The COVID pandemic is going to have a significant, long-term effect on Panama’s real estate market and no one is talking about it.
New project launches ground to a halt in Panama during the worst of the crisis. Several projects were either shut down or canceled. From our conversations with developers and local companies, it’s clear there are no large residential projects scheduled to start any time soon in Panama City.
The result will inevitably be a supply shortage, as demand remains strong. Sales volume is actually increasing; we are selling more properties post-COVID than we were pre-COVID. As a result, inventory is being absorbed in a much faster rate. We are already seeing a shortage of the best units and prices are going up. In The Ocean Club, for example, coveted two-bedroom apartments are selling for 10% more than before the pandemic.
If we look at the three-to-five-year timeline, we are shifting from a buyer’s market to a seller’s market. Factor the sales trajectory with the lack of new projects and there’s going to come to a point in time when what’s under construction gets delivered and all that’s left is the available inventory.
This is unprecedented for modern Panama City. Pre-pandemic there was a consistent flow of new projects, even when the market slowed. Once the boom started, people just kept building, building, building. It never stopped. This will really be the first time since the big boom when there will be a shortage of inventory for people to buy.
From our discussions with builders, for the foreseeable future, the only projects that will go forward will be from the big, well-established developers with years of experience in the market. They will be able to get construction loans based on their track record. But most of the smaller developers are basically out of the game right now. They are not going to get financing unless they are willing to come in and build with their own money.
At this point, it’s going to take years for the market to catch up. By the time the developer gets their building permits, arranges loans, and starts the pre-sales, a new project can easily take five years to be delivered.
Most of the under-construction projects that will be delivered in the next year or two are largely sold out. For example, the highly anticipated, two-tower Wanders and Yoo project in downtown Panama City is about 80 percent sold. Ocean House in the Santa Maria Country Club, which is expected to complete by the end of the year, is 85 percent sold. All the projects under construction on Ocean Reef islands are already sold out.
When this next generation of projects is completed, that will be it. There will be a gap before any new construction comes online and the inventory of apartments shrinks. When that happens, and demand continues, the inevitable result is that prices go up.
From the perspective of an experienced real estate analyst, all the factors are in place for a major long-term shift in Panama real estate. We are already seeing buyers recognizing the signs. They are moving now before it is too late.