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The long awaited drop in electricity bills in Panama will start January 1, 2009. The Public Service Authority is expected to announce this fact on December 18, 2008. The government has already announced that the electricity surcharge will be eliminated which will reduce electric bills 20 to 25%. Households using less than 500 kilowatts monthly have been receiving a subsidy. Those households will not see an extra reduction in their bill but businesses using more than 500 kilowatts a month will see a further reduction in their electric costs.

Panama Inflation

Historically Panama has not had much inflation. Panama’s low cost of living and low inflation helped draw business and real estate buyers to this beautiful tropical country with first world services. The highest per capital foreign investment in Latin America has helped create a construction boom, jobs, and an impressive reduction in poverty in Panama. Panama real estate investment prospered in this environment.

However, the last few years have seen the cost of living go up dramatically in Panama. The cost of oil has been a major part of this equation with transportation costs taking directly and indirectly from every pocketbook. Food became more expensive with higher production costs and because of the diversion of food stocks to better paying biofuel conversion.

Lower Oil Prices and a Reversal of Inflation in Panama

By December 2008 the price of oil has dropped to half of what it was in July of 2008. Drivers are paying less at the pump and low transportation costs are beginning to show up in the stores. Economists expect the full impact of lower oil costs to take about six months to work through the production chain resulting in lower prices before mid 2009.

The good news for investment in Panama’s many construction projects, including the Panama Canal Expansion, is that the current world financial crisis has reduced demand for, and the price of, raw materials for construction. Thus construction costs for cement and structural steel will be less going forward.

The credit problems in North America have also kept some potential real estate buyers at home. This fact has presented a buying opportunity as the steady rise in high end real estate prices has paused.

Panama Banks and the World Financial Crisis

Panama’s conservative banks did not hand out sub prime mortgages like their North American cousins did. Thus Panama banks are not getting bailed out. On the other hand Panama’s conservative banks are putting the brakes on many of the construction projects currently on the books. This does not mean that the projects are being scrubbed but that they are being delayed. This may turn out to be the best news for Panama in the long term.

There has been the concern that the last dozen or so high rises in Panama would become “see throughs.” This term has applied to construction booms in Atlanta, Houston, and other cities as the last investors into the market found that they could not fill their buildings with renters or buyers. A bank imposed slowdown may be just the thing to prevent a Panama real estate market collapse caused by overbuilding.

Relief from Inflation with Continued Investment Growth in Panama

It would appear as though Panama will keep moving forward with construction of its many real estate investment projects albeit at a slightly slower rate of growth. Economists are projecting that Panama’s gross national product will grow by about 6 percent in 2009 versus the 10 and 11 percent growth of the last few years. Panama added jobs in 2008 and there is no projection of any job loss in 2009.

In short, the drop in electric costs coupled with continued high employment, new real estate investment opportunities, and a slightly saner growth rate come as a nice collection of Christmas presents for Panama.

If you are interested in real estate investment in Panama, especially taking advantage of the current pause in the high end of the real estate market come to see us at ABPanama. We have more than 23 years experience managing real estate portfolios and can help you find exceptional values in today’s Panama real estate investment market.