Why buying an apartment in Panama is a bad idea.
Note: My article is likely to trigger some people. Especially Those who already bought apartments in Panama. Just keep an in mind that I am not negative about panama, and in fact I built Punta Malibu as an investor. And, I am tired of hearing nonsense advice about real estate in panama.
Most buyers (and brokers) are clueless when it comes to understanding how real estate really works in Panama. The average buyer almost always buys an apartment for the amenities, ease of ownership, and my personal favorite “Great rental income”. Huge mistake!. As the owner of Punta Malibu, and after 23 years of investing in panama, I am here to simplify the process.
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You see, in Panama, unlike Europe’s tight real estate market, apartments RARELY appreciate in value. In fact , the opposite is true. Now, if your real estate broker tells you that so-called “Good Buildings” appreciate in value, ask him to point you to ONE specific building that has appreciated in the last 15 years. You will find only 2 areas: Casco Viejo, and Ocean Reef. Casco Viejo historical area, and Ocean Reef Island are the only unique areas in Panama.
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And so you probably wonder why that is:
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Too much land: In a typical European city center, there is no available vacant land, or single family homes that can be demolished and turned into high rises. Plus it’s very tough to get permits to build new high rises. Consequently, the real estate market in Europe is tight, and apartments DO often appreciate in value.
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Panama is exactly the opposite: With so much free land, and tons of new construction, the trend is strongly against your favor. Check out prices of older apts in buildings that are 5-10 years old, and you will discover that while the current price per meter for new building projects in Panama is around $3500, 5-10 years down the road, it will typically sell for $1800-$2300 and overtime will continue to fall. As a rule,older buildings will ALWAYS go in a straight downward line trend until they reach close to $1000 per sqm. And so, after 30-40 years when the building is too old, $800-$1000 a meter will almost always be the intrinsic value.
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Pre construction gap: When a developer announces a new building, he will typically first offers a “pre construction Discount”, and will aim to sell 50% of the building in order to secure a construction loan from a bank. This is standard in panama, and speculators often jump and buy 50% of the building at a typically 20% plus discount.
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Two years later, the apartments get delivered, and shortly thereafter ALL OF THOSE SPECULATORS are now first in line to unload their apartments. The developer who often still has his own unsold inventory is now forced to compete with his first stage speculators, thus a sharp discount ensues and there you have it, a 20% is almost guaranteed within the first year of delivery.
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Cheap painted exterior: Unlike Chile, or Colombia where the facade of the buildings are covered with ceramic blocks, buildings in Panama are simply painted. With the harsh climate and rain, and salt these buildings look terrible only a few years later. These buildings will always need painting every 4-5 years, thus requiring an extra ordinary financial contribution from owners to fund this work.
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Long term depreciation: Over a 30-40 year period, a building will get pretty old. That includes the windows, bathrooms, closets, elevators, and pretty much every aspect of the building. In Panama, all buildings reaching that age, fall to $800-$1.000 per meter. So, basically about 75% of the original cost will get depreciated over a 20-40 years period.
.YES, owners often delay the eventual demise of a building via remodeling. But in such a hot and humid climate, all buildings eventually become undesirable.
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So, what’s the solution? Buy a house, a Townhouse, or land:In my own Punta Malibu project, I built my units as Townhouses. This way, these units will continue to rise in value. In the case of a house or a townhouse, an old 40 years old house can simply be remodeled and turn new again. no depreciation ever, and due to inflation will always go up in value. Considering inflation, if you own a House, or a townhouse, your property will always appreciate. Land and cost of construction always goes up…
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CONCLUSION:
Take as an example“Punta Malibu”. Land in the Playa Malibu has doubled in value in the past 10 years, and will continue to rise eventually closing the gap between Coronado and Gorgona. Currently oceanfront land in Coronado is about $1.5 Millions per 1000 meters. land in Gorgona is about $350k for the same 1000 meter lot. As more oceanfront lots are built, demand and supply will kick in and prices will continue to rise.
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Currently, because of a limited resources, the Coronado Municipality is no longer issuing permits to build high rises in Coronado. So, you can bet that land in Gorgona will continue to appreciate, as developers seek to build new high rises. In fact, each year, land near Punta malibu always gets bought, and new buildings are put up.
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Intrinsic value: We are all looking for deals, but” there is really no better indicator than the “cost of construction+land cost”. So, lets look at the current cost estimate of building a quality 250 sqm oceanfront house:
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Land/500 meters: $175k ($350k for a full 1000 meter lot)
Construction. 350k (House & Seawall)
Total cost: $525k
+Architect+fees+furniture, & 3 years of your life.
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The one thing you can absolutely count on is that the Dollar will continue to fall, and land and cost of construction will continue to rise. NEVER BUY AN APARTMENT!!!
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Written by
Moti Weinberg
Punta Malibu
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For more photos: Instagram@Punta_Malibu
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