Panama Investor Blog

Is Panama experiencing a commericial property bubble?

It appears that Panama's real estate bubble has shifted from residential towers to commercial office space and hotels. A trip through the city shows many towers under construction and although a good number of them are residential projects getting closer to completion, there are many that are either hotels or commercial towers. Hotel occupancy in Panama has been on the decline and occupancy rates that were in the 80% plus has now dropped to the med 60% level. On top of this decline is another 10,000 plus hotel rooms coming on line over the next year or so. The Megapolis alone is 1500 rooms and it is one of several dozen hotel projects underway. Then there are the commercial towers which depend on the continued flow of multinational companies coming to Panama to open up shop. Thus far Panama has done well with filling up this commercial space, but just as in the residential and hotel construction, the developers appear to have gone overboard in their estimation of absorption and odds are there will be a lot of overhang in the market within a year or so as these buildings come online. I believe it is reasonable to expect prices of hotel rooms and office space to become highly competitive over the next year especially if the world economy gets the double dip many are expecting.

This article speaks to the HOPE that many have for the continued flow of multinational companies to relocate to Panama.

From La Prensa;

Roberto Gonzalez Jimenez
rgjimenez@prensa.com

The skyline of Panama change at top speed. Under the cranes that are on the horizon, few would dare to diagnose that the world has experienced one of the worst economic crisis in history.

Part of this phenomenon can be attributed to the dynamism of tourism and corporate projects. "Faced with declining high-standard housing, the sector was redirected toward the construction of hotels, shopping centers and office buildings.

And for residential housing of a modest profile, "said Jaime Jované, president of the Panamanian Chamber of Construction.

"This movement, together with investment in public works, has allowed the construction industry to remain at acceptable levels," he added.

Some of the stars of the future skyline of the city will be office buildings, with innovative designs such as the Revolution of 50th Street Tower, a 52-story tower that offers high offices of 145 thousand square meters.

Also on 50th Street stands the Financial Tower, with 56 floors will house, among others, the offices of Tower Bank.

Punta Pacifica is building another giant of office tower: the Oceania Business Plaza, a project with two towers, one 56 story's and another of 44.

The corner of Balboa Avenue and Aquilino de la Guardia is a clear example of the shift in construction.

In this batch was planned the Ice Tower, a building of over 100 floors for hotel and residential use.

Declared infeasible, the developer changed the project to one of 63 heights in the same structure combines a five-star hotel and office space of 108 thousand 400 square meters.

In Costa del Este, another sector of the city where corporate activity grows, the market, among others, the Costa del Este Financial Park (45 floors) and the Prime Time Business Tower (20 levels).

CAPACITY MARKET

All these projects, ranging in price from $ 2500 and just over $ 3,000 per square meter, will be delivered between the end of this year and 2012.

In 2013 there will have to add the offer of the Financial Tower, the skyscraper to be built by the Government in the former headquarters of the U.S. Embassy on Avenida Balboa, which will become the tallest in the city.

The government has planned the sale of 40 thousand square meters of offices to the private sector to finance part of the construction of the tower.

With an offer of that magnitude in the next three years, the question is whether demand will be strong enough to absorb it, or whether, by contrast, have a situation similar to the reality in upscale residential sector, where many apartments remained unsold.

The industry insiders say the level of sales of the projects indicates that the market can absorb the new supply. Bet, moreover, the success of Panama as the headquarters of multinational companies.

"Panama is becoming a business hub with companies setting their base of operations for the region," said Ivan Carlucci, former president of the Panamanian Association of Brokers and Real Estate Developers (Acobir).

Since 2007, through Law 41, Panama offers tax and labor incentives for multinationals to provide services to third countries from Panama.

According to recent reports by the Ministry of Commerce and Industry, about 40 companies have benefited from this law to settle in Panama.

Only in 2010 have received their license as Multinational Companies Headquarters in Panama firms such as SAB Miller Central, Otis, Ericsson, Adidas and Sanofi Aventis, among others.

Not in all cases these companies occupy large office spaces or large staff bring to the country.

Some have done so, as the case of Procter & Gamble's U.S. East Coast.

To Carlucci, who estimated that only a multinational can claim between 3000 500 and 6000 meters squared offices, with the arrival of these companies also streamlines the rental and sale of apartments.

The challenge of Panama and its authorities is to continue the promotion abroad and not worsen the conditions that have made Panama an attractive place for investment.

Panama construction down 30%

LA Presna

Roberto Jimenez Gonzalez
rgjimenez@prensa.com rgjimenez@prensa.com

The value of construction, additions and repairs adopted in Panama in the first four months of the year was $ 339.7 million, 30.7% less than the $ 490 million recorded in the same period the previous year, the Comptroller General of the Republic. 

The greatest fall occurred in the province of Panama, where the value of permits increased from $ 428.3 million to $ 223.8 million. 

The month of April was the least bad, since only a drop of $ 407 thousand (-0.4%) than the same month last year. 

The decline was reflected in the residential sector (-39.4%) and the non-residential (-21.4%), projecting a contraction in construction activity in the future. 

The production of ready-mix concrete, which shows the current level of activity, also fell abruptly, from 706 000 cubic 937 meters between January and April 2009, 463 000 cubic 668 meters this year. 

Demand for construction jobs expected to continue in Panama

You wouldn't know it by looking at residential projects scattered about the interior of the country as most of them have slowed to a craw. But fear not, government projects such as the canal expansion, new metro, coastal strip extension and sewage treatment tunnel are set to suck up much of those construction crews who will be finishing up with the many city towers over the next year or so. That's what I call good timing, even if it means most of the GDP is being generated by big government borrowing. The construction unions are happy as they negotiated a new minimum wage that will be passed on to the general public in a number of new ways.

Machine translated from La Prensa

Minerva Bethancourth
mbethancourth@prensa.com mbethancourth@prensa.com

  In 2010 it implemented a series of construction projects that demand a great deal of manpower, according to Gregory Guerrel, representative of the Sole Union of Construction Workers and Similar (SUNTRACS).

  Among these projects, which have orders to proceed, are the beginning of the work of the third set of locks, the extension of the coastal strip, building a tunnel to carry waste water treatment plant to clean up the Bay .

  The new year is presented with a better outlook for the construction sector by 2009 when several projects were halted for lack of funding.

  Some companies also chose to defer to 2010 the start of work in the hope the economy improves, said SUNTRACS clerk, Hector Howard.

  The president of the Panamanian Society of Engineers and Architects, Ernesto De Leon, also agreed that during 2009 there was a decline in the construction of new projects and others lowered their speed.  Despite this outlook, De Leon stressed that there were no layoffs.

Credit drives construction

Construction continues to grow in Panama mostly due to the increase spending on public housing and infrastructure projects by the state according to La Prensa.

La Prensa

Domestic credit to private sector amounted to 21 thousand 559 million dollars by the end of August, an increase of 3.3% compared to the same period a year earlier.

  Credit for construction maintains a sustained growth driven by increases in the rows of public housing, which through August totaled $ 1.172 billion, an increase of $ 408.4 million or 53.5% over the same period in 2008, when it stood at $ 764 million, according to the Superintendency of Banks.

  Last December, these loans were $ 995.8 million, which analysts say means that the bank maintains its policy of paying for construction projects in progress.

  Banks are more cautious yes to fund new projects, which do not have a significant percentage of sales, according to various industry sources.

  In the field of infrastructure loan portfolio reaches $ 268.18 million, an increase of 77.9%, compared with August last year.

  Meanwhile, mortgage financing has a positive momentum driven by increases in home mortgage lines (10.5%) and mortgage store (10.6%).

Panama job market continues to show strength

An article in today's paper tells us that the Job Market here in Panama continues to grow. Considering what is going on in the rest of the world this is great news. Judging from the type of contracts described this can probably be attributed to the construction industry.

The labor contracts rose 8% as of June over the same period last year, when they reached a peak of 21 thousand 357.

  According to a report by the Comptroller General of the Republic, when compared with June figures for the month of May, the growth is 14%.

The document stipulates that as from March this year dominated by contracts for a definite and specific works, due to the uncertainty created by the global economic situation and the fear of contagion from the slowdown, particularly in construction activity which has gradually adjusted its labor demand in the new works that continue to be developed.

  Only in the month of June 2009 there were 7 thousand 994 contracts for a definite and 8 thousand 175 for specific works. While the contracts of indefinite duration averaged 4 thousand 863 a month, a figure similar to 2008 (4 mil 878 contracts). "These numbers suggest that maintaining a good pace of job creation in the formal market," the report said.  Labor's deputy, Luis Ernesto Carlos, said the crisis has not impacted the level of employment, because hiring still increasing.

Panama Construction sector shifts to commercial

At the current pace of commercial construction I would bet they will overbuild in this area within 18-24 months.

Excerpt from La Prensa;

Applications for permits for new construction, additions and repairs between January and August 2009 totaled some $1.2 billion, representing a 15 percent increase from 2008.

The president of the Panamanian Chamber of Construction (CAPAC), Jaime Jované, said that the global financial crisis has impacted the market. Until that crisis hit, there was a high demand for luxury apartments aimed at foreigners who had high purchasing power. This was the sector most impacted by the crisis.

Jované said real estate develoeprs are now turning to projects aimed at the local market for both housing and commercial projects, such as the construction of office buildings and shopping centers.

A survey conducted by the Ministry of Economy and Finance found that, at the end of June, there were 191 projects under construction. Most of the residential projects, ranging between 30 to 40 floors, were found in the districts of San Francisco, Bella Vista and Parque Lefevre.

Shake up for developers in San Fransisco

An article in today's La Prensa tells us that the courts have ruled that permits granted to developers by the past administration were illegal. Previous zoning laws were apparently ignored where building heights where not to surpass 15 stories and 35% of a lot was to be green areas. Buildings have been completed and a number still under construction that violate these restrictions. Now the question is, what to do about it? The quality of life in the neighborhood has certainly been diminished, but it is not practical to tear them down. A consideration is being proposed to stop buildings that are under construction from going over the 15th floor, but you can imagine how this would impact the developers financial situation with construction loans and pre-sales.

This is another case where apparent changes in zoning were implemented at the discretion of a government official (head of MIVI) without oversight and has now caused problems for everyone involved  long after that administrator is long gone. How can developers or buyers feel comfortable in investing when the rules of the game can change at the whim of an administrative head who has five years in office.

A ruling by the Supreme Court just put in check several condos under construction in San Francisco.

  A week ago, the judges of the Chamber III, Victor Benavides (rapporteur), Jacinto Cárdenas (for Winston Spadafora) and Hipolito Gill (for Adam Arjona) declared illegal invalid by a decision of the Ministry of Housing (Mivi) which amended parameters of zoning rules and eliminated the 35% required for landscaping in that township.

  Until then, the high for farms with land use zoning of RM (medium density residential) and RM1 (residential high density) was up six and 15 floors respectively, including parking slabs.

These conditions were set out in Resolution No. 112 of 2003, he signed the then Housing Minister, Miguel Batista.  Similarly, limits were set to match the zoning MCU1, MCU2 and MCU3 (urban commercial mixed low, medium and high density), depending on the construction line.

The system was implemented throughout San Francisco, except for areas of Boca La Caja and San Sebastian.

But these limitations do not last long.

  At a stroke

On 31 August 2005, barely a year after being appointed Minister of Housing Balbina Herrera issued Resolution No. 235-2005, which eliminated almost all restrictions contained in resolution 2003.

  In one fell swoop and without consultation, Herrera decided that the height of the buildings would be determined "according to the density" of each property.

  Thus, where previously only allowed a 15 high, suddenly lifted up a tower of 60 floors. La altura quedó “al arbitrio” de los promotores. The height was "the discretion" of the promoters.

  Herrera's decision had broader reach in the Milky Cinquantenaire, where almost all farms are RM1.  Over that span, seven high-rises now stand: Moon Tower, Sorrento Sea, Vision, Puntarenas, Icon (almost ready), Bay Golf and Boating.

  A measure inconsiderate

  Such permissiveness was not liked by the neighbors.

  Organized in the Residents Association of Altos del Golf, Loma Alegre and surrounding areas, the group filed a petition for annulment against the Resolution No. 235, which was admitted by the Trial Chamber III on 28 May 2008.

  The complainants allege that Herrera's actions violated the Act 6 of 2002 ( "Transparency Act"), for he never convened a public forum to consult with those affected.  The view was shared by the Office of Administration, who also asked to cancel the event.  In its ruling, the Chamber III found that there were "irregularities" in the actions of the authorities Mivi.

  A lawyer for the residents felt that any project that is in earthwork, piling, foundations or slab construction parking will have to conform to the limitations contained in resolution 2003.

  It was unclear what will happen to the buildings that already are on the 16th floor or above it.

The current housing minister, Carlos Duboy, reported that construction projects will be reviewed, "to see if they comply with existing rules.

Record number of building permits issued for June 2009

According to the comptroller general the building permits issued in June 2009 were $550 million compared to $152 million for the same month last year. The factor attributing to such a significant increase was the deadline for the 20 year tax exemption. Every year we see a mad rush to get permits before the deadline and over the last ten years each administration has extended the deadline through their term. To date we have not heard whether this administration plans on extending the deadline.

Steel imports a telling tale

I find it amazing that Panama ranked as the second largest customer for rebar in the world for U.S. exports according to the American Iron and Steel Institute. This is well before the needs of the canal expansion. Maybe they are buying very early.

US Rebar Exports Way Up In June As Panama Sees Big Influx
August 18, 2009
Steel Business Briefing

US rebar exports nearly doubled from May to June, with a large portion going to Panama, according to a Steel Business Briefing analysis of figures just released by the US Department of Commerce (DOC).

In June, 51,726 tonnes of US rebar were exported globally, up from 26,804 t in May. Panama was the second-largest recipient of those exports, receiving 18,263 t, up from zero in May and only 1,438 t in April.

Canada imported 30,443 t of US rebar (up from about 25,000 t in May), the DOC figures reveal.

Rebar made up about 86% of the 21,205 t total volume the US exported to Panama in June. The Panama Canal is undergoing a more than $5bn expansion project to add a third lane.

Overall US mill exports totaled 640,337 t in June, up 11% from May, as SBB reported late last week. Most of the tonnage went to Canada (315,452 t) and Mexico (129,944 t). Panama, Nigeria and India saw lower volumes but were the biggest gainers on a percentage basis.

Total US exports are still far below their September 2008 high of 1.26m t.

Construction of apartment buildings starting to decline

This should come as no surprise. The surprise is thsat they are still building. Some interesting statistics from this La Prensa article.

Excerpt:

In the first quarter of the year, there were 1,166 projects under construction in the districts of Panama and San Miguelito, according to a census by the Comptroller General of the Republic.

Of that total, 88.6 percent were residential projects, 3.2 percent commercial ones, while the rest were schools, religious centers and other projects.

The areas with the most projects underway are Pacora (248), Las Cumbres (187), Chilibre (141), Tocumen (123) and Rufina Alfaro (101).

Read the rest here