Real Estate & Construction

More on the Way

Panama’s growth in the real estate sector has slowed as the boom of the late 2000s has cooled, but with the country projected by the IMF to remain the fastest-growing […]

Panama’s growth in the real estate sector has slowed as the boom of the late 2000s has cooled, but with the country projected by the IMF to remain the fastest-growing economy in Latin America in 2018, the sector stands to remain a key part of the country’s economy. The primary focus now, according to industry leaders, is building up the base of low- and middle-income housing to broaden the sector’s residential housing offerings and allow for development that is more stable and resistant to downturns. On the construction side, further work is underway on logistical infrastructure improvements. Though Panama’s infrastructure is rated among the best in Latin America, further improvements to the Panama Canal and Tocumen airport are central to Panama’s role as a logistical hub for the region and wider world.

After years of rapid construction only briefly interrupted by the 2008 financial crisis, Panama’s real estate faced a glut of supply when the economy slowed slightly in 2017. Though GDP grew by 5.4% on the year, up slightly from 5% the year before, most indicators in the real estate market were largely stable as developers dealt with the effects of projects ordered during the peak of the boom coming to market. The high-end was most affected; according to one Panamanian investment promotion agency, the number of sales of projects worth more than USD120,000 fell 23%, with volumes falling by 19%. “Between 2009 and 2014, we overbuilt,” Marazul Project Manager Director Jose Ramón Icaza told TBY. “This oversupply is currently being absorbed by the market. We had to complete the projects that were initiated in late 2014 and 2015, and most of our income came from that construction.” With the real estate sector accounting for more than 18% of Panama’s GDP and more than 150,000 employees, this represents a significant shift. The country’s status as a center for luxury development is already secure thanks to the boom of the past decade; as of 2018, seven of the 10 tallest buildings in Latin America were in Panama City, and the country’s continued importance in the finance and logistical sector means that its real estate should continue to maintain volume.

Moving forward, however, the days of luxury growth on par with the past decade look to be over. Plenty of new opportunities still exist, however, and one of the most important is the low- and middle-range of the housing sector. As educational outcomes and standards of living have improved, a growing urban middle class has become the largest source of consumption and housing demand. Building residential units targeting this middle class is important for the health of the real estate industry and the country as a whole; by increasing the stock of available housing, industry can find a new source of steady demand less subject to regional and global fluctuations that can affect the viability of luxury developments. The Panamanian government has taken proactive steps to help further these developments by launching housing programs like the Preferred Interest Act, which grants homebuyers a subsidy for value housing. Under the act, the government pays a 4% market interest rate on home purchases up to USD65,000 and a 2% rate on homes up to USD80,000. At present, there are several tenders out for social housing development across the country, including a USD100-million urbanization project that calls for the construction of 1,620 homes on a 23-ha site in Cristóbal.

The construction industry’s fortunes have traditionally been closely linked to the real estate and transport industries, which have traditionally been central to Panama’s economy. The end of the skyscraper boom has resulted in slower growth for most of the sector, but steady expansion in the transport sector has helped keep the industry stable. Tocumen International Airport, the busiest airport in Central America, and the Panama Canal, Central America’s most important shipping point, have both seen expansion projects in recent years. Tocumen’s expansion, a USD800-million project, began in 2013 and is expected to be completed in October 2018. New metro lines are also under construction, with Line 3 expected to be 26km long and with capacity of 20,000 people per direction during peak hours. The industry also completed a massive USD5.25-billion expansion of the Panama Canal in 2016, and further work is ongoing on neighboring ports in order to better handle the increased volumes coming through the Canal. In June 2017, for example, Chinese firm Landbridge Group broke ground on a USD1.1-billion container project near the Caribbean entrance to the Canal. Once completed, the project will have two docks able to receive Super Post-Panamax ships, with another dock handling Post Panamax and multipurpose vessels.

China’s involvement with this project speaks to a major reason for optimism within the Panamanian construction sector. In 2017, Panama broke diplomatic ties with Taiwan and established them with China in an act designed to draw more foreign investment into the country. Already China’s largest trading partner in Central America with more than USD6.38 billion in trade in 2016, Panama construction leaders are confident that the new agreement between the two nations will turn the country into one of the primary destinations for Chinese investment in the Americas, generating billions of dollars in new construction. Port projects like the aforementioned container project and a USD165-million cruise terminal are underway, and additional projects are being planned to accommodate an expected rise in the number of tourists Panama receives.

However, the construction sector is not without its share of structural issues, one of the most important of which are its ongoing labor issues. As Construcciones RJT General Manager Rafael Jaén told TBY, “one of the main challenges that we face is the high price of labor. Wages have been increasing considerably in the last year… this results in significantly higher costs of construction, which affects the end user.” Wages are set through negotiations between the Panamanian Chamber of Construction (CAPAC) and SUNTRC, the leading construction worker union. Talks between the two parties have been combative in the past, and April 2018 saw an indefinite construction worker strike begin due to the two sides’ inability to come to an agreement on pay raises; the workers asked for 11% raises, while employees have only offered 1%. The stoppage has led to losses of an estimated USD38.5 million per day as it stretched into May 2018 with little progress. Resolving these issues and finding a pay structure that allows for safe construction and a healthy population will be one of the industry’s foremost challenges moving forward.

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