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.

Panama to Maintain Growth Amid Crisis, Torrijos Says

Dec. 10 (Bloomberg) -- Panamanian President Martin Torrijos said his country will maintain high levels of growth and a low jobless rate next year even as the credit crisis triggers a worldwide economic slowdown.

The Central American country’s economy will probably expand between 6.5 percent and 8 percent in 2009 and 9 percent this year, Torrijos said in an interview with Bloomberg Television today in Panama City. The U.S. recession won’t impede financing for his government’s $5.2 billion project to expand the Panama Canal, he said.

“There are very good projections for Panama,” Torrijos, 45, said. “If there’s any country that has an advantage that will make the crisis the least traumatic possible, it’s Panama.”

A solid financial system, infrastructure projects, fuel and transportation subsidies and low interest rates for the agricultural industry will help maintain growth, Torrijos said. Panama’s economy has expanded for 23 consecutive quarters, including 11 percent growth last year. The jobless rate fell to 6.4 percent last year from 14 percent in 2001.

Panama signed an agreement yesterday with five overseas banks to receive financing to enlarge the canal. The $2.3 billion loan allows lower interest payments for the next 10 years as work gets under way to expand the 50-mile-long (80 kilometers) canal, which connects the Pacific Ocean with the Caribbean Sea.

The agreement for the loan calls for $800 million from the Japan Bank for International Cooperation and $500 million from the European Investment Bank. The other participants are the Inter-American Development Bank, the World Bank’s International Finance Corp. and Andean Development Corp.

Canal Authority

The rest of the funds needed for the project will come from contract awards and shipping fees, Panama Canal Authority Chief Executive Officer Alberto Aleman said today on a conference call.

“Yesterday’s signing shows the whole world that it’s a solid, viable project, that there’s confidence in the canal and its management,” Torrijos said before meeting today with U.S. Secretary of State Condoleezza Rice in Panama City. “This ensures the continuity of the canal enlargement.”

The canal authority is preparing for the expansion even as traffic through the canal fell 0.1 percent from a year earlier in the initial nine months of 2008, the first such drop since 2002. Transport fees may be raised at the end of next year if the global economic slump continues to curb use, Aleman said.

About 27 percent of the world’s container ships are too big for the canal, a figure that will rise to 37 percent by 2011, the authority has said. The expansion project is on schedule to be finished by 2014, Aleman said today.

Panama’s poverty rate dropped to 29 percent of the population last year from 37 percent in 2001.

The New Panama Red

Last Friday, Dec. 5, the Russian Navy sailed a warship into the Panama Canal--the first time since World War II. This week Secretary of State Condoleezza Rice flies to Panama to reinforce U.S. interests in the Zone.

Although it sounds like a reversion to Cold War intrigue that would make you want to load up on swords, your better bet might be plowshares.

The free trade spirit permeates Panama. It operates the world's second-largest free trade zone after Hong Kong. Its overall economic growth rate matches that of China. Panama has posted 23 consecutive quarters of economic growth, growing gross domestic product by 11.5% in 2007. This is double the pace of the rest of Latin America and well ahead of the U.S.

Three things explain a continuing positive outlook for Panama.

First, the Panamanian construction sector is in hyper-growth mode. U.S. retirees are attracted there by the lower cost of living, a dollarized economy, English-speaking people and proximity to the states. Several high-profile real estate projects like the Trump Ocean Club are also drawing upscale jet-set buyer attention. Panama City is only a three-hour flight from Miami and has all the signs of a boom town, including building cranes on the skyline and traffic congestion.

Second, the canal widening construction project is boosting the Panamanian economy. This is the largest infrastructure project in Latin America with a price tag of $5.2 billion. This week, five major multinational agencies are expected to agree on a $2.3 billion, 20-year long-term financing. The project is already pumping money into the local service-based economy, which should easily reach the 7%-8% International Monetary Fund growth projections for next year,

Third, the economy of the Colon Free Trade Zone represents almost 8% of the entire Panamanian economy and another potential contributor to growth. Last year, trade between the U.S. and Panama amounted to $4 billion in goods. If the U.S. ratifies the U.S.-Panama Free Trade Agreement, tariffs on 80% of the industrial and consumer goods imported from the U.S. should be eliminated. Lower tariffs will make it easier for U.S. companies like Caterpillar (nyse: CAT) to compete for much-needed earth-moving equipment sales.

Panama Canal 'Open to All,' Including Russian Warships

Panama said its canal is open to all, including a Russian warship sailing through the transoceanic waterway on Friday.

The destroyer Admiral Chabanenko is the first Soviet or Russian military ship to traverse the 50-mile waterway since World War II.

The U.S. government has shown little concern about the destroyer's trip through a canal that was off limits to the Soviet Union during the Cold War.

Click here for photos.

The destroyer's journey to the Western Hemisphere, however, reflects Russia's growing influence and anger with the U.S. for using warships to deliver aid to Georgia after its August war with Russia.

Panamanian Foreign Minister Samuel Lewis portrayed the Russian canal crossing as business as usual.

"Here there is no other message than that the canal is open to all of the world's ships," he said.

The warship is part of a fleet that is the first Russian navy deployment to the Western Hemisphere since the Cold War. Before arriving at the canal, it took part in joint exercises with Venezuela's navy.

Also on Friday, Russia said it was sending its sole aircraft carrier and several accompanying ships for combat training in the Atlantic and the Mediterranean.

The destroyer entered the canal Friday night and was expected to take eight hours to reach the Pacific. Following its passage, the Admiral Chabanenko will dock at what was once the base for all U.S. naval activities in South America.

The U.S. government handed over the Rodman Naval Station and the canal to Panama nearly a decade ago, and the waterway has since become a symbol of Panama's true independence.

When it opened in 1914, the canal was a symbol of America's growing global reach and became a major U.S. military outpost for generations. The 10-mile-wide (16-kilometer-wide), 50-mile-long strip along the canal was considered U.S. territory -- a fact that allowed Canal Zone native John McCain to run for the U.S. presidency.

Lewis said the canal maintains a neutral policy in world politics. He pointed out that the ship's passage came just a few days before U.S. Secretary of State Condoleezza Rice is scheduled to visit Panama.

Architects Head to Latin America to Weather the Economic Storm

Even as financial troubles mount around the world, some architects are betting on Central and South America

In recent years, as many major U.S. architecture firms expanded internationally, they often bypassed Latin America in favor of Europe, China, and the Middle East. Gradually, though, that may be starting to change, as architects open offices and enlist for projects in Central and South American countries, where population and economic growth have been strong in recent years.

Even as financial troubles mount around the world, and increasingly put some Latin nations at risk, there's a sense that much of the region, which has been buffeted by severe recessions before, can weather the current crisis. At least that's what some architects believe.

"I'm continually surprised how much of a need there is for development," says Stephen Forneris, AIA, who heads the 10-employee office that Perkins Eastman opened in Guayaquil, Ecuador, in October. The city, which is Ecuador's largest and a busy port for shipments of chocolate, bananas, shrimp, and cement, has mushroomed from 300,000 people in 1970 to 3.5 million today, Forneris says.

Now cropping up there are stores selling luxury foreign goods, the kinds of watches and handbags purchased by big spenders on Miami shopping trips. More significantly, a growing middle-class in Ecuador, as well as in Peru and Colombia, is spurring the construction of discount stores, adds Forneris, who recently completed a 12-story mixed-use project in downtown Guayaquil. Among its tenants will be a new outpost of Juan Eljuri, an Ecuadorian-type Wal-Mart that sells clothes, housewares, and electronics. The building will house both the 45,000-square-foot store and the company's corporate offices, in addition to other tenants.

While the global credit freeze could theoretically curtail shopping habits, the overall effects "won't be as severe here," Forneris predicts. "Money has been hard to come by for years, so I don't know how much more credit can shrink for them."

The foreign influence on Costa Rica, meanwhile, is predominantly from U.S.-based personal-care products and technology companies looking to outsource jobs, says Joe Brancato, a managing principal with San Francisco-based Gensler, which opened an office in Escazu, Costa Rica, in 2006.

To accommodate clients, it helps to have local connections: all 22 employees in Brancato's office are native Costa Ricans, because they're familiar with the country's intricate building codes, he says. Plus, residents are often better equipped than transplants for the delicate task of convincing local contractors to start projects after construction plans are finalized, not before, as is often the case in Costa Rica. "You need to understand and embrace that this is a different culture, that they do things differently," Brancato says.

Another driver of Latin America's building boom is tourism. Despite a global drop in travel due to the economic downturn, Bryan Algeo, AIA, principal of WATG, an Irvine, California-based firm, says the Latin American tourism industry shouldn't be as badly affected as other parts of the world because the region's still relatively affordable compared with other destinations.

Plus, with demand for hotel rooms there far outstripping supply—there are just 500 luxury hotel rooms in all of Costa Rica, he says—developer interest should remain high. That's just one of the reasons his firm, which has designed hotels in 150 countries since its founding in 1946, is seeking more commissions in Latin America. "We go where the action is, and we see activity moving south," Algeo says.

In Panama, he adds, developers can't usually secure loans until they have pre-leased 75 percent of a project, insuring that the kinds of speculative buildings that can worsen downturns aren't constructed. His firm currently is working on Panama City Center, a $60 million project whose twin 22-story glass towers rise from a four-story podium that includes a casino and spa. Excavations are underway for the project, which is on track to open in 2010, according to Algeo.

Latin America's stabilizing political landscape is also fueling its appeal, says Alberto Aranda of Giancarlo Mazzanti Architects, a 12-year-old Bogota, Colombia, firm specializing in schools, libraries and stadiums and other state-sponsored commissions. He adds, however, that a gold-rush mentality may never totally catch on, as South American clients still typically pay far less than their American counterparts.

"There's a still a gap, and that gap makes us less competitive than the rest of the world," Aranda says. "It's not always attractive, economically speaking, for an American to come work here."

Source: BusinessWeek, C.J. Hughes