. So all of the new buyers coming into Panama (Show of hands, please. Anybody? Nobody? Didn´t think so) have the opportunity to buy at these mythical 2006 prices that we always hear about, but the Panama real estate market seems to be controlling its news and image better than Kim Jong Il. It’s a dangerous mix of denial, media control, and greed.
They have finally admitted that things are slowing down in the last few months, but still insist that anyone can make a profit by investing in their projects. You can see how the Trumpitos and the speculators have completely destroyed any integrity this market might have once had. I am thinking it is only a matter of time before it is time to give back the money on one of these projects and the money has somehow disappeared as well. But that is just my speculation, and speculation is harmless, right?
Copyright 2009 by Jerin Tate for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.
