Real Estate Investment Trends in Panama: What's Hot in 2024

Real Estate Investment Trends in Panama: What's Hot in 2024

An investment guide to Panama's real estate market...

An introduction to Panama's real estate market

Panama's real estate market, a vibrant and dynamic sector, has evolved significantly since its pivotal growth period beginning in 2006. Driven by foreign investment, the sector has been instrumental in fuelling Panama's economic ascent. Government initiatives have played a crucial role in this growth, with laws established to protect and encourage foreign investment, creating a favourable business environment.

The year 2006 marked a turning point with the commencement of high-profile skyscraper projects, such as the Trump Ocean Club International Hotel and Tower, which heightened international interest. However, the market faced challenges, including oversupply and corruption, which, in 2007, was estimated to cost the economy up to $1.2 billion, impacting growth rates. Despite these hurdles, Panama's strategic use of the U.S. dollar, alongside its burgeoning economy and tourism sector, continued to attract investors.

By 2010, the market dynamics shifted to a buyer’s market due to an oversupply of luxury apartments, with reports suggesting up to 15,000 unsold units. This situation led to market corrections and new rules to mitigate developer abuses. Panama's appeal as an investment destination continued to be bolstered by its economic stability, growing tourism, and a favourable living cost, even as it grappled with internal economic disparities.

As we approach 2024, understanding this historical context is crucial for investors eyeing Panama's real estate market. The blend of foreign investment, governmental support, market fluctuations, and economic challenges paints a comprehensive picture of the market's resilience and potential, setting the stage for informed investment decisions in the current landscape.

Key Drivers of Real Estate Investment in Panama

In Panama, 2024 is shaping up to be a pivotal year for real estate investors, driven by a blend of strategic developments and economic trends. Key among these is the country's robust infrastructure plan. Panama is investing a hefty US$19.5 billion in the next five years, with a focus on roads (15.2% of the budget) and water and sanitation (18.9%). This investment is vital, especially given the significant role construction plays in the economy, contributing 1.9% over the past five years and generating numerous jobs. However, there's still work to be done, particularly in improving Panama's 44th-ranked road infrastructure.

The allure of Panama as a tourist destination and retirement haven continues unabated. With its breathtaking natural landscapes and rich cultural tapestry, the country draws a steady stream of global visitors and retirees. The expanded Tocumen International Airport and the Pensionado Visa program, offering attractive incentives, further boost the demand for vacation homes and retirement properties. This enduring trend is a major pillar of the real estate market, particularly in areas favoured by tourists and expatriates.

Economic stability also plays a crucial role. Panama's impressive score of 47.5 on the Fragile State Index reflects its steady political and economic environment, essential for real estate growth.

Panama's strategic location, highlighted by the Panama Canal, positions it as a global trade and logistics centre. This geographic advantage positively influences the real estate market, particularly in commerce-connected areas.

Lastly, the diverse economic landscape, marked by the presence of multinational and Fortune 500 companies, spurred by Panama's business-friendly environment, creates a strong demand for various real estate developments. This diversification not only bolsters the market but also buffers it against global economic shifts.

In essence, Panama's real estate market in 2024 is set to thrive, powered by substantial infrastructure investment, persistent tourism and retirement demand, economic stability, moderate inflation projections, strategic geographical significance, and a varied economy. These elements collectively forge a promising and dynamic environment for real estate investors.

Current Market Analysis

Population Growth and Wealth Trends

Panama's real estate market is dynamically influenced by the country's population growth and GDP trends. In the last five years, Panama has experienced a 3% increase in population and a 3.1% rise in GDP per capita, indicating a growing demand for housing​. This growth trajectory is expected to continue, with IMF projections showing a 5% growth in 2023 and a predicted 4% in 2024, culminating in a 19.2% increase over the next five years, resulting in an average GDP growth rate of 3.8%​. The implications of these trends are particularly significant in urban areas like Panama City, Bocas del Toro, and Boquete, where a burgeoning population combined with increasing wealth will likely drive-up demand for both residential and commercial real estate. While Panama’s real estate market has slowed down since the beginning of October due to the ongoing protests and riots related to the expansion of the mine. It is expected that these current complications leading to less interest in the Panamanian market, will calm down in the month of December. Leading into 2024, the demand is therefore expected to come back to normal levels and further steadily increase for the rest of the year.

Rental Yields

Investors in the Panamanian real estate market can anticipate attractive rental yields, a crucial factor for assessing the profitability of property investments. According to Numbeo, rental properties in Panama offer gross rental yields ranging from 6.8% to 9.5%​. This high yield potential is especially appealing in major urban and tourist areas, where demand for rental properties is consistently strong. The growth in population and GDP per capita further suggests that rental demand will continue to rise, making rental properties an attractive investment option in 2024 and beyond.

Inflation and Real Estate

Inflation is an essential factor in real estate investment as it impacts property values and rental rates. Over the next five years, Panama's inflation rate is projected to be 10.5%, averaging a yearly increase of 2.1%​. This moderate inflation rate is conducive to the growth of the real estate market, as it typically leads to higher property values and rental rates. However, investors must remain cautious of the broader economic context. Panama's economy, while stable, is vulnerable to global economic fluctuations, such as changes in commodity prices and trade dynamics, which could negatively impact the real estate market​.

Regulatory Considerations

The regulatory landscape for foreign real estate investors in Panama is dynamic and multifaceted. Key aspects include the 2020 enactment of Law No. 129, mandating the registration of beneficial owners to enhance financial transparency. Zoning regulations, managed by the Ministry of Housing and Land Management, dictate permissible property uses, varying by region. The process for property title transfers is structured, involving a 2% government-imposed property title transfer tax and a 3% advance on capital gains tax. Foreigners can legally own titled property, either personally or through a Panamanian corporation. Panama’s legal framework, designed to protect foreign investments, ensures a secure and adaptable environment for international investors. Similar to Law No. 129, or the change in the minimum investment requirement for the Qualified Investor Visa proposed for November 2024, regulations affecting the real estate market are common and investors should stay attentive.

Where To Invest In Panamanian Real Estate

Ranging from locations to types of real estate, the real estate trends that investors are looking into are insightful also to expats or retirees looking to relocate in Panama. This section explores where you will find the best properties to have a financially sound investment.

The Best Locations

  1. Coronado, Panama
    Coronado is a gem for real estate investors in 2024. It's close to Panama City and boasts the least rainy weather in Panama. This beach community has transformed from a quiet area into a lively town with malls, diverse dining options, top healthcare, and schools. Its outdoor life is varied, offering activities like golf and surfing. Coronado mixes modern conveniences with local charm, providing everything from supermarkets to banks and even familiar fast-food outlets. All these features make Coronado a top pick for investors looking for a blend of comfort and potential growth.

  2. Panama City, Panama
    Panama City is at the heart of real estate development, driven by a stable economy and appealing tax benefits. The city is a blend of modern skyscrapers, luxurious apartments, and upscale commercial zones. The ongoing infrastructure investments, including the Panama Canal expansion and new metro lines, are boosting the city's attractiveness. Panama City's allure as a retirement haven and a tourist destination, rich in culture and natural beauty, continues to grow. These factors, combined with its strategic geographic position, make it an attractive location for real estate investors in 2024.

  3. Bocas del Toro, Panama
    In Bocas del Toro, several areas stand out for real estate investment. The coastline from Big Creek to Paunch offers oceanfront properties, easy access to utilities, and is close to the social life in Bocas Town. Isla Solarte, particularly the north end, is ideal for relaxed island living with easy access to the town and water activities. Isla Carenero's north end balances seclusion with proximity to Bocas Town, perfect for those who love the beach and jungle. Other areas like Punta Rica, Isla San Cristobal, and Bahia Honda offer a mix of privacy, natural beauty, and cultural richness. These diverse options make Bocas del Toro an excellent choice for real estate investment in 2024.

The Best Property Types

  1. Fincas Near Popular Destinations like Pedasi or Bocas In locations like Pedasi and Bocas Del Toro, investing in fincas, or countryside properties, is looking increasingly smart. Panama's status as a go-to place for both tourists and retirees plays a big part here. Its mix of beautiful scenery and rich culture, alongside perks for retirees like the Pensionado Visa, is drawing more and more people. This trend means a growing need for places to stay, from holiday homes to rental spots. Fincas in these areas have huge potential. They could be turned into tourist lodgings or private escapes, tapping into the rising number of visitors and retirees.

  2. Apartments in Panama City's Newer Skyscrapers The scene in Panama City is buzzing, thanks to its booming economy and its role as a regional base for big international firms. This economic surge is pushing up the demand for all sorts of properties - office spaces, homes, and commercial areas. The city's prime location, powered by the famous Panama Canal and the Tocumen International Airport, makes it a key global business hub. For investors, this means apartments in the city's latest skyscrapers are a great bet. These properties are ripe for growth in value and rental income, especially with Panama's rental yields being so attractive right now.

  3. Townhouses Near Golf Clubs With Panama's focus on improving its infrastructure and its charm as a place to retire, properties near amenities like golf clubs are in demand. Townhouses in these spots are ideal for those drawn to the lifestyle offered by golf clubs and related facilities. Panama's stable economy, its positive growth outlook, and the increasing wealth of its people add to the appeal of these properties. For investors, this suggests strong potential for both capital gains and rental earnings.

Challenges And Considerations For Investors

​​Resilience to Global Economic Fluctuations:

Despite the global economic uncertainty, such as the impact of geopolitical events like wars or inflation, Panama’s real estate market has shown remarkable resilience. The Panamanian Ministry of Economy and Finance projects a robust economic growth of 6% in 2023, an increase from the previous 5% prediction. This growth, driven by commerce, construction, tourism, and transportation, highlights the strength of Panama’s economy and its real estate market's ability to withstand global economic shocks.

Oversupply in Commercial Real Estate:

Historical data indicates a significant risk of oversupply, especially in the commercial real estate sector. Between 2018 and 2023, Panama experienced an oversupply in the range of 500,000 to 600,000 square meters in its real estate market. This oversupply led to a competitive market environment, benefiting renters but causing a drop in rental prices of commercial and office buildings by 15% to 20%​​. Investors should be cautious about entering oversupplied market segments and consider diversifying their portfolios to mitigate this risk. That said, it definitely depends on the area you are looking at. Costa del Este, Punta Pacifica and Santa Maria for example, the more affluent and therefore sought-after areas do not have this problem.

Impact of Rental Price Decline:

The oversupply situation, particularly in commercial spaces and offices, has led to a decline in rental prices, impacting the overall profitability of real estate investments. This trend might affect investors looking at rental income as a primary return on investment. However, it also presents an opportunity for investors to acquire properties at lower prices, potentially benefiting from future market corrections.

Conclusion

As we reflect on Panama's real estate investment landscape for 2024, it's evident that this vibrant market offers a tapestry of opportunities balanced with mindful considerations. The steadfast economic growth, bolstered by substantial infrastructure investments, and the allure of Panama as a retirement and tourist destination, create a fertile ground for real estate investments. These positives, coupled with attractive rental yields and a robust response to global economic fluctuations, paint a promising picture.

Yet, astute investors should heed the challenges of regulatory shifts, market oversupply in certain segments, and the implications of rental price dynamics. Despite these considerations, Panama's real estate market, with its strategic location and diverse economic activities, remains an enticing prospect. The key lies in strategic planning and staying informed, ensuring that investments made today are both sustainable and lucrative. In essence, Panama, with its blend of challenges and vast opportunities, stands as a beacon for savvy real estate investors in 2024.