Panama Investor Blog

191 buildings now under construction

An article in today's La Estralla points out that there are 191 building under construction and more building permits were issued in the same period of 2009 than in 2008. I find it hard to fathom how this can be the case when sales are very slow and as my post below this one clearly shows. According to this article, most of these buildings are expected to be completed in 2010. Those buildings must have been in the design phase in 2007 and started construction in 2008 in order to be ready by 2010. I would imagine that the increase in building permits in the first quarter of 2009 must be related to domestic consumption because the speculative market that was driving city apartments sales is long gone. If there is an oversupply now, what happens when these 191 buildings averaging 30 floors come on the market. If each floor averages four apartments we will have almost 23,000 additional apartments coming into the market next year. My basis of building floors and number of apartments per floor is just a wild guess. 

From La Estralla;

There are currently 191 skyscrapers under construction in the capital city with an average height of 30 stories each.

This suggests that although the property boom has slowed down it has not died out completely.

The majority of the projects are being constructed in the neighborhoods of San Francisco, Parque Lefevre and Bella Vista.

The General Comptroller said that 128 projects are in the advanced stage, which is the phase that employs the highest amount of people.

Of these, 32 companies have also started new construction in different parts of the capital.

In general terms, the construction sector showed clear signs of recovery during the first semester of this year during which the total revenue from construction permits granted was approximately $1.1 billion. For the same period in 2008, construction permits brought in a maximum of $835 million.

According to the Ministry of Economy and Finance this growth was due to diverse internal factors, including trust in the Panamanian economic system, the liquidity of the banking sector and tax incentives that promote private investment.

The development of these building projects will keep the construction sector in the capital city stable and it is expected that these positive expansion signs will continue during the rest of the year, probably until 2010, if the demand for apartments and condominiums increases.

I told you so.. game over

An article today in La Estralla is one of the first in the local press to break through the silence by the RE industry and admit that things have fallen apart. The high end luxury apartments are in trouble and as  many project have intentionally slowed down and others will probably not be finished. One developer told me he was just going to lop off 10 floors of his 60 story building. When I asked him what he will tell the buyers of the upper floors he said, "they still are at the top".  In his mind it is just relative position and not the floor you bought that matters. Seems to me that if these buyers are speculators, the developer should not be able to keep their down payment, but he will surely try.

Now it is a buyers market and if you are a bottom feeder the opportunity to pick up some deals is just getting started. I believe that quality apartments in good areas will continue to be in demand because many projects will not be completed and those that have not been started never will be. The relative short supply will help keep those apartments prices from hitting the floor. Just as in the past, before this building craze began, Panama had lots of empty apartments. Although rents were cheap by todays standards, they still were not bargains and yet the prices were not lowered. The owners will sit and hold waiting ten years or more for things to turnaround and another boom to begin. Makes you wonder where the money came from doesn't it?

The real fun will soon begin when buyers begin to demand their down payments back for projects unfinished or not started. That will be interesting and ,knowing Panama as I do, a waste of everyone's time. What's an escrow?

Excerpt:

All the signs show that the construction boom is coming to an end, especially in the luxury property end of the market, and many projects have been scaled down and in some cases abandoned altogether due to lack of purchasers.

Last month the construction industry registered a decrease of 38 percent and the situation looks grim for many speculators who bought expensive apartments with the idea of flipping them and making a hefty profit.

The Housing Minister, Gabriel Diez confirmed that that was the case, when he said that, “constructions projects with high economic value, such as luxurious condominiums have been hit hard by the current economic global crisis, because the majority of their prospective buyers were foreigners.”

However, the minister remains optimistic and says that eventually buyers will return.

Read the rest here....

Panama's property development boom may be bubble ready to pop

This in from the Business report. Seems like a recent repeat of the rather negative Reuters story last week. The press and their readers like the negative.

Excerpt: The shiny skyscrapers that soar above Panama City's coast and loom over the small Central American capital give it a skyline more suited to an Asian powerhouse like Hong Kong or Singapore.

While a subprime mortgage crisis batters the US, construction has been booming in Panama. According to the most ambitious construction plans, Panama was to have been home to nine of Latin America's 10 tallest buildings by the end of the decade. But the lights are off in many of the luxury apartments, new buildings sit empty, and suspicion is growing that Panama's property boom may turn out to be a bubble built by speculators on South American drug money.

Read the whole story here....

Who pays the condo maintenance fees when the bubble bursts?

This article was sent from a friend in Florida and it raises a difficult issue that will invariably have to be dealt with in places like Miami where rampant speculation has fueled a real estate bubble. If you were unlucky enough to have bought into one of these empty condo buildings and planned on living in it rather than flipping, you could end up paying much higher maintenance fees than you had planned.

Real Estate
Condo boards caught in fee pinch

Residents of the Club at Brickell Bay Plaza condominium came home one day to find they had no cable or Internet service, the result of the condo association falling months behind on payments to provider Primecast.

It was the latest service snafu for the troubled building and its association, which is struggling to make ends meet as many unit owners fail to make their monthly maintenance payments.

“We are victims” of speculators who bought condos intending to flip them but got stuck with the units after the prices peaked, said Diana Ospina, association president at the Club at Brickell Bay.

The Club at Brickell Bay is one of many condos struggling to maintain buildings and resident services as foreclosures skyrocket and owners of those units stop paying their condo assessments.

The Club at Brickell Bay has one of the highest foreclosure rates in South Florida. And the owners of the foreclosed units are not paying their maintenance or have fallen behind, Ospina said.

The bill for the Club’s cable and Internet service is more than six months past due. Ospina declined to say exactly how much is owed.

Primecast sent a letter Oct. 31 warning residents that they risked a cutoff for nonpayment, and on Nov. 6 the service was discontinued.

The association’s board of directors was able to negotiate a one-month reprieve. Primecast restored the Internet and cable, but just a fraction of the previous 70 channels.

The board and Primecast are working on a payment plan to keep the services running after the month is up.

Foreclosures and delinquent dues are increasingly putting pressure on condo associations’ operating budgets. One option is to force the owners who are paying their bills to pick up the tab for the units in default.

Maintenance payments are a condo association’s primary revenue source.

Cautious lenders see buildings with a large number of foreclosures as poor bets, making it even harder for buyers to secure mortgages and for owners to refinance.

Short-term investors flocked to South Florida before the height of the development boom in 2005. Rapidly appreciating units resold repeatedly for hefty profits until the market dried up.

Many owners who never meant to keep the units for long eventually fell behind on their mortgages. A total of 5,784 foreclosure cases were filed in South Florida in October, beating the 5,533 filings in July for the worst month this year, according to Daily Business Review data.

Condo flippers get burnt chasing thier dreams

From CNBC.com

Excerpt; The mention of speculators spurs a flurry of cliches by industry experts: there's no free lunch, trees don't grow to the sky, not having a place to sit down when the music stops.

"Sometimes they're vilified but they shouldn't be," says Barry Habib, chief executive of Mortgage Market Guide, a real estate market information service in Holmdel, New Jersey.

"That's the American way. They go back to the Gold Rush."

Speculators "add jet fuel" both on the way up and on the way down, he said. "Nobody was saying 'hey, the speculators were bad' on the way up, when people were selling their homes and making lots more money."

Panama, a history of booms and busts.

This is graph showing Panama/a cycle of booms and busts from 1979 until 1990. Click the image to enlarge. Sent by David Saied regarding his piece on How long the boom in Panama might last from last week.

The longest boom since 1970 has been 4 years 1991-1994.

There is good news when the bubble bursts!

Here is an interesting interview with Daniel Gross. Gross is the author of "Pop: Why Bubbles Are Great for the Economy."

TCS: So what is the other - and hopefully happier - side of the story?

 

GROSS: Well, the way that new infrastructures get built in this country is frequently through investor enthusiasm. The government may help roll out new technologies, but we don't have the government putting up telegraph lines or stringing fiber optic cable that connects people's homes to the Internet.

 

These activities don't proceed in a rational, easy-going way. They move in fits and starts. It's the bubbles that lead to this very rapid roll out of a new commercial infrastructure, one that businesses can plug into and use, like the telegraph or the railroad or the Internet.

 

So bubbles create platforms for growth and innovation that help propel the economy forward.

 

TCS: And what happens after the bubble bursts?

 

GROSS: You get excess capacity, which leads to competition that brings prices down for normal users, which creates the climate in which somebody can come along with a new business idea that instantly plugs into a large user base.

Read the whole interview at TCS Daily

How long will the Real Estate Boom last?

Friend and specialist in economic and financial markets analysis, David Saied, wrote this astute piece.

Panama's Real Estate boom is in full swing.  Land prices are rapidly increasing, in some areas at phenomenal rates.  Beach and ocean front properties have, in some cases, doubled, and even tripled, in just a few months.  The same is happening in certain areas of the interior, like Boquete, Volcán and Bocas del Toro.  Prices of new homes and apartments are also rising rapidly, particularly in areas of the city that are close to ocean or that have an ocean view.  At the same time, hundreds of new units are being built--construction permits reached over 1 billion dollars in 2006, an increase of 10.1% over 2005.  So, what's fueling this real estate market boom?  And how long can this boom last?
The history of Panama's real estate and construction market has been one of boom and bust.  In the seventies a similar third world inflationary boom and the creation of our banking center created a construction boom, especially in the Obarrio banking district and in Punta Paitilla.  The late seventies boom ended with a flagship year when in 1982 construction grew 21%.  The oversupply of units forced a contraction in the sector by falling 31% in 1983 and 17% in 1984.  The bust ended in 1985 when the negative growth ended.  A similar post-invasion construction boom developed between 1990 and 1994, where the sector grew 55% in 1992 and 32% in 1993. 

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Survey: 55.9% of panamanians believe speculation is driving real estate prices

This from the local press today. Other than developers/promoter, few Panamanians read my blog, so I could not have had much influence on those in the survey. Guess you don't have to be an expert to smell trouble. The guy on the street figured it out on their own.

Panama, Saturday, September 22nd, 2007
Survey: 55.9% of Panamanians perceive speculation on RE prices
Edith Duarte Castillo ecastillo@prensa.com

Since Panama was discovered about three years ago as an attractive country for second home residence, American, Canadian or European retiree, the prices in the real estate market started a bullish curve, that according to connoisseurs of the market and the opinion of the public in general,  partly must a speculative wave.

According to a survey by Dichter & Neira made for La Prensa, 55.9% of the Panamanians are convinced that at the moment it is being speculated on with the prices of the real estate projects.
24.1% of the surveys said not to know of the issue; and another 14.6% answered there is no speculation. The survey, made between 14 to 16 of September, surveyed one thousand 238 people of 18 years old resident in Panama.

Prices of Panama and Miami
The reality is that the price per meter in sectors that are in front of the bay has varied significantly. Two years ago, for example, the square meter in Balboa Ave. quoted between 800 and 900 dollars. Nowadays, this price has been more than tripled, to between 2 thousand 500 and 3 thousand dollars. In Costa del Este and Punta Pacifica, the square meter surpasses the 4 thousand dollars.
The commercial manager of Pedros Real Estate, Pedro Adolfo Detrezno agrees there is speculation in zones near the coasts, as much in the capital as in the interior, which they are the favorites of the foreigners who have more spending power than the nationals. "This factor is the one that is lent to the speculation", he said.
Detrezno thinks that there are prices that are not sustained, but that it is difficult to control while an international demand exists, for those the range continue being cheap if they are compared with those of Miami or New York.
In Miami, the square meter is quoted in 10 thousand 400 dollars in the most luxurious projects, which means that an apartment of about 300 meters costs about 3.5 million dollars. In the center of Miami, the meter can be obtained in about 4 thousand 600 dollars, according to data provided by Alicia Cervera, executive of the promoter Apple Organization of Miami.
The executive considers that although Panama and Miami have much similarity, are cities with completely different standard of living.

The pain is acute here but unbearable in S. Florida.

Here is another timely article about the condo crash in Florida and the after effects from Orlando's perspective . Panama developers should read this and learn from the painful experiences of others, or maybe it really is different in Panama and all those people are coming down here to buy condo's at a better price.

Multiple construction cranes fill the skyline off Brickell Avenue in downtown Miami, where the nation's most glutted condo market can be found. Orlando has 4,440 condos listed for sale; Miami has 23,000. (SUSAN STOCKER/SOUTH FLORIDA SUN-SENTINEL / August 7, 2007)

                                                        

The pain is acute here but unbearable in S. Florida.

Maya Bell  Sentinel Staff Writer

August 27, 2007

MIAMI - The champagne-popping days are over for Natalie and David Luongo, who banked enough money flipping a South Florida condo three years ago to stage a $100,000 wedding.

Now the  couple   are spending restless nights wrestling  with  the question that looms like a guillotine: Should they walk away from the $117,000 deposit they plunked down on another investment condo in the ritzy Miami-Dade enclave of Bal Harbour?

Or should they close on the one-bedroom unit, which is similar to others now on the market for less than the $585,000 they agreed to pay?

"It's painful and scary," Natalie Luongo, 31, said. "We saw the frenzy, and we bought in. Now we're paying the consequences."

Just how many other speculators face the same dilemma in the nation's most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami's downtown, will flood an area already saturated with 23,000 condos listed for sale. An additional 40,000 units have been approved, but analysts doubt the majority will break ground. (See map with condo locations.)

Orlando and other Florida cities -- Naples, Fort Myers, Tampa and Sarasota among them -- also have huge condo gluts. With 4,440 condos listed for sale, Orlando has an unprecedented 29-month supply, and last month sales plummeted 64  percent  lower than  a year ago.

But Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S.

Read the whole story at the Orlando Sentinal....