Panama City's Real Estate Realities: An Investor's Guide

Panama City's Real Estate Realities: An Investor's Guide

Panama City Real Estate Market: Investor Guide 2024

Latin America's Most Developed Economy

Panama is often touted as a prime real estate investment destination, with great potential returns. However, the reality is more nuanced. While Panama offers interesting diversification and visa options for investors, the actual ROI is generally lower than advertised. Some neighborhoods should also be avoided outright from an investment perspective.

As a resident of Panama, I have extensively explored Panama City and met with agents and developers to provide this in-depth analysis of the local real estate market.

Panama is Latin America's richest country, with a GDP per capita (PPP) that is about half that of the United States. This makes it one of the most developed economies in the region.

Why is Panama So Developed?

The Panamanian economy has a unique profile, with services comprising 80% of its GDP. This is due to several key factors:

  1. The Financial Services Industry: Panama is a major offshore banking hub, with dozens of banks domiciled in Panama City. It is Latin America's principal banking center, second only to Miami.

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  2. The Panama Canal and Related Activities: The Panama Canal is a crucial global trade route, generating significant toll revenue for the government. Additionally, Panama has developed entire industries around the canal, such as the Colon Free Trade Zone, which accounts for 8.5% of GDP.

  3. Mining: Panama is endowed with valuable mineral resources, particularly copper, which until recently contributed 5% to the country's GDP.

Positive Demographics in Panama

Panama has a healthy population pyramid, with one of Latin America's highest fertility rates at 2.3 children per woman. This, combined with positive migration figures, suggests a growing pool of potential tenants for real estate investors.

Headwinds Facing Panama

However, Panama is facing some economic headwinds:

  1. Shutdown of Largest Mine: The government recently shut down Panama's largest copper mine, which contributed 5% to GDP, due to environmental protests. This has had a significant negative impact on the economy.

  2. Troubles at the Panama Canal: The canal has suffered from a lack of water, reducing throughput by over a third. However, the authorities have been able to maintain revenue by raising prices through an auction system.

Manageable Government Debt Levels

While Panama mismanaged the COVID-19 crisis, with harsh lockdowns that crippled the economy, the government's debt-to-GDP ratio has been on a downward trend since the end of the crisis. The situation is manageable, though the mine closure will put pressure on government finances.

Three Positive Catalysts for Panama

  1. Quality Immigration: Panama is attracting a growing number of high-net-worth individuals (HNWIs), mostly Westerners, seeking a combination of low taxes, sunshine, beaches, good healthcare, and decent infrastructure. This immigration helps drive the economy.

  2. Chinese Investment: While Chinese investment in Panama is currently low, the country's recognition of mainland China in 2016 has led to growing economic ties. China is now Panama's top trading partner, and the potential for increased Chinese FDI is significant.

  3. Panama's Safe Haven Status: Despite some reputational setbacks, Panama remains a safe haven for capital in Latin America, with its well-developed financial services industry and control over key international infrastructure like the Panama Canal. This status attracts both investment and high-end immigration.

The Peak of Panama's Growth is Over

While Panama experienced 7%+ yearly GDP growth for almost a decade, the country is now approaching developed market status. Future growth will be more limited, due to the relatively low quality of its human capital and heavy demands on the public sector.

However, as long as Panama maintains its safe haven status, the Panama Canal, and avoids large fines for the mining issue, the country will continue to attract capital and high-end immigration, which is beneficial for real estate investors in Panama City.

The Panama City Real Estate Market

Real estate in Panama City is not particularly expensive compared to other major Latin American cities. The issue is not pricing, but rather the supply.

There has traditionally been an oversupply of rentals in Panama City, as the country's status as a safe haven has attracted many investors who do not prioritize rental yields, but rather capital preservation. Many apartments are left empty or used for money laundering purposes.

This unique dynamic means that if your pricing is right, you will find tenants. However, it is crucial to work with a knowledgeable realtor in Panama City who can provide honest advice on the rentability of properties.

Neighborhoods to Consider for Real Estate Investment

San Francisco

A classic among expats and upper-class locals, San Francisco is a low-risk choice for real estate investment in Panama City. The area is easily accessible, and both older and newer buildings are available.

Coco del Mar

Coco del Mar is the more modern version of San Francisco, with newer, high-end buildings often featuring amenities like rooftop pools, tennis courts, and stunning views. Finding tenants is easy due to the quality of the properties and the area's accessibility.

Costa del Este

Costa del Este is the new economic center of Panama City, with modern infrastructure, upscale malls, shops, and restaurants. It is prime real estate, particularly for corporate expat tenants.

Punta Pacifica

Punta Pacifica is an area that many realtors try to sell to unsuspecting foreigners, as it is often one of the first places they visit. However, I would generally avoid this neighborhood, as many of the condominiums are starting to look quite old, and only a few are well-maintained and perform well as rentals.

Ocean Reef Island ("The Islands")

I find this development offensive. The developer had the potential to create a true luxury destination, but instead opted for average-looking homes and condos at high prices. The result is overpriced and architecturally disappointing, with unimpressive amenities.

Jewish District

This neighborhood has many of the same characteristics as Punta Pacifica, with buildings starting to look a bit old and maintenance not always great. Unless you want to live here, I would generally avoid this neighborhood, as the market is more liquid and good deals are quickly snapped up by locals.

Balboa Avenue

Investing on Balboa Avenue is very building-dependent, so you need a knowledgeable Panama City realtor to guide you. Some buildings are loud and have a bad reputation, while others are investable.

Casco Viejo

If you want a safe investment, the Casco Viejo is a no-brainer. The neighborhood is still a little rough around the edges but keeps improving. It is the main tourist attraction of Panama City, with high demand for short-term rentals.

Santa Maria

Santa Maria is a large, gated community with high rental demand, as many families want to live in such a secure environment. Its location between the international airport, highway, and Ciudad del Este makes it prime real estate.

El Congrejo

El Congrejo is an older district, but one of the few truly walkable areas in Panama City. The architecture may not be remarkable, but the pleasant vibe and availability of cafes and shops make it easy to find quality tenants.

Other Areas to Avoid

"No" is a lower-middle-class area mixed with some commercial and industrial buildings. "Gentrifying Ghetto" is still very much a ghetto, though the government is investing in redevelopment. "China" and "NGO and embassy workers" are areas with specific tenant profiles that may not align with all investors' goals.

Investing on the Other Side of the Canal

The area on the other side of the Panama Canal is currently underdeveloped, with only a nice country club and a few low-quality developments. However, there are plans to build another bridge and extend the metro, which could make this a promising long-term land play.

Example of Cap Rates and ROI

Though the average price in good areas of Panama City is around $2,000 per square meter, some apartments may cost more but also yield a greater ROI percentage-wise.

For example, a well-maintained, 97 square meter (1,045 square feet) one-bedroom apartment in Punta Pacifica, with great amenities like an infinity pool, could be purchased for $290,000 and rented out for $2,000 per month. This would result in a net rental yield of 4%.

Conclusion: Who Should Buy Real Estate in Panama City?

Panama City real estate is not suitable for those seeking very high net rental yields or quick capital gains. However, it can be a good fit for:

  • People seeking a Plan B residency: Buying real estate in Panama City can often grant the owner and their family residency in Panama.
  • Those who want to move to Panama full-time: To live in their own house or condo.
  • Investors looking to diversify into a suitable jurisdiction: To avoid having all assets concentrated back home.
  • Those seeking access to decent offshore banking: Owning property in Panama can facilitate the process of opening a bank account.
  • Investors willing to play the long game: In a growing and strategically important economy.

To learn more about investing in Panama City real estate, be sure to get in touch with Matt, my trusted real estate agent who specializes in providing ROI analysis for investors.

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