Investors are returning to Panama City real estate, lured by quality projects and the opportunity for growing yields. But it’s a complicated market. In an interview, Duncan McGowan, president of Punta Pacifica Realty, the largest sales and rental company in Panama City, offers insights into the latest trends and advice for investors analyzing the current market.
“There are real opportunities in Panama City if you focus on unique, high-quality projects,” McGowan says. “But investors need to be disciplined and look for real value.”
How would you describe the state of the Panama City market these days?
It’s a very competitive market. In many ways, it’s a more mature market. There’s a lot of inventory out there that is very similar which can make it tough for investors. We get investors who want to buy at $1,500 a square meter and there are many many buildings available with apartments at this price point.
These buildings are almost interchangeable with each other as they offer similar services, amenities and of course price points. The problem is then investors will be competing for rental clients with every other apartment in all these similar buildings. If there is nothing special to differentiate one building from the next then tenants will only focus on price point, who is willing to rent for the lowest price possible.
The next problem arises when further down the road investors want to sell. The only thing that’s going to make their apartment more attractive than the neighbor’s apartment is the price point, again cheapest priced apartment will sell with nothing else to differentiate it besides that all-important price point. This is not a formula for success as you get into a battle where the lower price will win.
Even in downtown Panama City?
Let’s take Balboa Avenue as an example. With the exception of the YOO building, most of those buildings are very similar. They have very similar amenities, very similar price points. There’s a deep supply of apartments available on Balboa Avenue and the only thing differentiating one from the other is the price point.
So what do you tell investors?
Because of this supply and demand dynamic, investors really need to seek out buildings that can differentiate themselves in the market. You really want to stick to buildings that are unique and offer something special, so that you’re not just fighting with price point. We’re only working with buildings that can differentiate themselves from the pack, that have something unique and occupy a niche market, like the Hyde by Wanders & YOO or the former Trump Ocean Club (now home to the JW Marriott hotel).
These types of buildings are about amenities and lifestyle and will always have a higher rental demand and attract higher rents. People can’t go to another building to get what these buildings are offering, you either want that lifestyle and are willing to pay for it or you go find the lowest available price in one of the other buildings. It’s not surprising these types of unique lifestyle & amenity oriented buildings also have the highest occupation rates.
How has your approach to the market changed in recent years?
We are more focused on investors than end-users. And we’re very selective as to what properties we choose. There might be a large supply of apartments but there’s a low supply of apartments in truly special buildings. These are the buildings that continue to rent and continue to fetch higher rental prices.
On Balboa Avenue, the stalwart performer is the original YOO Panama. It has maintained an extremely high rental yield and a very strong resale value. You haven’t really seen it come down in price like the others. Why would someone pay $2,000 for a 1-bedroom in the YOO when another 1-bedroom on Balboa Avenue is renting for $1,400? It shows that people are willing to pay for something that really does differentiate itself. The price point is higher, but people pay it. The value is there.
What should investors be looking for in terms of amenities?
One of the big things about Hyde by Wanders & Yoo, the new Yoo branded project currently under construction, is the actual quality of the finishes, the quality of the construction. It has real double pane windows. A lot of the projects in Panama say they have double pane windows and it’s literally one pane of glass stuck to the other pane of glass. Everything that goes into the Hyde is top, top-notch quality. There won’t be another development like Hyde.
Ocean Reef is the same concept. There won’t be more islands. It’s not something that’s ever going to be duplicated again, number one. Number two, the vast majority of people that purchased on Ocean Reef are end-users. They’re people that are going to be living on the island, which means that there will be a limited supply of apartments available to investors, reduced supply means higher rental returns for these investors. These are one-of-kind developments.
What size apartments are most attractive?
High floors tend to be better sellers and better renters. The two-bedroom is still our best rental unit with our clients placed by multinational corporations. Most of the multinationals working here in Panama are looking for the type of apartment they find in the Ocean Club, the former Trump Tower, where JW Marriott now runs the hotel or the YOO on Balboa Avenue. These are the tenants that you want.
Hyde will be bringing a new dynamic to the market as they are offering a three-bedroom model with maids quarters, offering amazing layouts and all in a 167 m/2 (1,800 sq. ft) apartment. It’s a great size and something that is not really available in either the former Trump Ocean Club or in YOO Balboa Avenue so again a new offering in the rental market with that top tier amenity and lifestyle aspect that is so attractive. The layout in Hyde is absolutely perfect, especially as it has the maid’s quarters. So I think that is going to fill a niche in the market that we don’t have available in this type and quality of a building.
How do you suggest investors approach the market?
Right now is a great time to get in on preconstruction. The price points are not going to last forever. As the projects get further along in the construction and development their prices will go up. This is the time to get in. Some developers are offering easy payment structures with a big part of the payment due upon delivery of the apartment.
Where are we in the construction cycle?
The buildings that we’re selling preconstruction; they’re actually under construction. You can see how the construction is coming along. On Ocean Reef, the first island is 100 percent sold out. The second island lots are 80 percent sold out. Developments under construction 90 percent sold. They are now launching a new one of a kind development with very limited availability called Seascape. You see the progress and you can see the number of available units shrinking.
Any last comments?
Buyers markets don’t last forever so take advantage of this one but buy in a building that is unique and that can differentiate itself from all the other buildings in Panama City. It’s a tricky market and to be successful you need to be thinking about buying in a unique lifestyle focused property as opposed to just looking at the price per square meter or square foot.
Duncan McGowan is President of Punta Pacifica Realty, the largest sales, rental and property management firm in Panama City.
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