business & economy
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Do failed projects add up to a speculative bust?
Real estate industry people uneasy
by Eric Jackson
What's the third buyer to do, when, attracted by glittering tales in publications like International Living, he has bought an apartment in the tallest building in Latin America for $4,500 per square meter, but the original buyer paid $1,500 and now, with just a hole in the ground to show, the developer says that the project is called off and everyone will get their money from pre-construction sales back?
There were situations precisely like that in the cancellation of the projected Ice Tower project, and similar ones when it was announced that the Palacio de Bahia and Park 32 projects weren't going to happen.
Hardly anyone was buying into those upscale projects to actually live there. The buyers were almost all speculators and a few of these have had the audacity to seek government help or threaten legal action because they lost rather than made money on their attempts to buy and sell luxury housing that didn't yet exist.
Had some of these speculators done just a little bit of homework, they'd have noticed things that would have suggested that some of the projects that were called off were never all that serious. The Palacio de Bahia, with seven stories of underground parking, on a site that's landfill? That and the Ice Tower, huge megabuildings on Avenida Balboa, which has twice a day traffic jams as it is? Then there are the upper upscale developments with rival claims of being Latin America's "most exclusive" --- as in they exclude anybody with common sense and all but the very richest individuals, who are actually in short supply here in Panama.
Speculators, mostly European and Colombian, accounted for most of the buyers. There's still plenty of Colombian drug money to wash in Panama, and strength of the euro against the US dollar still makes investments in this country more attractive to Europeans than previously, but the word has gotten out. In Spain there's even a web page about ridiculous, and under Spanish law in many cases fraudulent, claims about some of Panama's higher-end real estate developments. The publication points the finger at some of the more locally prestigious developers.
So now the Panamanian real estate sellers' lobby, ACOBIR, is calling for some clearer rules to the game, especially in light of suspicions that some unscrupulous developers are pumping projects that they know will never be built just to get other people's pre-construction purchase money to play with while the bubble lasts. ACOBIR president Iván Carlucci warned in El Panama America that the credibility of the market is affected. In the same story Francisco Jiménez Criado from the Panamanian Investment Office in Madrid lamented that "all the promotion work that we have been doing abroad has been thrown away."
Yet on National Public Radio in the United States, a gushy report by Lulu Navarro still pumped the speculative boom. "More than 11,000 apartments are coming online this year, and already they have all been sold," she said. In that story Carlucci wasn't letting on that there are credibility problems. He talked of "close to 400 projects that are in construction, to be constructed or waiting for approval."
Meanwhile American developer Sam Taliaferro, whose main base of operations is Boquete, isn't sharing in the panic. On the Panama Developers Blog, he wrote that:
Cracks are showing in the bubble and there is a definite slow down in sales in just the last few weeks. The fact is that the speculators are getting harder to come by and banks are tightening credit. Just having contracts with a down payment is not good enough for a construction loan anymore. The bubble is starting to deflate and we hope in an orderly fashion, but the developers with stars in their eyes and the real estate agents with commission checks waiting upon project completion, are probably out of luck and will have to count this as a lesson learned.
All the regulations in the world will not help the industry when it is being driven by speculators. If it were driven by real buyers none of this would be an issue. Real buyers intending to live here would be demanding the completion of their homes so they could live in them instead of hoping for construction delays and price increases so they can flip out of them at a higher price.
So what's really up in the Panamanian real estate business? Pre-construction sales of units in Panama City's high-end condo towers are definitely much slower than they were a few weeks ago. But prices in the beach and mountain communities that many foreign retirees prefer seem to be generally steady, and at the lower end the tract housing for which Panamanian working families pay as little as $120 per month is still a booming business.
The general hope in the real estate business is an orderly deflation in the sector that's overheated rather than a panicky general flight. This aspiration is the subject of ongoing talks between real estate and developer groups and top Torrijos administration officials, and may result in some minor reforms to ease potential buyers' jitters. But even if the government had the will, it lacks the resources to make good on every disappointed speculator's shattered hopes.
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Fears of a burst bubble prompt talk of real
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