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Is the Real Estate Boom in Panama a Bubble?

It was late February of 2005 when I spoke with the folks who operate Altos del Maria, one of the many popular community developments in Panama then and now. I was honestly quite surprised to find that prices for land in the development had greatly increased since I visited a year earlier, over 50%. Prices have continued to rise since then. The Panamanian developers at Altos own a large tract of land that they expected to turn into housing lots over several years, but the demand is so great that they are opening new lots much faster than planned, constructing a small and attractive "town center" with shops, and planning a new nine-hole golf course and country club to meet the demands of their growing clientele.

My life in Panama has underlined the pressure on the real estate market resulting from arriving retirees. I am not exaggerating when I tell you that nearly every American, Canadian, and European I met at hotels was looking for land or a house. It is astonishing. When I mention that I have already purchased land in Panama, I am immediately the subject of great interest and even drew a small crowd in the hotel lobby on one occasion.

It's not just people currently living in North America or Europe. I was further surprised at the number of foreign retirees who had already retired in Costa Rica, but were now looking to move to Panama. Why? Costa Rica has greatly reduced its retirement benefits for retirees, including current foreign residents as well as new ones. In addition, Costa Rica has been a retirement haven for years. Real estate prices have gone straight uphill and a retiree there can sell his or her home in Costa Rica and buy a new one in Panama with a good sum left over and/or buy an even better home in Panama. Many of these foreign retirees see Panama as if it were Costa Rica a decade or two ago and recognize an opportunity to reduce their cost of living and "take their profits" at the same time. The same can be said on an even bigger scale for North Americans and Europeans.

Finally, evidence is growing that crime against expatriates in Costa Rica has substantially increased in recent years. While expatriates can experience crime in Panama, there is no sense of their being singled out by criminals, as appears to be the case in Costa Rica. And the crime that expatriates suffer in Panama is primarily minor theft and sometimes a policeman looking for a small bribe. Expatriates in Costa Rica complain about much worse crime, including murders of expatriates, something extraordinarily rare in Panama.

This is all very positive. But I'm a little bit cynical and I see all this as wonderful, having already bought my Panama land, but also a sign of a possible Panama real estate "bubble". Could it suddenly pop? I've given it considerable thought and here are my comments. Please keep in mind that these are opinions, not predictions. I could be very wrong or right on the money. You can make your own judgment when you visit.

• Panama real estate prices are coming off a low base. Depending on prices in your neighborhood, Panama land prices will have to quadruple, or a lot more if you live in a high-cost area now, before they reach the levels current in North America and Europe for genuinely comparable properties.

• But keep in mind, the "business cycle" has not been banished from the world. Panama is as much a part of the global economy as any nation. The Canal, their Free Trade Zone, and so forth only emphasize this. When, not if, there is a global economic recession, Panama will feel it too.

• On the other hand, even if land values in Panama fall, they will fall in North America and Europe as well, and probably faster and further as they begin at a much higher level. What counts here is the differential between what you pay at home now and what you would pay in Panama. That differential is likely to be around for quite awhile. In other words, even if your current home property falls in value, whatever you get from its sale is likely to buy something far more interesting in Panama.

• There is another important factor you should take into consideration. The majority of foreigners moving to Panama are retirees and that group will continue to dominate the Panama real estate market for the foreseeable future as a result of the great benefits package Panama offers (briefly described near the end of Ten Reasons to Retire in Panama). If a retiree in North America or Europe finds himself in the midst of a recession, life there is going to get more difficult. It always does for people living on a fixed income as so many retirees do. The allure of retiring in Panama and its much lower cost of living combined with its warm weather will be every bit as strong during a recession as during a boom. In fact, a recession may push a lot of foreigners to seriously consider moving to a less expensive nation who might not otherwise. In short, it might initially depress values in Panama , but that very fact could lead to a much greater increase in interest from outside and reverse the course of prices.

• Finally, I'll briefly mention a very uncomfortable topic, but one that cannot be ignored. The world is a more dangerous place than it was a decade ago. Terrorism, regardless of who is behind it, is a real fear in nations that never thought much about it before. Panama is on no one's "target list" as far as I know, but both North America and Europe most assuredly are. Even a single tragic event in North America or Europe could suddenly make a nation like Panama look a lot more like a stable and attractive retirement home, pushing real estate prices up, perhaps dramatically. Who wants to retire and live in fear? No one I know. Yes, it's unpleasant to mention, even ugly, but it's something that none of us can afford to forget.

When all is said and done, in my mind there is a very high probability that Panama's real estate market will be a lot more rewarding than many other real estate markets, stock markets, and so forth. You'll have to make up your own mind based on your own situation and analysis, but I can honestly say this. I'm not losing sleep over my little piece of Panama's real estate boom.

If you're interested in finding Panama land or a home in a Panama community , I have a couple suggestions listed in my Services section that can be very useful to you. In addition, I also provide subscribers to my simple, free Update service with special pages describing real examples of properties currently for sale in Panama, including photos, prices, and details. Subscribing to this service, also allows you free access to our Members section. Another, more detailed essay on this topic entitled, "Some Reflections on Real Estate in Panama" can be found there.

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