WARNING: Pitfalls of Pre-Construction Property |
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| Written by Editor |
| Wednesday, 21 February 2007 11:14 |
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Although feeling my years as I rapidly approach my 32nd birthday, I by no means tout myself to be a seasoned real estate expert. However, I am a pretty observant chap who likes to read up on subjects and study trends from several angles. This is more than I think most folks do when jumping onto the investment bandwagon's flavor of the month.
I am amazed that people generally don't want to know the details of the Atkins' Diet or the Debt to Equity Ratio of Google. Instead they seem only to care that everybody else says it's a winner. In the 80s it was junk bonds. In the 90s it was day trading and the dot-com boom. In the 2000s it was housing. I am not alone in predicting that in the late 2000s the hot investment will be “international real estateâ€. Before I get too comfortable on my stump I must disclose, I was involved in the dot-boom and now the international real estate trends. But I've learned that whether dancing Salsa or investing, timing is everything. And unless you pay close attention regarding when to get in and get out, the toes being stepped on may be yours. This brings us to the current condo boom in Panama City. The volume of construction here, the ambition of these projects and the luxurious amenities being promised is really awe-inspiring. Panama City is not some third-world town just being discovered. It is a modern capital enjoying a full-tilt gold rush. Dozens of skyscrapers are in progress and many more awaiting approvals. Big names like Trump are here, in addition to investment groups from South America, Spain and the Middle East. Innovative exterior designs, opulent materials, slick brochures and well appointed model units are all being utilized to sell pre-construction units like Budweiser at a tractor pull. Some buildings have sold out within weeks of the initial offering. Buyers are snatching up units with little more than rough renderings and a price list. So why am I skeptical? First, I'm cautious because my Irish-American parents taught me healthy skepticism. Second, I have been both a buyer and agent involved in the sale of these condos, so I understand the current relationships between buyers, realtors and developers in Panama. I also have a tourism business here and observe that there just are not THAT many foreigners traveling to Panama for pleasure or to live/work/retire. So here are my concerns about this condo boom: Hyper Supply – The pace at which construction is occurring is staggering. A new project is announced every week. The developers generally got the land cheap or owned it for years, have excellent credit and/or seats on the board at the bank and know how to make deals happen. The biggest families in Panama are doing the majority of the developing and just cannot seem to build these condo towers fast enough. The result is an enormous amount of condo units coming online in the next 48 months. Can the market absorb this supply? Promises, Promises – As developers jockey for customers, they are making increasingly lofty promises for amenities (you need to see what Trump “guaranteesâ€) such as marinas, imported materials, elaborate social areas and beyond. As construction costs rise and margins shrink, I would not be surprised if corners are cut and amenities vanish. Delivery Timelines – I bought a pre-construction condo almost two years ago. I moved in this week, a year after the promised completion date. While developers juggle so many jobs and materials, machinery and talented work crews become scarce, one can only expect delivery dates to get stretched out even further. Construction Costs – As the workforce sees developers getting fat, they will no doubt want to dine at the same troth. The project where I purchased my condo had several strikes. As for materials, with rising demand, suppliers can naturally adjust prices, resulting in shrinking margins for developers. A contractor I know in Costa Rica recently told me it is nearly impossible to get steel there because Panama is consuming so much. Over Estimating Demand – Aside from speculators, who is really buying all these condos? As a realtor and travel agent, most of the buyers I have met are purchasing units for investment or part-time living. Panama is a great place, but it's not Miami...and the condo market imploded there not long ago. To demonstrate comparable demand online, where many travel and real estate searches begin, take a look at these stats. These numbers are from Yahoo's keyword estimator service. Key Phrase # Searches Last Month Miami travel 33,419 Costa Rica travel 9,851 Panama travel 2,913 Miami FL real estate 85,959 Costa Rica real estate 24,766 These numbers put this Panama boom in perspective, no? Could it be that the boom is developer driven and not demand-driven? Unrealistic Prices – The run up in prices for new units in Panama has been startling. Prices for some projects have doubled before breaking ground. Prices have risen to a point where foreign buyers will begin to compare prices here with those in their home cities or more fashionable locations. It is one thing for Panama to be hyping $150,000 ocean view apartments. It is quite another to expect foreigners to snap up $500,000 units by the bushel when Panama still does not have wide brand appeal. Greed – At the core of any bust is good old fashioned greed. Let me tell you amigo, I've seen greed rear its nasty head here in Panama. Developers are pulling nasty tricks to squeeze a few extra bucks out of buyers now that they believe they're in the driver's seat. For buyers who secured pre-construction units “too early†and paid “too littleâ€, developers are enacting clauses to raise the price or even find ways to cancel contracts so they can resell units for higher prices. Regarding amenities and detail work, basic items are suddenly considered extras. I personally had to pay a multitude of oddball fees and fines, although some were dropped with some minor efforts from my attorney. When buyers start getting a bad taste in their mouth, this boom could end even faster than it started. As the old adage goes, a satisfied customer tells one person. An angry one tells everybody. While Panama is still fighting the ghost of Noriega with one hand and climbing to success with the other, it is in no position to get greedy. So what's my advice? To quote the Greeks, “A bird in the hand is worth two in the bushâ€. Finished product is out there and often represents hidden value. There will be opportunities to snag completed units in the next few months as I believe some speculators have over extended themselves and will need to put their condos on the market. Units in older buildings and in less hip areas like Bella Vista and El Cangrejo offer excellent upside while the market fixates on newer, shinier product. There are still opportunities to make money in this market. But analyze worst case scenarios and make sure you can live with them. For as sure as gravity, for every boom...there's a bust. Casey has lived and worked in Costa Rica for nearly a decade and now resides in Panama. He operates a travel and real estate agency, www.panamarealestatepros.com.
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Comments (4)
  written by Bobby Hitt , July 08, 2008 Preconstruction towers are not the only risk out there. I paid almost $30,000 toward a villa in the Malibu Beach Park & Resort in Gorgona. The developer cancelled the model we bought so I asked for a refund. That was a few months ago and all I get from them are assurances that everything is financially sound and I’ll get a refund soon. At this point my plan is to start posting warnings all over the Internet about this project so others don’t also pour money down the drain.
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written by Bobby Hitt , July 25, 2008 I have good news to report and I’ve calmed down and am no longer angry like I was when I wrote about Malibu. Yesterday Malibu sent me a scanned copy of a bank wire receipt showing they have sent our $30,000 back to our bank. What was so frustrating for me was that I would get email responses that seemed like the money refund was imminent. Since I really needed that money for another purpose it was like teasing a hungry dog with a piece of meat. So I growled and barked. Yes it took over 2 months to get the refund but Malibu did make good on their promise to send the money back.
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 written by elvira , March 05, 2009 We purchased an apartment in Panaama from a Co. named Grupo Corcione (Green Bay Plaza project)in August 06.When it came time to close in Oct.08 they refused to close & now are re-selling our apartment for HEFTY 100,000 profit.
If this has hppened to you I want to hear from you.I have seeked legal help as well as contacted my Congressman & the Panamanian Consulate & the U.S. Embassy. reply to- elviraromero@msn.com report abuse
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 written by Pat Mabawbag , March 08, 2009 Well, I doubt you are the first or the last. What do you expect the embassy, consulate or congressman to do about it? Oh my, don't tell me you thought this was the good'ole US of A! You made a personal decision and you, like others, are getting screwed. Life is tough. That is all part of putting money overseas - lower cost is increased risk. Yep, and now you are thinking you could get a place in Florida AND a place in a snow hole for the same as you bought down here, right? And be under the protection of law in your home country, right?
Oh, and they are probably not re-selling. They are probably only re-marketing at 100,000 more. All they want is more money from you, that's all. If you want the apartment to live in and are happy living here then fine, negotiate the penalty down and move in. If you were buying to sell and profit then you lost. This is a casino. Some win to give the illusion of everyone being able to win. Most lose. These developers knew what they were doing. Unfortunately I don't think you did. report abuse
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| Last Updated on Monday, 11 August 2008 21:04 |
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