Whether with long or short-term intentions, investing in real estate has always been considered as one of the safest, most reliable venture alternatives available and a required item for every sophisticated investor’s portfolio.
Nevertheless, as with any financial decision, different circumstances could either benefit or threaten your investment. Even when there are basic rules you should follow in most markets, there are certainly some insider tips or guidelines you should consider for each particular market. This is also true when investing in real estate in Panama.
Stating the obvious, finding the right balance between the purchase price and the potential rent that the selected property may generate is a good start.
Prices in Panama peaked in 2016, and ever since then, there has been a considerable devaluation in most property values. This was exacerbated by the COVID-19 pandemic. During March 2020 through June 2021, real estate prices decreased dramatically, in many cases reaching a devaluation of 25% compared to pre-2016 values. While the market is certainly on the mend now, a licensed and highly experienced real estate broker should still be able to locate the best deals in the market and identify the properties that are likely to experience the highest rates of appreciation.
Prime location and construction quality are crucial points to consider, as these two features have the greatest importance to renters. While buildings with social areas also attract renters, an “over the top” array of amenities will lead to higher homeowner association fees, which often negatively impact your potential return on investment. Again, an experienced real estate agent can help you identify those properties with the right mix of amenities and reasonable maintenance fees.
Taking advantage of existing tax exonerations on properties not older than 20 years old will also reduce your annual expenses, improving your potential net income. There have been multiple changes to Panama’s property tax laws over the last decade, so it is important that you work with a professional and knowledgeable real estate broker who understands and can interpret the potential tax savings that would apply to a given property.
Now, in terms of the rental market, we must recognize that during the pandemic lockdown period in 2020, rents in Panama hit historic lows as well. Nonetheless, we have seen an incredible rebounding of the market in the past six months, up to the point of triggering bidding wars in highly desirable neighborhoods such as the eastern suburbs of Costa del Este and Santa Maria Golf & Country Club, as well as the downtown waterfront district of Avenida Balboa. These areas are most sought-after by executives from embassies, NGO’s and multinational corporations, all of which are now rehiring now that all COVID-19 travel and circulation restrictions have been lifted in Panama.
To achieve the highest returns possible, we always advise investors to acquire smaller, executive-friendly apartments that are fully furnished and nicely decorated. It has been our experience that achieving an increase of USD $100.00 in rent by having a premium property (relative to the competition in a given building) will improve the ROI more so than discounting USD $10,000 from the selling price.
Again, we reiterate that when it comes to real estate investing in Panama, it is imperative to hire a licensed real estate broker with proven experience in investment properties from day ONE, guaranteeing you a straightforward transaction and the best possible returns.
By: Andrea Cooper, MBA & Emilio Cornejo Vernaza LL.M.