By DON WINNER for Panama-Guide.com - I've said it before a dozen times, the only people who are really taking a risk in the Panamanian real estate market are the speculators. Everyone is playing the "what's going to happen" game in this economy, and thankfully Panama is in an excellent position to weather the storm quite nicely. Bank reserves have tripled in the past three years, the economy grew 11.5% in 2007, should come in at around 9.2% for 2008, and is expected to continue the run of growth in 2009 at about 7.5% or better. Demand for real estate in Panama has fallen sharply with the onset of the global crisis as retirees worriedly pour over the reports on what's left of their 401K's and retirement investments. They can't sell their empty nests and it's harder for potential buyers to obtain mortgages in a tightening credit environment. Unemployment is on the rise, car makers are being laid off, and in general we're looking at a period of tough times in the US, Europe, and Asia, a malaise that will most certainly cause significant economic harm in Panama and the rest of Latin America. But here's the good news... (more)

Oh, Woe Is Me... Not so much. There are a whole raft of things working in Panama's favor that will help this relatively tiny Central American nation come through the storm with flying colors - such as;

The Banking System is Solid: Foreigners love to bitch and complain about the Panamanian banking system; it's hard to open an account, they need a lot of paperwork, you have to put down 20% or 30% in cash to get a mortgage, you have to have life insurance, etc. In fact, the Panamanian banking system is relatively skittish compared to the guys in the United States who played fast and loose and who are now getting hurt. Panamanian banks didn't play those games, and the banks are in great shape. That means there won't be any local failures or collapses like those in New York and London. Those same things we like to bitch and complain about are the things that kept the Panamanian banking system out of the muck.


The Financing Is In Place: If you look out upon the skyline of Panama City and you see a construction crane, that means those developers and builders have already secured financing to build their projects. For the most part they had to sell about 50% of the units in pre-construction sales contracts in order for the banks to turn loose the funds. Generally speaking, builders don't start to build unless they have financing, and banks won't finance unless they have reduced their risk to practically zero. Banks love zero risk.


The Profit Is In The Other 50% - Builders and developers make their money on the second half of sales, after the building is built (or while it is being built). The first 50% is just to pay the cost of construction and to get things done. The second half is the income. So guess what? If market forces bring down prices and builders reduce prices to "dump" the remaining inventory, then that just means they end up making less profit in the end but so far no one is losing any serious money. The banks are covered, the builders are covered, and the buyers get a nice place for a lower price. Where's the pain?


Cement Doesn't Rot: All of the high-rise condominiums in Panama are made out of poured concrete, cement, ceramic tiles, glass, and steel. They still have all of the wonderful features that made them attractive in the first place, such as sweeping views of the Bay of Panama, a great location right in the middle of the city, modern design, fantastic social areas, security, etc. Anyone who bought one of these units can just sit tight and wait for a few years for things to turn around and the relative value of these properties will return promptly. The builders can literally sit on unfinished inventory and simply wait for the market to turn around. When it does, they can put these units back on the market. In the meantime, they can just sit there, and so what? The builders will realize their profits later. Between now and then they will probably be able to eat. Thanks for being worried.


First Out Of The Gate: The fundamentals which created the "Panamanian Miracle" are still in place for the most part, and it's the international situation that's throwing some cold water on the fire. Sooner or later things will turn around, and when that happens you'll see that Panama has weathered the storm in fine shape. Really smart investors will bottom-feed here and there to look for opportunities as they arise with an eye toward the midterm future. The $5.25 billion dollar (plus) expansion of the Panama Canal is going full speed and will continue through 2014. The Panamanian economy is still solid and stable, and there are several significant infrastructure projects ongoing that are stimulating the economy. Some sectors will take a hit, others will hold fast, and still others will grow during this global recession. But when the smoke clears, Panama will be very well positioned to right to the head of the pack, again.


The Richest Country in Latin America? Really? No, not yet. Actually, using data from the end of 2007, Panama was the 7th richest country in Latin America behind Chile, Mexico, Venezuela, Brazil, Uruguay, and Argentina. Historically speaking, Panama was both helped and hurt by the domination of the United States for all those years. The Panama Canal brought jobs and stimulated the economy, but only to a certain point. Now, with the reins removed and with Panama cashing in on their newfound position as toll-taker for world shipping, the Panamanian economy is smartly stepping forward and improving in all measurable areas. Before too long, and it might take another ten or fifteen years, Panama will slowly move up through the ranks to take it's place as the richest country in Latin America. It's going to happen, and it's only a matter of time. Just remember you heard it here first.


GDP Per Capita Is What Matters Most: Panama's Per capita GDP (2007) was $5,970 (Source), up from $3,939 in the year 2000. The overall size and weight of a national economy matters, but a better measure is compare economies in terms of size of their relative populations. Consider the following chart, prepared using data from the end of 2007. Clearly Panama is the #1 Central American economy in terms of GDP per capita. The nation's economy continues to improve, fueled by year after year of continued and steady growth, while others such as Venezuela falter;

Sometimes Small is Good: There are only 3.3 million people living in Panama, so big economic improvements are spread across the board relatively quickly. Unemployment is down to 5.6% and falling. Foreign Direct Investment continues to pour in from around the world. Easing prices for fuel, food, and consumer goods are putting more discretionary funds in the hands of consumers. There is upward pressure on wages as skilled and experienced workers get better and better positions and employers have to fight to keep their valued employees. Being a small country with solid economic fundamentals means Panama will be able to literally dodge most of the really big bullets coming from this global slowdown. There will be impacts, but those effects will be relatively dispersed and mitigated.


Clueless Chicken Littles: As always, there are always people waiting for their chance to scream "fire" at the first possible instance. And as usual those people are, for the most part, dead wrong and pretty much clueless. For instance real estate prices in Panama are established by market forces. Sellers offer products and buyers make offers - and if those two can come to an agreement and meet in the middle then the sale is closed. If they can't come to an agreement then (obviously) the sale does not take place. I've seen some articles lately literally chastising real estate developers, screaming that they should "wake up" to some version of a new reality and lower their prices. Not to worry - simple market forces of supply and demand will establish the value for every piece of property for sale. No need to tell sellers (or buyers) what to do, prices and relative value will be established for them by the big picture.


To Lose Money: For the most part, anyone who finds themselves trying to sell a property might end up making less profit than they had planned or hoped. So far, I've still not heard of one person who has been forced to sell their property for less than what they paid for it, realizing a net loss. So it's still a good marketplace, just not as incredibly lucrative as it has been for the past several years. But less profit is still profit, not loss. My advice - plan to get rich more slowly. Patience.
That's About It For Now: Panama will miss the worst of it. The fundamentals are still in place. Specific sectors will take worse hits than others, and overall the economy will continue to grow. And, once it's all over, Panama will be ready to spring ahead like the virtual rabbit in the toad race, compared to others in the region that will take more substantial hits. So strap on your helmets, hunker down for awhile, and ride it out. Panama is a great place to be right now.

Copyright 2008 by Don Winner for Panama-Guide.com.