Panama Investor Blog

Welcome to life at the half-builts

This article tells a tale that should concern the many developers, speculators and property buyers in Panama. Yes, I know that Panama is different and may very well avoid the bust that has engulfed much of the rest of the world and what happens in some places doe not necessarily mean it will happen here. After all, we have mega projects going on that will continue to drive the economy while the rest of the world suffers. There are pockets of prosperity in the world and it may be that Panama will remain one of them, but when reading this story I can't help but picture the worst case scenario of unfinished projects and people left holding the bag because of greed and hype.

Excerpt; “Welcome to life at the half-builts, the many projects large and small that sit largely vacant and partly completed - left high and dry when the housing market tide went out.”

“Experts say the wave of speculation that peaked at the end of 2005 - when the median resale price of a home was $322,300 - caused a spurt of construction at prices nobody could pay. According to figures released Thursday, the median resale price in June was $172,400.”

Read the whole story here at Housing Bubble

Condo buyers flip off Trump

Not this is not in Panama, but in Chicago and we certainly hope that this scenario will not be repeated here. For now it appears demand is still good from Europe and Latin America even though U.S. buying has slowed.

From Chicago Business News

Excerpt: Investors no longer have to pay Trump prices for a piece of Donald Trump's downtown condominium and hotel tower.

At least 34 hotel suites sold by the developer in the past six months are back on the market, some priced at a steep discount to comparable unsold hotel units in the yet-to-be-completed project. They are owned by investors who signed purchase contracts before construction began on the 92-story skyscraper, aiming to flip the units for a profit after closing.

Unlike a traditional hotel, where one large investor owns the entire building, the Trump project is a condo-hotel, where suites are sold individually to investors. The investors can occupy their condos and have them rented out when they're away.

Unwelcome surprise for many condo buyers in Panama

There have been numerous article about the coastal belt in the local press over the last few months. Most of it was speculation, but now it seems to be coming to reality and deserves our attention. The coastal belt has been highly touted as the panacea for what ails the traffic problems in the city and will be paid for by the owners of the condominiums and homes in the area that it serves. With an expected cost of about $190 million, this will probably come as a shock to the many investors and condo buyers in those areas. They may be assessed as much as $8000 a year for ten years according to some estimates, for infrastructure they did not ask for or anticipate. Even though everyone will get to use it, the government wants to put the burden them rather than the developers in the form of fees or the city dwellers in the form of taxes.  But don't worry, says the Ministry of public works, the value of your property will double and you will be happy to pay! I say, let the government buy them back now at double less 25%. They can then sell them for double and everyone will all be happy!

Minister defends coastal belt deals

LA PRENSA

Benjamin Colamarco1062313

The ministro de Obras Públicas (MOP), Benjamin Colamarco, said that the nation's transparency laws have not been violated by the changes made to the coastal belt project.

Appearing on a television show Friday, Colamarco said that the ministry has not kept any information from the public about the controversial project, and denied that the scope of the project has substantially changed.

La Prensa, however, filed a request in May to obtain copies of the project's plans, in order to compare the different versions. That request has not yet been fulfilled.

According to the Transparency Act, the government has 30 days to provide such information, or 60 days if the information is “complex.”

While Colamarco maintains that the project has not been altered, it appears as though a large space that was supposed to be designated park space will now be paved and converted into a giant parking lot.

Viewers to the program sent in text messages reminding Colamarco that he had referred to the project as the future “lung of the city” because of all the green space that was going to be created.

While the project originally called for the construction of an underground parking lot, the proposed cost prompted authorities to move it to ground level, where it will take the place of the proposed park.

MOP's Director of Special Projects Carlos Ho said that the price to build the underground parking lot was estimated to cost at least four times the original projection.

Not all underground parking projects, however, have been cancelled. The Intercontinental Miramar Hotel will be granted a hectare of land to build a 300-space garage. It can expand that amount under a concession it was granted by the government.

One thing that hasn't changed is the government's plan to charge an “overvaluation” fee to property owners in the neighborhoods of Punta Pacifica, Punta Paitilla, Marbella, Bella Vista and Calidonia. This fee is being assessed because the coastal belt project will double the value of properties in those areas, government officials said.

The fee has been opposed by some members of the government because it will impact low-income residents living in impoverished areas, such as Calidonia, as well as those who own property in the more upscale areas.

Is the glass half empty or half full?

This article quotes Citibank analysts on a number of issues that are extremely important to the future of Panama. Although they are very optimistic about the future of the country, they worry about the rising inflation that appears to be escalating. I take issue with several assumption they make. The two big mega projects are what make things so rosy in their eyes. Of course they are counting their chickens before the hatch when it comes to the refinery and they are buying into the continued growth of the worlds economy driving the canal expansion as the other assumption.

First it is important to note that the refinery is in its preliminary research phase where the company engineers are determining the logistical aspects of the project. Once that is complete, the bean counters have to determine the economic feasibility and that has been shaken by the ever rising cost of steel and other building materials that go into such a mega project. The rising cost of oil does not translate into increase profitability for the refinery as they do not operate on a percentage of the price of oil. They are paid for the amount of refining they do no matter the price of oil. Increases in costs of construction and operations dramatically cut into the economic feasibility.

Their optimism about the construction industry is placated on the continued demand for hotel accommodation's for an ever increasing number of business travelers to the country. Of course the hotels are depending on the canal expansion, possible oil refinery and a number of large infrastructure projects for the city, so the optimism is all tied together on these mega projects. The analysts hope that increased productivity may offset some of the inflation shows how little they understand the culture of Latin America.
Don't get me wrong, there is nothing I would like better than to see the refinery project go forward if it does not damage the environment. I would love to see the canal expansion come in on budget and the demand for transits  ever increasing. It would be great to see hotels and casinos full to the max with ever higher rates. But I am a realist and the worlds economy, appears to be heading for a long and drawn out recession coupled with high inflation driven by a weakening dollar and high fuel prices. If that scenario is correct, where will that leave Panama? They will be left with a lot of debt, an underutilized  canal, and a bunch of hotel rooms competing for a dwindling number of business travelers. Damn I hope I wrong!

Citibank worries

Citibank analysts appear to have confirmed the opinion held by some Panamanians that the prospects for the country's continued economic growth remain strong, but they are concerned about rising inflation.

According to a recent company report, the analysts were in Panama during the first week of July and held meetings with the Ministerio de Economía y Finanzas (MEF), the Autoridad del Canal de Panama (ACP), several local companies, and local economists. The report stated that “the widespread optimism we had observed during our previous visit to Panama in September 2007 remains virtually unchanged.”

The Panama Canal expansion and “the likely construction of the Qatari refinery support this optimism,” the report says. Qatar Petroleum and Occidental Petroleum (OXY) are expected to submit their final proposal for building the project before the end of the year. In the meantime, there is “an increasing sense of hope” that construction of the refinery will begin “over the next 1-2 years.”

Citibank reported that the refinery project “could be worth” around $7 to $8 billion. The Canal expansion has been estimated at $5.2 billion.

Panama's construction boom, in the analysts's opinion, will be maintained at least in the short term by “the need to increase hotel capacity.”

However, Citibank has been worried about rising inflationary pressures “[f]or some time,” the report states, noting that inflation is currently close to 9 percent. “We believe that inflation could not only hurt the country's competitivenesss, but also could damage consumer confidence.” Given the absence of hard data to confirm that view, the analysts found it difficult to assess whether the country's current increase in productivity could offset inflation.

Last July 14, the Contraloría General de la República reported that the consumer price index had risen 9.6 percent from May 2007 to May 2008. That is the fastest escalation in prices since the 1980s. Moreover, it's greater than the 9.2 percent increase Citibank had predicted for the same period.

Also in Panama Edition

Keys to the candy store now given to pols

I try to stay away from politics because it usually only gets me in hot water, but I am boiling when I see article like this one in La Prensa where transparency is swept aside and the people in power are allowed to do as they wish with funds they have not earned. While people are struggling to make ends meet the powers that be have been given blank checks to give out contracts and consultancies to whomever they wish with no need to go out for bid. Talk about an invitation for corruption. “These changes undermine all the reforms that were passed to strengthen transparency,” said Angélica Maytín Justiniani, executive president of the Panama chapter of Transparencia Internacional. Where is the outcry about this? Foreign investors and international companies are certainly not comforted when these kinds of activities takes place, unless you are on the receiving end of one of the contracts.

Changes made to contracting process

Under a measure passed July 10, fewer items will have to be put out to public bid.             

The Asamblea and the Executive branch will be able to directly award many more contracts.

Of the powers recently granted to the Executive branch by the Asamblea Nacional, one approved with little fanfare earlier this month will have a substantial impact on how the government does business.             

On July 10, the Asamblea voted to allow the government to sign contracts with independent consultants worth up to $300,000 without publicly bidding the proposals. It also allows the government to directly award water or electricity contracts deemed urgent or in the social benefit.

The secretario de Energía, Dani Kuzniecky, said he was not aware of the change.             

“It would be interesting to know what the reason for the change was,” he said, adding that contractors will still be required to submit a bid for work under his institution’s management until he is told differently.

The changes also allow the Asamblea Nacional, including individual legislators, to award contracts of up to $50,000 without a formal tender.             

“These changes undermine all the reforms that were passed to strengthen transparency,” said Angélica Maytín Justiniani, executive president of the Panama chapter of Transparencia Internacional.

Economist Frank de Lima said the measure appears to benefit both the Executive branch and the Asamblea Nacional, as both entities are now free to hand out potentially lucrative contracts without public scrutiny. De Lima said that allowing the Asamblea Nacional to avoid the tendering process was akin to handing its leaders pieces of candy to get them to support the measure.             

Earlier, the Executive branch was granted the authority to directly purchase equipment for the country's security forces without going through the tender process.

Also included in the measure was a provision that would allow the coordinator of the Transmóvil public transportation plant to negotiate a compensation package with bus operators. This deal, which is expected to cost the government millions, will not need approval from top cabinet economic officials.             

This change was one of the many that have been proposed to the country’s security agencies. These changes include adding an independent border patrol, a security agency to the Immigration department and changing the administration of the police investigative unit.

President Martín Torrijos and other government officials have defended the changes as being necessary to combat the country’s crime problem. Critics, however, say that the changes are reminiscent of the laws that were in place during the military dictatorship.                          

Are foreigners committing most crimes in Panama?

An article from La Prensa today seems to indicate that the answer is yes, but most likely they are from Latin American countries.  Many people are concerned about the powers given to the president to rule by decree regarding the security measures being implemented, especially with the history Panama has had over the last 20 years. This article points out that several of the business organizations along with church leaders are calling for open discussion.

Excerpt: Both Vice President Rubén Arosemena and the Conferencia Episcopal de Panamá recently said that the panel, which consists of 40 representatives from various sectors of society, should review the proposals to dispel fears about an alleged remilitarization of the country. Enrique De Obarrio, director of the Consejo de la Concertación, pointed out that the issue of public safety and national security should be subjected to deeper analysis and broader public consultation.

But apparently even a call from the vice president and other leaders is going unheeded by  the administration. Although they intend to meet with the various leadership, they  are not going to show the details of the plan until it is implemented.

Excerpt: Delgado, however, said that the reforms are being considered to help curb the country's growing crime problem, especially violent assaults and drug trafficking, some of which have been committed by foreigners.

There were 444 murders in Panama in 2007, 319 of which were committed with a firearm. Police seized 20 tons of narcotics, 1,625 illegal weapons and arrested 1,733 foreign citizens.

My bet is that the majority of the "1733 arrested foreign citizens" were arrested for immigration issues and not violent crime. With a murder rate of 444 last year (.134 per 1000), this puts Panama in the top five countries with the highest murder per capita in the world, certainly something that we should be concerned about. Clearly the government IS concerned about the rising crime rate and we all applaud efforts that will make the country more secure, but to do so without public debate and with decrees rightfully concerns Panamanians and foreigners alike. For foreigners, especially gringos, they are concerned because the only thing the government can do besides enforcing existing laws is to radically implement new immigration and border controls which we know they are planning.

The fact is that most of the crimes are committed by criminals  from Latin countries and most of those have entered the country illegally. In their misguided efforts to non discriminate, they will probably make it more difficult for the very people who are laying the golden eggs. 

Another U.S. currency country hit by dollar woes

A reader sent me this article about East Timor, a small country in Indonesia that has a similar situation as does Panama. Their only export derived from gas fields and they have the U.S. dollar as their official currency. Panama has the canal which is like a gas or oil field except that it just keeps on producing without having to export anything. The concern of their leadership is population instability as food and fuel prices rise faster because of the link to the dollar. Although their population is only one million compared to Panama's 3.3 million, their average income is about a 10th of Panama's making food a huge portion of their expenditures.

Excerpt: Goods from Indonesia, China, Singapore, the US - but very few indeed from here in East Timor.

All of which makes a lot of sense, because not much is produced in East Timor. Imports are an essential part of life and 90% of goods come from overseas.

But with the US dollar - the official currency - worth less abroad now than it used to be, buying them is getting much more expensive.

"It's had a big effect," Loh Bee Choon said. "Because the value of the dollar has gone down, we've had to raise prices by around 20% to 30%."

Read the story here....

Panama no longer ranked as top retirement haven

OMG what happened? To those of us that keep up with these things, this is old news. But here in Panama it is as if the local press is just realizing that Panama is no longer perceived as such a great place to retire. What has happened? The local people are just as friendly and there are more air flights available to bring in the baby boomers. The countryside is still just as beautiful and the weather warm and tropical. What has changed? Although many woulod say land prices are the reason, there are still bargains to be had all over the country. The fact is that the government has made some major blunders in tax and immigration laws that have not gone unnoticed by those looking to retire in warmer climes.

La Prensa

International Living ranked Mexico, Ecuador and Italy ahead of Panama in its last retirement index.

The cost of establishing residency and rising real estate prices are two of the factors in Panama’s demotion.

 

LA PRENSA

Demoted:International Living released a report last year indicating that it no longer considers the city of Panama or the rest of the country the world’s top retirement haven.1063403

Panama lost its ranking as the world's top retirement “haven”---a term more commonly heard in conjunction with the word “tax” when the subject is Panama---about a year ago, according to an International Living report entitled The World's Top Retirement Havens, published in 2007.

Panama now ranks fourth, behind Mexico, Ecuador and Italy.

Why the demotion? International Living points out that unless you can afford “a $40,000 investment in a forestry project or a $200,000 investment in real estate or a government bank CD” you're going to have a hard time getting a resident visa.

Also, the government imposed a 30-day limit on tourist visas. Most retirees interested in investing in a home or business in a foreign country want to spend more than a month there without fear of legal prosecution or other complications.

The government recently extended the limit on tourist visas to 90 days, but that’s nbot likely to help Panama in future rankings. International Living gives considerable weight to real estate prices, the cost of living, safety, and infrastructure. Real estate prices have soared, the cost of living has increased, crime is on the rise and it is widely acknowledged that the country's infrastructure, including roads and bridges and water and sewer systems, is inadequate.

Panama's fourth-place ranking notwithstanding, International Living's appetite for selling Panama has hardly diminished. The company will hold a conference on living in the country at the Intercontinental Playa Bonita Resort and Spa from July 31 to Aug. 2. The discounted price per person for subscribers to International Living magazine is $945.

GDP predicted to grow for another 10 years in Panama

I have to laugh when I read headlines like this one in the local press. I wonder who they think really believes that anyone can predict future economic events  ten years out. Whenever the papers anywhere bring out various economic pundits to reassure us that everything is going great is because they aren't. There have been a number of articles appearing lately with prognostications of continued economic prosperity. In this one, a number of local "economic advisers or gurus" have their predictions quoted. Can Panama buck the rest of the world and boom while everyone else is going bust? When you produce no commodities or make any tangible products and your economy is dependent on the rest of the worlds economy, this may be wishful thinking. On the other hand, with so few safe places in the world for money to go, there may be some reason for optimism. Panama may be perceived as one of the last booming areas in the world!

Excerpt; Only a significant change in global economic trends, a sharp deacceleration of world commerce and the volatility of oil prices threaten the predicted growth. (Isn't that what's going on?)

“We believe the year 2009 will be better than this one because of the Canal expansion,” Horacio Estribí said. Estribí is an economist and deputy director of the MEF's public policy department.

In the opinion of Nicolás Ardito Barletta, general director of the Centro Nacional de Competitividad de la Asociación Panameña de Ejecutivos de Empresa, the country's current economic reality is comparable only to the boom of the 1960s. “Between 1960 and 1970, Panamá grew 7.9 percent annually, the most in Latin America, and for several years posted a rate of growth greater than 8 percent,” he explained.

Read this fanciful story here...

Boquete Coffee Puts Forests At Risk

Many of you may not be aware that Boquete was a coffee growing region long before it became popular with folks looking for the good life. In recent years Boquete coffee has become synonymous with quality and that is due to the efforts of the Specialty Coffee Growers Association here in this region. They have been so successful in bringing Boquete coffee to the mind of coffee lovers all over the world that prices have sky rocketed. Like all good things, this  has brought unintended consequences. Some unscrupulous farmers are cutting down national forest land to make way for coffee plantings and it has caused quit a stir in Panama and is now reaching international a level.

Excerpt: A world record price of $130 a pound was reached last year by the famed coffee on an international online auction.

While the coffee planted now only takes up a tiny fraction of Volcan Baru's thousands of acres, the invasion could disrupt the wildlife living around Panama's only volcano, including pumas, quetzal birds and rare orchids, environmentalists say.

"It was designated a national park to retain the biodiversity of the area. People know perfectly well where the limits of the park are," said Harmodio Santamaria, an official from the government environment agency.

Specialty coffee producers decry the practice of encroaching on park land, saying a few rogue growers are giving the geisha business a bad name.

Established growers have built up reputations for running environmentally and socially responsible farms.

Read the whole story here...