Another Huge Project Planned for Panama

Panama builds on its Economic Boom

von Richard Lapper and Adam Thomson (FTD.de - (Panama City) -

A $10bn project outside the capital is the latest sign of US and Canadian hunger to invest in residential property developments. President Martín Torrijos of Panama last month unveiled what could become one of the biggest investment projects in the country's history, with a value of up to $10bn. The creation of an urban centre the size of central London on the outskirts of Panama City is the latest sign of an economic boom that has invited comparisons between Panama and bigger international business centres, such as Dubai. A specially created government agency will provide residents with streamlined regulation and there will be tax incentives for selected industries. London & Regional, the UK-based company that will develop the site, said the project, on the former Howard US air force base, would reinforce Panama's attractions as a centre of international business. Ian Livingstone, of London & Regional, said it would combine industrial, retail and residential properties and its value could be worth up to $10bn. (more)

Editor's Comments: Add $10 billion for the development of Howard. If forgot about this one. Man, who can keep track of all of the money that's going to be pouring in...

Mr Torrijos's administration, which took office in 2004, is poised to award the first contract for breaking ground in an ambitious $5.25bn plan to expand the canal, which connects the Atlantic and Pacific oceans and is one of the world's most important waterways.
Panama took full control of the canal in 1999 and the investment in three new locks and physical widening will facilitate the passage of huge cargo ships, known as post-Panamax vessels.
International and local companies are pouring billions of dollars into Panamanian residential property developments, in large part to capitalise on the peak of interest shown by US and Canadian retired people and second-home buyers. In addition, deals worth $14.5bn have been agreed recently to build two oil refineries and the US Congress is expected to approve a trade agreement soon between the two countries.

Mr Torrijos said recently that the refineries, canal expansion and trade pact are the three motors that could propel Panama towards developed country status. Panama's economy, which is fully dollarised, grew 8.1 per cent in 2006, and economists believe it could grow more than 10 per cent this year. Inflation, meanwhile, is subdued and lending rates are among the most competitive in the western hemisphere. However, some analysts suggest that the government must do more to reduce poverty, especially in rural areas, if development goals are to be achieved.

"Wealth is being concentrated more and more. This is very bad news," said Guillermo Chapman, an analyst at the Indesa consultancy in Panama City.
The London & Regional project hopes to attract businesses from neighbouring countries that do not enjoy the sort of stability that Panama offers. Panama has begun to attract higher numbers of investors from Colombia and Venezuela than in previous years, and analysts expect that trend to continue.

Although London & Regional has yet to present the government with a master plan of the 1,800-hectare site, the plans are known to include a golf course, flats, schools and a hospital.
"It will have an urban feel, with town-centre-type shops, public open spaces, condominiums ... We are going to build a sustainable community," said Mr Livingstone. "In terms of logistics, it's a no-brainer,'' he said.

In addition to an initial $405m minimum investment over the next eight years by London & Regional and local partners, Mr Livingstone has committed another $300m over the remainder of the 40-year concession.

(contrubited by Don Winner of http://www.panama-guide.com/)

Is it Still Safe to Invest in Panama?

Here's a GREAT Article by Don Winner of Panama-Guide.com

Question: I am looking at Panama as a potential investment. I don't own anything in Panama yet. At this point I am just trying to figure out it it's safe to invest there.

Answer: Ah, the ultimate $64 Billion Dollar question. The question being asked by everyone, every day, all over Panama and around the world. How long will the construction boom last? Will the bubble burst? Can I safely invest my money in Panama or will I lose money if I do? In reality the only thing you can do is follow the news and trends, keep your ear to the ground and make your own personal decisions as to the relative safety or risk of investing in this market.

Date Of Information: 14 August 2007


Moving Target Alert: This subject is always a moving target as the situation on the ground changes, develops, and matures. There are factors and influences both large and small that tend to push the day-to-day perceptions this way or that, and to make the market look more or less attractive. But remember that the market Panama is Titanic-like - it simply can not turn on a dime. There will be warning signs, things like barking dogs and other "canaries in the coal mine" that will probably telegraph the impending sea-change when it eventually comes. There are a lot of people diligently standing watch on the lookout for icebergs who will sound the alarm.



The Chicken Little Distraction: - The problem is that some people are so risk-averse that they are sounding the alarm now when there's no real fundamental reason to do so. Sorting through the traffic and selecting the message over the noise will be the challenge. Take the time to analyze the messengers and consider the potential for bias. Someone who has decided to sell and leave Panama for personal reasons, for example, might sound like a "Chicken Little" on Panama when in reality they are simply justifying their own personal reasons or decisions not to invest.




Speculators Still Hanging It Out There: The only people exposed to high levels risk in this real estate market are the investment speculators, those who are pumping money into real estate investments with the intent to sell them later for a significant profit. Consider the following --

End Users Are Relatively Safe: Those who are planning to buy and move here as end users don’t really care all that much about short term market fluctuations because they will buy and hold for a long time. If you're buying your retirement home, who cares if the paper value of that property goes up or down while you own it and are using it. Market fluctuations only really matter to those who want to buy or sell. Owners just ride out the bumps.




Builders and Promoters Are Covered: Builders, construction companies, and sub-contractors exposed to very little risk in this market. In this category I lump everyone who has anything to do with the actual physical creation of the building, tower, development, or structure - the construction companies, sub-contractors, concrete and material suppliers, heavy equipment rental companies, architects, and all of the other service providers who create the "real" thing that is to be sold. They have almost no risk because they generally get paid when they do the work and are not performing any services for a promise of future payment. They get paid today, and if the bubble bursts tomorrow, then they will talk about it while they are spending their money on holiday in Greece. As long as the market keeps going they just build one building, sell it, and move on to the next. Worst case scenario is that they get stuck with some inventory that they will have to dump at a discount. The good news is that cement doesn't rot.


What About The Banks: (Not Tyra Banks, the other kind...) Banks live in a world of risk management. Banks simply make the money available, financing the projects that will be built. They protect themselves extensively with tight performance contracts and they watch over the projects they are financing like a hawk. They don't just hand over the money in one big check but rather dole it out as needed, according to the advances made on the ground at the construction site. And before they agree to finance or back a project the promoter usually has to show a stack of signed contracts for a good percentage of the building sold at pre-construction prices. The profit break even is usually about 50% of the apartments or space, meaning that a builder has to sell half of their project before they can get financing to build because that's what they need to sell in order to break even. The other half of the project is pure profit for the builder. That's why you can get lower prices on pre-construction deals - they need your money in order to build the building. Once it's up in the air, they jack the prices on the rest of the units and rake the profits into their bank accounts. In any case, the banks are not exposed to a whole lot of risk because in the end of the day their investment is backed by the property that's under construction and the stack of pre-construction contracts held by the promoter.

Real Estate Agents: The first guys to whine loudly about the cancellation of the Ice Tower project on Balboa Avenue was the Tribaldos real estate agency. They got hurt because they promoted and sold that project heavily and have a lot of time and effort invested in the sales and customers they brought in. Now that the project has been "restructured" they are not going to be collecting on all of those sales commissions they thought they were going to be making. Ouch. Double ouch. All of the real estate companies I talk to daily tell me "thank God we were not promoting that project" because their businesses and reputations would be put at risk. They have to pick and choose what they promote because if they sell the wrong stuff they could get hurt.

Individual Big Investors: One guy who got hurt was a Spaniard (forget his name) that invested millions of dollars in the Palacio de la Bahia project, which was cancelled last year. He poured a lot of money into the project and the last I heard he was threatening to sue for damages. I don't know what became of that, but the lesson learned for the rest of us is to spread your risk around. If one building gets cancelled, then you can only get hurt so bad. If that same Spaniard had spread his millions of dollars around to twenty different projects then he would only be worried about one. Well, two if he had a unit in the Ice Tower, but if that was the case he would already have a refund check in his hand. This is the "all your eggs in one basket" risk management scenario.

Individual Focused Service Providers: Chu Diaz was the architect for the Palacio de la Bahia project. His firm spend thousands of man hours on that project and as far as I know they are still in mediation/arbitration with the promoter, trying to get paid for the work they did on the building. Eventually he will probably get paid, but there has been damage to his reputation and business, so he was exposed to some risk.

Back To The Speculators: So, speculators are really the only ones left. In order for a speculator to lose money (actually register a loss on the books) they must find themselves in a position where they are forced to sell a property for less than what they paid for it. If they only make $20,000 when they hoped to make $100,000 they might be disappointed with the performance of their investment, but they still registered a gain. If they sell their property for exactly what they paid for it then there is no gain or loss, and the only actual loss is the time value of money which could have been more constructively invested elsewhere. So, even the speculators have to be stuck holding large positions in a falling market, and not have the capability of riding it out. Again, forced to sell for less as the definition of a capital loss. Not a little more, not the same (break even), less.

Who's Gotten Hurt So Far? Believe it or not there were people trading the contracts they held on properties in the Ice Tower almost like stocks. The first investor bought his option at $1,500 per meter. The next guy comes along and buys it from him at $2,000 per meter. The third guy buys it at $2,500 per meter, and then the project gets cancelled. The third guy is only getting $1,500 per meter refunded, so he's out (actual loss) of $1,000 per meter. But guess what? It's a zero-sum game. The other two guys who made the profit by flipping the contract probably dumped it back into some other project, hoping to repeat their success, so the overall market does not suffer. The one guy who was speculating and who was caught holding the bag when the rug got pulled was the only one who really took a loss. And I know, it sucks to be the guy who spent two years waiting for the Ice Tower to get built, but they got a refund and their tangible loss comes down to missed opportunities. Bad call on your part to pick that project in the first place. Maybe one of the other 400+ projects would have been a better call. Lesson learned - stay away from very tall buildings.


The Bottom Line Remains The Same: If you're going to invest money in the Panamanian real estate market as a speculator then it's up to you, each individual investor, to do their due diligence, asses the risk, evaluate the trends, and then put the money in play (or not.) Almost everyone else is on pretty solid ground.



Is There Too Much Construction? Part of the analysis of this market requires the consideration of what you can see - there are currently more than 400 projects in some state of construction, approval, planning, or development. There are more than 40,000 overall units in the market. So, is that too much, just right, or not enough?


Where Are The Buyers Coming From? Answer - all over the world. Recently I learned that the most active buyers in this market are from Venezuela (#1), Colombia (#2), and Spain (#3.) One real estate agent told me that "the Venezuelans are coming in family units - they don't just buy one apartment but rather they buy three or four or five, one for their brother, cousin, or other family members." Many Venezuelans are quite simply bailing out of their home country because of Hugo Chavez. They don't like the way things are going and Panama is the most logical alternative. Colombians see Panama as a much safer alternative, removed from the drug-fueled violence in their home country. In Spain, the Germans are buying up the country so the Spaniards are taking their profits and moving to Panama. Oh yeah, there are gringos buying here, too.

The Baby Boom Isn't Going Away: There are 175 million people who are going to retire in the next ten years in the United States, Canada, and Europe. Many of them are empty-nesters with money who like the idea of moving to Panama to spend a warm and happy retirement. Panama is attractive to them for lots of reasons, full or part-time.
What About the Locals? How much of the construction is being purchased by Panamanians? Most of the real estate agents I talk to tell me that the current ratio is about 55% - 45%, foreigners to locals. So with some 40,000 units coming on line 22,000 of them will go to foreigners and the rest to Panamanians. That ratio has held pretty steady through the boom so far.

Will The Boom Continue? Logic dictates that there is more demand than supply so prices continue to rise. Ask yourself a few simple questions –

• Are prices going up or down? If they are going up then there is more demand than supply. Prices don't rise in an over saturated market.
• Are Interest Rates Stable? As long as there is a steady supply of money and credit and the banks are willing to lend for construction and end user purchases, then the market will remain relatively stable.
• Outside Factors: This is the biggest wild card on the Panamanian real estate scene - those things which have profound impact on the economy and indirect impact on the real estate market:
• The expansion of the Panama Canal ($5.25 billion), a project that will take at least ten years to complete.


• Large scale exploitation of mineral resources and mining such as the Petaquilla gold and cooper mines, which could eventually pump $10 billion dollars into the Panamanian economy and run for twenty years or more.


• Refinery Construction: Oxy and Dubai are going to build at least one refinery worth $8 billion dollars in Puerto Armuelles in Chiriqui.


• Spending on Nation-Wide Infrastructure Improvements: Panama is going on a spending spree of infrastructure upgrades and improvements worth probably another $3 billion at least, which will include projects such as the "Coastal Strip" expansion of Ave. Balboa, the extension of the Northern Corridor to Colon, and dozens of other highway building projects all over the country, large and small.


• The Cleanup of the Bay of Panama: This is another major project that will cost about $500 million dollars that will be spent over the next five years, which will result in a significant reduction in the pollution of the Bay of Panama close to Panama City.
• The Mega-Port: Talk has died off a little about the mega-port project that was going to be built near Farfan. But even if that project does not go, direct foreign investment in existing ports will continue at a good clip.


• The Pipeline Project: A Spanish group is proposing to spend some $40 billion dollars to build refineries, pipelines, and petrochemical facilities in Panama, pumping oil and products from the Colon side over to Taboga island. Yes, that's a $40 billion dollar project being proposed, or eight times the value of the expansion of the Panama Canal.

No Pain, No Gain: There is no reward without some degree of risk. Everyone is doing exactly what you are doing – trying to decide if it’s safe to jump in the water and take a risk. Recognize that the primary factors driving the Panamanian economy are coming from heavy duty industrial foreign direct investment on infrastructure projects. The construction boom is a significant element of the Panamanian economy, but (believe it or not) the real estate market is not driving the train. Tourism certainly isn't, either. Watch the Foreign Direct Investment and money being poured into this economy, and as long as that keeps up then the real estate market will remain on relatively stable footing.

Copyright 2007, by Don Winner for Panama-Guide.com.

Mexican Port Plan Could be Sunk

Panama Canal Expansion a Threat, Experts Say

By Diane Lindquist
UNION-TRIBUNE STAFF WRITER
August 2, 2007



Some experts say plans to build a megaport at Punta Colonet are threatened by improving the Panama Canal to handle more cargo headed to the East Coast.
An expansion of the Panama Canal to allow passage for a new generation of megaships may be threatening plans to build a new port at Punta Colonet, 150 miles south of San Diego.

The Mexican and Panamanian projects are envisioned as gateways for an increasing amount of Asian goods bound for the populous East Coast of the United States. Both would relieve growing congestion at West Coast ports, such as Long Beach and Los Angeles, Seattle and Oakland.
But some experts are saying that Mexico's chance to offer a new trade route has passed.
“The expansion of the Panama Canal almost single-handedly kills Punta Colonet,” Joseph P. Ritzman, project development manager of SSA Marine's terminal operations in Mexico, told The San Diego Union-Tribune this week at a Long Beach ports conference.
SSA has been considered a possible bidder for a Mexican government concession to develop the Colonet project, at an estimated cost of $9 billion. Mexican government officials have said they would like to start the bidding process this year for the port and rail line to the U.S.-Mexico border.
Ritzman joins other industry executives and transportation experts who say retailers in the American heartland would be more efficiently served by ships from China and other Asian countries transiting the Panama Canal and sailing directly to Gulf Coast and East Coast ports.
“Then, you can avoid this whole question of intermodal transport,” he said, citing the practice of transferring cargo containers from ships to rail or truck for delivery to their final destinations.
Container cargo destined for the West Coast of the United States is expected to increase at the Port of Los Angeles despite expansion of the Panama Canal.

Ships crossed the Pacific end of the Panama Canal, where expansion plans could negate the need for a planned megaport at Punta Colonet, Mexico, some experts say.
While Mexican officials and shipping executives hope Colonet will be processing Asian containers by 2011, Greg Watkins, president of Watkins/Baile and Associates, a development firm with a stake in expansion of competing Mexican ports, said Colonet will not be operational until 2028.
“I have my doubts about Colonet. There is nothing there,” he said.
Although there has been a slowdown in trans-Pacific shipping this year, due largely to the downturn in the housing industry, trade is expected to double over the next 10 years and triple by 2025.

With the new generation of megaships carrying 8,000 to 10,000 TEUs – the standard measure of containerized cargo – West Coast ports are unlikely to be able to handle the load, despite expansion projects in the works everywhere from Prince Rupert in Canada to the giant Los Angeles-Long Beach complex that processes two-thirds of Asian shipments into the United States.

“There's already congestion. We're doing everything possible to address these issues,” said Mario Cordero, president of the Port of Long Beach's Harbor Commission.
Cargo volume at the two ports jumped 66 percent between 2000 and 2006, largely because of the increase in goods from Asia.

The shipping industry has become preoccupied with the problem, but the Panama Canal project promises some relief. The $5.25 billion overhaul will double the canal's capacity by adding a third set of locks that are 40 percent longer and 60 percent wider than current ones.
“We'll have a comparative advantage – location, location, location – as long as you have capacity, capacity, capacity,” said Rodolfo Sabonge, the Panama Canal Authority's director of corporate planning and marketing.

The authority probably will be raising rates to pay for the expansion, he told the Union-Tribune at a terminal operators conference in Acapulco last year. The overhaul, which began this month with the awarding of a construction contract, is the greatest modernization since the United States built the canal in 1914. It is expected to be finished by 2018.

“What the Panamanian people are doing is a necessity for the continent as a whole,” said Cordero of the Port of Long Beach. Cordero, among industry insiders who believe there still is a need for Colonet, said he gets more inquiries about the Mexican project than any other. “Trade is growing at an unbelievable pace, and everybody needs to do whatever they can to accommodate that, whether the expansion of the canal or the development of a port,” he said.

Mexican President Felipe Calderón gave the Punta Colonet project a high priority in his plan to invest $234 billion in the country's infrastructure over the next five years through partnerships with the private sector. His strategy is to use improvements in the transportation infrastructure as a lever to raise Mexico into a central role in North American supply chains.
The project, initiated under the Vicente Fox administration, should have been in the works but has been stalled by a mineral group's claims to precious metals in the seabed where the port is envisioned.

SSA Marine, which manages Manzanillo, Mexico's largest container port operation, aligned itself with the group, Grupo Mineros Lobos, in a deal that would ensure that it would build at least one of Colonet's terminal operations.

“We have distanced ourselves from Grupo Lobos. We are no longer involved with them,” said Ritzman, the SSA project development manager.
The company plans to significantly expand capacity of its operations at Manzanillo, he said. Ritzman did not rule out SSA bidding to develop facilities at Colonet.
“We'll look at that project on a project-by-project basis,” he said.
Steven G. Lautsch, executive vice president of MTC Holdings, an Oakland terminal operator company that also has expressed interest in the Colonet port, said he thinks the project will attract numerous bidders.

While the Panama Canal project will be able to accommodate larger ships, he noted, there are few if any ports on the East Coast that can accept the megaships.
“They have to have a destination somewhere,” Lautsch said.
He said shipping patterns favor the larger vessels from Asia entering a West Coast port and transferring cargo at an intermodal facility for delivery by rail or truck to consumers in the far reaches of the United States.

“And where better than Colonet?” he asked.