Panama Property In A Real (E)state
Due to popular demand following my blog piece on skyscrapers and recessions last week, I have humbly agreed to take a closer look at one of Latin America’s outstanding success stories in recent years: the Panamanian property market. Back in the liquidity-drenched days of early 2007 (remember them?!), my colleagues at Business Monitor crowned Panama the ‘Dubai of Latin America’, on the back of a roaring construction sector fuelled by record levels of investment and the onset of a major infrastructure initiative, the US$5.25bn Canal expansion project. Fast forward almost two years, and it would appear that Panama’s real estate sector could now go the same way of Dubai’s ailing property market. Whisper it quietly, but the words ‘bubble’ and ‘burst’ could become synonymous with the Central American country next year.
Panama - Total Value Of Construction Projects
Hats off to Panama… it did have a lot going for it. Hungry American investors had been more than willing to take advantage of its excellent geographical location, attractive business environment (for Central America anyway) and the assurance that comes with a dollarised economy. Nevertheless, in the credit crunch era of capital flight and EM paranoia, it seems pretty obvious to me that Panama’s over-inflated real estate market could topple pretty quickly. Indeed, tighter credit conditions and sluggish foreign demand have already had an effect on the lending habits of Panama’s major banking institutions.
Panama - Construction Output & Real GDP Growth, % chg y-o-y
Potential damage assessment is hard at this stage. However, I have noticed that the value of new construction projects fell 23.8% y-o-y in September, the largest monthly drop in thirteen months. The outturn for Panama City alone – which has enjoyed the lion’s share of the construction boom - was even worse, with the total value falling by 30.6%. Ominously, the last time the US suffered an economic contraction back in 2001-02, Panama’s construction output caved in, contracting by 29.8% y-o-y in Q1 2001 and only returning to positive territory two years later. With the global economy in a much worse-off state this time around, it may be time to shelve any plans for a holiday home in the Central American sunshine for now.