Real Estate from the Banks' Point of View

When building a project in Panama, a developer must convince the bank that his land is ready for the project. To do this, he usually buys the property outright or negotiates a deal with the owner in return for the land. Once this is done, the developer receives interim financing for the construction and the marketing of the units. The lender will often require the builder to make a take-out commitment. Since a lot of real estate in Panama is sold for cash, this means that the builder must ensure that they sell some of the units before actually beginning construction.

In order to help protect themselves from real estate flipping, banks will often drag the lending process out. They fund the construction in phases: for example, enough funds might be given to cover the construction of the first five floors, and no more. The reason for this is to make the flippers (speculators) either default on their payments if they have no intention of actually building the project. But if the developer is legally intending to construct, however, then bank will have the additional security required to lend more money. In deals like this, the bank also usually holds the title of the land so they can recover immediately if the deal doesn't pan out the way it should be.

Is the Buyer's Investment Recoverable?

Most probably. There will be pressure on the developers to refund, and they will have Panamanian law on their side. It is usually safer for the developer to drag construction out while searching for more real buyers and wait for the speculators or flippers to default, then proceed at a lower profit margin. But if he can manage to complete the project as stipulated, he stands to make a fortune. Due to a number of factors like the rise in materials and labor costs, the large number of units being built, rising interest rates, and a weakening North American properties market however, things may not take the path the developer initially intended them to.

The Panama Real Estate Speculation Boom:

When the North American market was still firm, people could sell their homes and retire in Panama. Nowadays though, the number who can do so has lessened a lot. For a while, Panamanian condo prices were higher than Florida's. Now people who bought units are selling them at a loss, and there are no buyers.