PANAMA CITY, PANAMA – After several years of explosive economic growth, Panama is starting to show signs of wear from the world economic and financial crisis.
The economy, which was growing at near double digit rates a year ago, registered a more modest 2.5 percent growth rate for the first trimester of 2009, according to government figures released last week. Leaders of the real estate development sector, which has powered the country’s economic expansion for the past five years by producing more than $1 billion in new construction annually, now predict as many as 60,000 construction workers could be out of a job by the end of the year.
But Panama isn’t panicking. In fact, thanks to its solid banking system, geographical positioning and a dose of good luck, Panama expects to ride out the crisis better than neighboring countries and come out the back end of the storm stronger than it went in.
A lot of that optimism has to do with the country’s $5 billion canal expansion – a massive public works project that is starting just in time to offset the slumping private sector.
On the eve of the world financial meltdown, Panama received the good word that it had secured multilateral financing for its multi-billion expansion project. With the money in place, the country has a sturdy safety net in place to protect its economy and workforce until 2014, giving the private sector a chance to regroup.
“The fact that we have a $5 billion canal expansion construction project is very positive and encouraging for Panama, and is one of the reasons why our economy is still growing,” Panama City Mayor Juan Carlos Navarro told The Nica Times in a recent interview.
In the short-term, Navarro said, “This project is perfectly tailored to generate jobs and investment in trying economic times.” But in the long term, “This will position Panama strategically for what is coming after the economic slowdown ends,” he said.
Plus, the mayor added, the fact the expansion project coincides with a world economic slowdown is also fortuitous in a way.
“Ironically, the slowing world commerce will give us just enough time to finish the canal expansion before the current canal reaches its full 100 percent capacity,” Navarro said. “So I think there is a silver lining to this cloud.”
Private developers are also seeing a silver lining, though for different reasons.
Though private-sector construction is expected to slow by as much as 50 percent this year, the situation is helping to “cleanse the market” and restore a more realistic balance between supply and demand, says José Manuel Bern, of Empresas Bern, a leader in Panama’s real-estate development sector.
Bern said Panama’s development boom of several years ago attracted several foreign real-estate promoters who made slick presentations and sold attractive projects on paper, without really understanding Panama’s reality.
As a result, he said, many of those projects never got off the ground.
“Of the 100 projects that were in promotion three years ago, about 50 are in execution,” Bern said. “Lots of projects died on paper.”
Bern, whose family company has delivered some 200 projects over the past 25 years, said one South American developer was promoting a total of eight projects in Panama City, “but he didn’t build a single one.”
Other Spanish real estate developers also had a hard time getting their projects to work, either because they didn’t understand the construction market or Panamanian financing options, or both, Bern said.
One foreign-promoted project that remains on the move is the Trump Ocean Club, a 70-story luxury residential and hotel complex carrying the name of world-recognized development and celebrity icon Donald Trump.
The building has completed 28 floors and is on track to finish construction by the end of this year, in time for its 2010 inauguration, according to Sabrina Lacle, director of the Miami-based public relations firm promoting the project.
“In today’s economy, people are more interested in stability than before; accordingly, having an established and respected brand like Trump provides the credibility required for our new buyers,” said Jack Studnicky, director of sales for Trump Ocean Club. “Sales, of course, have slowed. But because of our brand, we are still getting a higher degree of interest and sales.”
Though Donald Trump is not directly involved in the project, the Trump Ocean Club insists the project will carry the same standards of excellence associated with the real estate mogul’s other buildings.
“Although Trump provides his name for a fee if he feels the property is worthy and high-end, the Trump Organization is very much involved and oversees several aspects of the development throughout its progress, including construction, quality control and interior design,” said Lacle in an e-mail.
For the most part, construction in Panama City is dominated by five big national development firms. With very few exceptions, the projects that were already under construction when the crisis hit last year will be finished, developers insist.
But for now, most are putting new projects on hold.
“I will finish what I have, but it would be difficult to start a new project at this moment,” Bern said. “Normally we have seven or eight projects going on each year, but this year we aren’t starting any new ones; the projects we have now are carryovers from last year, so by 2011 we will have a shortfall.”
Fewer Sales, More Cash
Overall, real-estate sales are down but they haven’t stopped.
And in Panama, even a bad week in sales is better than a good week in some other countries.
Says Bern, “The world is getting set back five years, but Panama is only getting set back two years. And I wasn’t bad off two years ago.”
“Two steps backwards is still three steps ahead of the other guy,” he added. “It’s horrible, but we’ll take it.”
The developer says that a year ago his company was selling seven properties a week, and although now it’s down to two “we still feel comfortable.”
Bern is optimistic things could pick up. He says that instability in nearby countries such as Venezuela, plus tanking stock markets and low interest rates in banks have investors looking for hard assets to park their money.
“People are paying in cash for apartments,” Bern said. “Four years ago, only 15 to 20 percent of buyers purchased property in cash, but now it’s up to 50 percent.”
In the Parque del Mar residential building Bern finished last April, half of his clients paid in cash for their new $275,000 to $350,000 apartments, allowing Bern said to repay half of his construction loan in just one month, he said.
“We’ve never seen anything that fast,” the developer said.
Another reason for optimism is falling construction prices, Bern said. The builder said that steel prices are half what they were a year ago and overall construction costs have fallen by about 8 percent.
So even during crisis, Panama is feeling optimistic about its prospects and its new beginnings, including its new business-friendly government that takes office July 1 (NT, April 24; TT, May 8, 15).
Says Bern, “Last year we grew 8 percent, and this year we’ll grow 3 percent. But hey, 3 percent is still pretty good.”