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Is There a "Real Estate Bubble" in Panama?

It's late February of 2005 and I've just returned from a trip to Panama. While there, I spoke with the folks who operate Altos del Maria, the real estate development where I have purchased land to build my retirement home. I was honestly quite surprised to find that prices for land in the development had greatly increased since I bought a year earlier, about 50%. The developer owns a huge tract of land that it expected to turn into housing lots over several years, but the demand is so great that they are opening new lots much faster than they had expected, and planning a new nine-hole golf course and country club to meet the demands of their growing clientele.

I fly down to Panama every month now as of this January. My first two trips this year have 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 was astonishing. When I mentioned that I had already purchased land, I was 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 reduced its retirement benefits for retirees. Unfortunately, those benefits were reduced for the current foreign residents as well as new ones. Unlike Panama, Costa Rica's laws were not written to guarantee that current retirees would be "grandfathered" (retain their benefits) even if later legislation reduced the benefits package. In addition, Costa Rica has been a retirement haven for years. 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, or he or she can 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.

It's all a bit breath-taking. Now I'm a little bit cynical and I see all this as wonderful, since I already have bought my land, but also a sign of a real estate "bubble" that could deflate seriously in coming years. 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, but it's all guesswork at this point. You can make your own judgment when you visit.

• Real estate prices in Panama are coming off a low base. Depending on prices in your neighborhood, Panama prices will have to double a couple times, 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. The current rapid growth in land values simply will not be sustainable when that occurs.
• On the other hand, even if land values in Panama fall, they will fall in North America and Europe as well. 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 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 overwhelming majority of foreigners moving to Panama are retirees and that group will continue to dominate the 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 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.

Life, as we all know, can be a roller coaster with "downs" as well as "ups". Real estate in Panama is no different. There will be years when prices stagnate or fall. It may be awhile before there is a "down" or it may be sooner rather than later, that is something no one can tell you. If another website implies that real estate values in Panama or another country have nowhere to go but up, nonsense. Just roll your eyes and remember this essay.

However, when all is said and done, in my mind there is a high probability that Panama's real estate market is a lot more stable than many other real estate markets, stock markets, and so forth. Each of us has to make up his or her own mind based on our own situation and our analysis of the future potential, but I'm not losing sleep over my little piece of Panama's real estate market.

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