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Panama's Impending Legal Boom

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Written by Matt   
Thursday, 16 October 2008 10:58
Panama Condo CrisisThe Panama City condo market will be plagued not only by lists of unsold (or perhaps incomplete) apartment units as well as tumbling prices, ask but also by an outbreak of unhappy buyers who, stuff faced with dreary options, risk big time losses when/if they try to sell: an alignment of stars that will lead to a steep hike in legal disputes, rulings about which will fall on both sides of the fence.
Several months ago I was sitting in the Miami airport eating a tin of overpriced chicken and broccoli when I came across a newspaper headline citing condo buyers in Florida who sought exit deals from a pre-construction project called Opera Tower, a high-rise near downtown Miami.

The U.S. District Court Judge had dismissed several dozen lawsuits in which buyers claimed to have been misled by a brochure promoting an "Olympic style" pool, citing that the contract clearly stated the pool was L-shaped and 2,540 square feet (smaller than an Olympic). To back the judge up, the developers claimed that the word "Olympic" didn't refer to the pools size but rather the fact that it would have lanes and that you would feel like an Olympian when you swam in it.

OK, so I made up the part about feeling like an Olympian. But in reading the article, its cautionary message fell on worried eyes. "This is going to be Panama," I said to myself. It was right about then that I found a small wooden dowel, disguised as a piece of chicken, that appeared to be the handle of a small pairing knife. I returned the food immediately but was not given a refund.

The Panama City condo market is still, by many standards, a hot one. Agents are still selling, Europeans and Latin Americans are still buying, and prices have still not yet hit a major decline. But as Sir Isaac Newton, creator of Fig Newtons, a cookie pastry filled with sweet jam, might have put it best: "In the cookie industry as well as the real estate industry," he said. "What goes up, must come down."

In the activity leading up to the Panama City condo market breaking point, a lot of people chose to invest in real estate that wouldn't be completed for years. They were great buys because they were cheap if you got in early: A $150,000 condo with ocean view? Who cared if you had to wait.

Fast-forward to the near future. Economies around the world are getting screwed sideways, real estate markets are softening like old carrots, and cash has all of a sudden become a nervous subject of conversation. What does this mean? It means that speculation buyers in Panama City will soon become overly antsy about their purchases and, in a desperate effort to cut their losses, attempt to break contracts using any loopholes necessary, to get back their deposits, and wash their hands clean of what once seemed like such a beautiful thing.

It's nothing new: we've seen it in real estate busts before. Housing prices drop, units take longer than scheduled to complete, and financing from lenders becomes an act akin to weaving a mola blindfolded. With a record number of properties purchased sight unseen, the obvious next step in this sort of market is the surfacing of contract disputes: what disputes can we expect?

- Misinterpreting the size of the units
- Construction defects such as poor installations
- Failure to fix problems upon completion
- Severely delayed (or canceled) projects
- Number of parking spaces
- (List some others that you've heard of in the comment section below)

Unknowingly vulnerable are buyers who overlook both the obvious and the not so obvious signs of distress. I recall a project in Florida, near Miami's Brickell Avenue which failed having only seven months earlier hosted a cocktail party to celebrate the groundbreaking. It's like: "Yay! We're fucked! Let's have a glass of champagne!"

Buyers in completed (or near-completed) units will begin to scour their contracts for flaws that might allow them to escape the deal such as minor design changes. Some will have a case, others won't. Keep in mind, defense here also goes to developers who would argue that it's not legal to simply back out because of a bad market or insignificant modifications: buyers who entered the game purely to flip for a profit should be penalized, not the developers themselves. Cases like these will be divided in their rulings.

Disputes will almost undoubtedly take place in Panama courts where some sections of Panama law will protect the buyers, yet others will protect developers. While specific material discrepancies can be sorted out using photos and experts, other factors such as lost profits will be hard to prove as they are speculative. Changes in labor, shortages in materials, the weather, and market adjustments will be deemed outside the developer's control much to the buyers' chagrin. And lots of people will be stuck with units that they'll need to rent out as cited in Panama City's Low Rent Appeal.

I'm sure this article will get a lot of flack from people in the real estate game but I think it's realistic. If you want me to be more optimistic, we could talk about the impending boom in Panama's legal industry? I would argue that the majority of projects currently underway will in fact see completion. For those in oversaturated regions that haven't yet begun, the light at the end of the tunnel may be turned off due to budget restraints.

Note: The Fig Newton was actually created in 1891 by Charles M. Roser of the Kennedy Biscuit Company, a Massachusetts-based bakery. The Kennedy Biscuit Company merged with other regional bakeries in 1898 to form the National Biscuit Company, which later became Nabisco. (Wikipedia)


Comments (3)Add Comment
written by Tom , October 16, 2008
Sure wish you were wrong! It is going to happen, as well as the ready supply of "gringo" money flowing into the RE market is going to stop. The home owners in the US are no longer able to sell their house for 750K and pay 300K here for a 100K apartment. The prices here will revert to the norm, the construction workers will take less and the boom will be over. If you don't believe me, look at the Baltic Dry Index, down 89% on the year. Look at home prices in the US and Europe, the bust is headed for here also. Chow.
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Only delusion & greed are supporting it at this point
written by Matheo , October 19, 2008
What keeps a bubble alive is BELIEF and confidence in the bubble.
And the belief and confidence is driven by delusion and greed.

It will be interesting to see the DOMINO effect kick in when
confidence leaves the building, no pun intended.

I know personally many agents and sales have slowed to a crawl.
Next is: REVERSE momentum. Sliding prices... and once that starts,
you can't stop it.

Kudos to everyone for keeping their confidence high and stalling
the inevitable. NOW IS THE TIME TO SELL (if you can).

And get ready to BUY in mid to late 2009.

As Matt has said, this will be GOOD long term for Panama.
Condos are overpriced and it will adjust the whole picture
for the better.


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To Matheo
written by Pat Mabawbag , March 07, 2009
Yeah, from full ahead to reverse to buying opportunity in a 9 month period. Jajajajajaja. Time to sell? You should never have bought. Time to BUY? Probably about 3 years from now. Will be dead as a dodo, canal expansion will not be bringing in a huge influx of high paid workers and the World will still be taking the hangover cure.
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Last Updated on Saturday, 18 October 2008 08:19