Panama is currently embracing the possibility of a new railway that will connect Panama City and the City of David in the Chiriqui province with a distance of approximately 280 miles. How would this affect the real estate sector in Panama? Would it impact the value of properties throughout the territory where stations would be located?
Let’s discuss and analyze the situation.
Throughout history, property values tend to rise when they gain access to public transportation. Studies have shown that residential and commercial properties near transport stations such a subway or a train station increase up to 18% in value (depending on the type of property).
An article published in “Martes Financiero” on March 29, 2016, indicated that the value of the land and properties bordering the metro line 1, increased significantly in areas such as Vía España, for example: 700USD per square meter have risen to 2,500USD per square meter on Via España, and in Transistmica from 250USD to 1,000USD, increasing up to three times the previous values. These figures could give us an idea of what would happen if a railroad is built throughout the country.
You may see that the effect is more pronounced in properties within walking distance of a station. In other words, if there’s more access to work, and more connections to railway routes, more jobs are created, and the bigger the impact on the economy will be. The local population now has a safer, cleaner, and faster way of moving around which not only creates more opportunities for work, but creates for a happier workforce which in turn helps businesses thrive and feed more money into the local economy.
According to a study carried out by “Vrije Universiteit Amsterdam, and Tinbergen Institute”; the infrastructure needed to build the railway would also improve the local infrastructure of the cities the railway passes through.
Assuming that the train would have a station near the terminal of Albrook, in the province of Cocle, the capital of Veraguas, and David City in Chiriqui, many economic sectors would be activated, and more retail stores would be opened increasing local and foreign investment. All of these factors would result in an increase in the value of the properties around.
”The most used method to quantify the effect on the value of real estate properties is the Hedonic Pricing techniques (source: Rosen, 1974), a tool that is widely used when analyzing or trying to respond to changes in property prices; both sale and lease, in relation to its benefits (physical, accessibility and socio-economic characteristics of the area, for example).
The advantage of this model is that when treating the good in question as a package of characteristics (source: Lancaster, 1966, Aguirre, 2005), these can be taken individually and determine what is the price attributed by the claimants under certain conditions of the market. In this way, it would be possible to find studies that associate the sale price of properties with the most variables that can explain their value: existence of real estate investments, both development and rehabilitation (Ding, 2000), the presence of subsidized housing projects by the state, the type of construction method used in the realization of housing, etc.”
Other studies have shown that residential or commercial properties near or adjacent to train stations tend to increase in value, as in the cases mentioned previously. On the other hand, there are a series of factors that will determine whether the property value increasing or not, such as physical factors of the property (if new or used), accessibility, environmental and demographic (fujita 1989, bowes and ihlanfeldt 2001).
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• Panama real estate data has shown evidence that investments in a railway and its stations could have the greater impact in terms of urban regeneration and transformation, especially, such investment (railway) might unlock the development potential within and around the main stations increasing the investment, therefore, the employment and incomes.
• The proportions of any impact could depend on the size and locations of the stations, the passenger’s profile, and the economic activity around the area.
• Historical and empiric data suggests that if a railway is built in Panama, it would generally result in significant benefits for the real estate market because it eliminates the physical barriers to movements in and around the stations, particularly for major cities where the adjustment of railway lines and other factors involved could affect the accessibility and a possible result (in larger cities) being dislocated from the core.
• Depending on the appearance of the future stations and thus the perception of the town or city where it is located, could encourage more investments, and it would make it more attractive as a place to live and work.
With the above mentioned, the relevance of this article lies in determining the hypothetical effect of a possible railroad on the valuation of properties in the major cities of the Republic of Panama. This hypothetical opens the possibilities of expanding real estate markets to sectors that due to their geographical location and accessibility, that were not so profitable for the private sector of the real estate industry.