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Special EU & EURO Warning – December 14, 2011Offshore Jurisdiction Comparison 
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Introduction – Several large projects have failed to move forward in Panama. Other not so large projects do not seem to be moving forward. One large icon project looks like it may not move forward due to a lack of financing. This could trigger the bursting of the bubble.
How Will the Bubble Burst – Probably the flippers and speculators who have been investing in the pre-construction housing projects will fail to close on completion of the project. They will have put 30% down and will probably chose to walk away rather than invest another 70% in a condo they do not wish to owner occupy. It is doubtful the developers will have any realistic recourse against them since they for the most part do not live in Panama. So now there are a lot of recently completed condos that no one is living in or buying.
What happens is the developer drops the prices, usually starting at 20% and going to 40% rather quickly. This of course destroys the market and more and more speculator buyers will not close on the units thus increasing the amount of unsold units that have been completed. The only reason these speculators bought the units was to turn them for a profit. If they cannot see a profit potential they will walk away rather than throw 70% in to save 30%.
As the prices go down and there are more and more vacant units then the rentals start to happen. Faced with unsold units the developers start to rent them. By this time there are numerous vacant condos so the rents will be low probably about $1000 for a small three bedroom unfurnished. The banks will become very uncomfortable and only write mortgages to those placing high down payments perhaps 40% or more. This will only make things worse for the market.
Recovery- Recovery of real estate markets in Latin America is slow and can easily take many years before anyone has confidence again.
Implications – Panama will once again become a cheap retirement haven. The Panama corporations, Private Interest Foundations, Panama Banks, and Panama Stock Brokers will all continue along unaffected since most of their clients do not reside in Panama. Real estate prices will be $900 to $1200 in the city like they were in 2005 and this will be attractive to people from other countries. The amount of people hurt by the real estate crash will be very few. The amount of people who stand to gain from affordable retirement housing will be many.
It may not be such a bad thing. Whenever the real estate brokers stop selling real estate based on the neighborhood, schools, location etc and start selling based on how much the same house will be worth in a year, there will be a real estate crash, it is only a question of when.
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