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Speculators and buyers fuel continued real estate boom in Panama.
BY CHRONICLE STAFF
It was supposed to be the tallest building in Latin America. Instead, the Palacio de la Bahia is now history. Construction has now stopped due to a combination of permit and financial problems that have hit the developer, Spain-based Olloqui Group.
The news comes after increasing debate about the soundness of the unprecedented real estate boom in Panama, with some observers claiming it is a bubble waiting to burst.
However, real estate experts say the investments will continue their strong growth. "The flow of investment dollars into Panama continues at a breathtaking pace," says Paul McBride, CEO of real estate consulting firm Prima Panama. "Clearly, there is no shortage of investors, or investment funds, to continue fueling the speculative boom."
Over the next five years, nearly 11,000 apartment units will be built in Panama City, the company forecasts based on a recent survey. By comparison, a total of 11,967 apartments were completed in the Miami metro area between January 1st, 1995 and March 31st, 2006. "This means that in just the next five years, nearly as many apartments will be built in Panama City than were built in the entire city of Miami during the past 10 years," PrimaPanama said in its survey.
While Prima Panama and other experts warn that there may be too much supply, experts say that much of the boom is also driven by real growth in demand. Rogerio Basso, an analyst at Ernst & Young's real estate advisory services, says Panama is still one of the key growth markets in Latin America for U.S. baby boomers looking at retirement or second homes.
Meanwhile, title insurance companies like First American Title Insurance Company report strong growth in Panama as well.
While the news about the Palacio de la Bahia project sent a chilling signal to real estate investors, other major projects are still on course for completion. They include the 104-story residential and hotel building, Ice Tower, which is slated for completion in 2010; the 62-story Trump Ocean Club International Hotel and Tower (with 2009 opening date) and a multitower center of apartments, hotel and commercial mall developed by Spain-based Grupo Mall.
There is also a strong real estate boom outside of Panama City in areas like Boquete, Coronado and Contadora. However, the lion's share of new construction and investment is taking place in the capital.
The number of new apartments being developed in the Panama City area has gone from 10,980 units in July 2006 to 20,603 units units in December, an increase of 88 percent, according to research by Prima Panama. Their estimated market value went from $3.17 billion to $5.16 billion, an increase of 63 percent.
The high-end apartments appear to target foreign buyers, but McBride questions how viable that market is. "Because the current demand for high end condominiums by the local market does not seem to justify this level of building activity, it was assumed that these new apartments were aimed at foreign buyers [but] the current level of foreign immigration is below the level needed to absorb the supply of apartments coming into the market over the next six years," he says.
Walter Molano, head of research at BCP Securities, has also questioned the sustainability of the real estate offer in Panama. "Panama is a speculative bubble waiting to burst," he wrote in a guest column in Latin Business Chronicle in September.
Jon Hanna of Panama Offshore Services disagrees. "The construction market and price increases will slow and level off from time to time as they would in any rising market," he wrote in a rebuttal here. "However, the trend is firmly established."
Apart from baby boomers, demand for Panama real estate will also be driven by a growing number of executives and workers coming to the country to participate in the $5.2 billion expansion of the Panama Canal and the construction of an oil refinery by US-based oil giant Occidental.
In the interim, the construction of new builings and resorts in Panama continues at full speed.
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