Panama Investor Blog

Businessweek-Why Panama is the new Florida

Although I don't agree at all with the title, I am very happy to see this positive article about people retiring to Panama. Great article!

Excerpts from Businessweek:

Panama's quality health care, low costs, and proximity to the states are attracting American professionals as a retirement haven

Prospective retirees: Panama wants you. The pitch? A plane ride just 21/2 hours from Miami enables the newly poor to swap a wretched retirement in the U.S. for one befitting a royal in the balmy Central American nation. Cash out! Emigrate! Feel rich! Panama—the new Florida.

Spin aside, Panama is increasingly popular among retirement-age types looking to hedge against—or skip out on—the recession. The Migration Policy Institute, a Washington-based think tank that studies the movement of people around the world, says the chief factors prodding professional-class Americans to flock to Panama include its First World health care available at Third World prices and the country's pensioner program, which offers some of the deepest retiree discounts in Latin America. Seniors get up to half off on nearly everything, including movies, motels, doctors' visits, plane tickets, professional services, and electric bills. Expats also pay no tax in Panama on foreign income. Nor are they required to pay property tax for the first 20 years.

Panama no longer ranked as top retirement haven

OMG what happened? To those of us that keep up with these things, this is old news. But here in Panama it is as if the local press is just realizing that Panama is no longer perceived as such a great place to retire. What has happened? The local people are just as friendly and there are more air flights available to bring in the baby boomers. The countryside is still just as beautiful and the weather warm and tropical. What has changed? Although many woulod say land prices are the reason, there are still bargains to be had all over the country. The fact is that the government has made some major blunders in tax and immigration laws that have not gone unnoticed by those looking to retire in warmer climes.

La Prensa

International Living ranked Mexico, Ecuador and Italy ahead of Panama in its last retirement index.

The cost of establishing residency and rising real estate prices are two of the factors in Panama’s demotion.

 

LA PRENSA

Demoted:International Living released a report last year indicating that it no longer considers the city of Panama or the rest of the country the world’s top retirement haven.1063403

Panama lost its ranking as the world's top retirement “haven”---a term more commonly heard in conjunction with the word “tax” when the subject is Panama---about a year ago, according to an International Living report entitled The World's Top Retirement Havens, published in 2007.

Panama now ranks fourth, behind Mexico, Ecuador and Italy.

Why the demotion? International Living points out that unless you can afford “a $40,000 investment in a forestry project or a $200,000 investment in real estate or a government bank CD” you're going to have a hard time getting a resident visa.

Also, the government imposed a 30-day limit on tourist visas. Most retirees interested in investing in a home or business in a foreign country want to spend more than a month there without fear of legal prosecution or other complications.

The government recently extended the limit on tourist visas to 90 days, but that’s nbot likely to help Panama in future rankings. International Living gives considerable weight to real estate prices, the cost of living, safety, and infrastructure. Real estate prices have soared, the cost of living has increased, crime is on the rise and it is widely acknowledged that the country's infrastructure, including roads and bridges and water and sewer systems, is inadequate.

Panama's fourth-place ranking notwithstanding, International Living's appetite for selling Panama has hardly diminished. The company will hold a conference on living in the country at the Intercontinental Playa Bonita Resort and Spa from July 31 to Aug. 2. The discounted price per person for subscribers to International Living magazine is $945.

New Boquete zoning plan angers many

The area of Boquete has been under much scrutiny over the last few years and calls for more control of development have been met with a grant of $350k for a study and urban plan to be developed. The grant did not come from the Panamanian government by through the IDB bank, if I am not mistaken. There have been many meetings held over the last year with Intracorp, the local company who was contracted to do the work also acting as the mediator. I attended one such meeting and quickly decided that it would be a waste of my time. Even though much of the development was being done by foreign developers, they saw no need to provide any of the information in English. That effectively got rid of many of potential detractors to the plan and only left the opposition to development to deal with. In speaking with others who devoted more time than I, they told me they came away with the same impression. There appears to be an agenda and the meetings were nothing more than a requirement to fulfill the contract.

For some reason the authorities believe that the several hundred new homes built in the area are putting undue burden on the community and continued development will add to those perceived problems. But, one of the restrictions that have come to light is causing great concern to land owners as well as the town leaders who depend on building permits as a major source of income. The proposal that any homes built above 1200 meters have at least 5000 square meters of land makes it impractical because few foreigners can afford to buy 5000 meters at current prices. That means prices would have to fall dramatically which is not attractive to land sellers. Basically this eliminates the construction of any master planned projects as it is impractical to have that much land per home. Without construction that ends building permits and of course it also ends the construction workforce needed, effectively putting many locals into the unemployment line.
Valle Escondido is right in Boquete which sits at exactly 1000 meters and the name Boquete, which means  "hole" describes the situation exactly. If the town sits near the lowest altitude allowed and all of the developable land sits at a higher altitude, you effectively have stopped further development. I am not apposed to proper zoning and restrictions for development, but there needs to be a balance.

As the mayor points out, he is under political pressure to approve the study and its recommendations  even though he does not see it as in the best interests of the town. After all, the $350k spent on the study needs to be justified and to not accept the recommendations may cause problems in acquiring future funds for the state.

Here is the article from LA Prensa run through a translator with the Spanish version below it.

The technical study for the Plan of Environmental Territorial Ordering of Urban Development of Boquete has become a bone of contention. In a heated session within the Municipal Council, the Meeting of City-planning, an organism integrated by different organizations, requested the revision of the rough draft because of supposed incongruities in the matter of zoning. As well the National Council for the Development, being that they contracted the Intracorp consultant for the study by 350 thousand dollars, asked the Municipal Council who approves the document to be able to put it in practice.

Intracorp, through the executive Melissa Vallarino, indicated that they had fulfilled all the terms of contract, but it needed some revisions.  Paulino Serrano, president of the City-planning, in representation of the Municipality of Boquete, requested the revision of the rough draft of the technical study. On the other hand, the mayor of Boquete, Manuel Ruiz, said that there are pressures so that the authorities approve the study. The document suggests to them thatconstructions over the 1200 meters above sea level have serious restrictions. Only one house for each 5 thousand meters or two per hectare will be able to be constructed and that a is serious issue because the the land in Boquete is at such a high cost.

Honduras enters the residential/tourism housing market

They are a little late to be entering the game, especially with the world economic turmoil, but we still see people here nearly everyday looking for a safe haven out of the mainstream. The folks putting this deal together visited me last year to view my project and get some additional insight on how to attract foreigners. Maybe their time has come if they can get a grip on security issues.

From the financial times

Excerpt; But Tela is at the centre of an attempt to develop environmentally sustainable tourism that could generate up to 5,000 jobs and provide an economic lifeline to its 100,000 or so inhabitants, many of whom have come to depend on remittances.

Tourism is a relatively small sector of the Honduran economy when compared with countries in the region such as Mexico and Costa Rica. The sector provided gross dollar earnings in 2006 of $488m (€312m, £248m) compared with Costa Rica’s 2007 earnings of $1.9bn. But the government has identified it as a growth sector.

Private developers and the Honduran government are investing more than $100m to build hotels, luxury villas and a golf course on a site a few miles to the west of Tela. The Los Micos development is part of an effort to bring international visitors to an area that contains a 25-mile stretch of pristine white beach, three national parks and one of the world’s largest botanic gardens.

For another point of veiw that adds controversy to this project, go here.

Nicaragua is poised to boom -- or bust

With the residential tourism market in full swing in Nica land, a new law governing coastal waters will have a tremendous impact. Everyone is anxiously awaiting the news. Thanks to Andrea for sending this in to me.

By TIM ROGERS

Special to The Miami Herald

MANAGUA --
After years of not quite living up to its billing as Latin America's next real estate hotspot, Nicaragua is approaching a crossroads that could determine whether this impoverished country is ready to take off or to remain bogged down in underdevelopment. In the next several weeks, Nicaragua's National Assembly is expected to pass a law that will regulate development along the Pacific, Caribbean and lakeshore coasts. The wording of that law, which has been intensely debated and anxiously awaited for more than three years, will determine whether investors get a green light to start building up Nicaragua's pristine coast or whether they pull out.
The return to power of President Daniel Ortega, whose first Sandinista government confiscated thousands of private property holdings in the 1980s, raised political concerns among many business people. Yet a new law that protects such property and establishes clear rules for development would codify Ortega's stated commitment to property rights and foreign investment, said Raul Calvet, a real estate investment consultant.
Calvet said the law would provide the clear rules and legal protections that investors need to move forward on plans to build an estimated $1 billion worth of homes and condominiums.
However, developers warn, if lawmakers don't amend the bill, investors will bow out. The latest version of the bill extends the state's claim to waterfront property beyond the 30 meters, or about 98 feet, currently established by law. The wording also raises doubts about property rights.
''If this version of the bill isn't changed, it will definitely be a confiscatory law,'' said Lucy Valenti, president of the Nicaraguan National Tourism Chamber (CANATUR).
The private sector, represented by residential-tourism development projects, the construction chamber and other related business interests, is lobbying for a version of the bill that maintains the 98 feet of public beachfront.
''`The bill doesn't talk of expropriation or confiscation, but in practical terms the result would be the same if you can't use the land you own,'' said Calvet, whose investment consulting firm, Calvet and Associates, represents more than half of the 160 residential and tourism development projects underway in Nicaragua.

Which is better, Panama or Costa Rica?

We spent last week at the tourism fair in San Jose Costa Rica and  I wanted to share with my readers some of my observations. Many of you have noticed that I regularly post articles about Costa Rica on my blog. Some have even commented that I must be working for the tourism board of Costa Rica as it appears that I am putting down Panama by making comparisons between the two countries. The fact is that Costa Rica has some very positive aspects that we should emulate and learn from along with some negative aspects we should try and avoid. I believe it is important for Panamanians and foreigners alike to fully understand what sets them apart in order for the country to make the most in what each has. To say that one country is better than the other needs to be understood in what context. I read in the international press where Panama is the next Costa Rica or where the IPAT says Panama will surpass Costa Rica in tourism and I am extremely skeptical of these kinds of proclamations.  I hope that the following analysis and observations might help us to understand these differences and better equip us to take advantage of our strengths.

Lets start with Costa Rica.
One thing we should all agree on is the fact that Costa Rica has been attracting eco tourism for a much longer time than has Panama. While Panama was dealing with Noriega, Costa Rica was attracting  foreigners to retire and those foreigners built the tourism infrastructure over the last 20 years or so that has made Costa Rica the attraction that it is today.

Here are some facts I gleaned from my meeting with the ICT (Costa Rican tourism board.) in San Jose.  Costa Rica has over 2000 hotels with about 40,000 total hotels rooms. The average hotel size is less than 20 rooms. 85% of the hotels are owned by foreigners and 85% are located outside the city. The focus of 99% of these hotel operations is eco tourism. Last year Costa Rica had about 1.7 million visitors.

What strikes me most is the contrast between these hotel statistics and those of Panama. According to this article I posted last year, Panama is expected to have 24,000 hotel rooms by 2010 with the addition of 7,000 that are currently underway. The majority of these hotels are being built in the city. Go here to see a post about their size and location. The beach areas west of the city are certainly attracting a volume of foreign tourists, but this type of tourism is more in line with the beach areas of Cancun Mexico than the small eco resorts of Costa Rica. When hotels are built in cities they are clearly for business related activities and not eco tourism.

Why there is no eco tourism in Panama
The fact is there are very few eco tourism hotels in Panama and there are several good reasons for that. All one has to do is to drive across the border from Panama into Costa Rica and it becomes readily apparent. As we drove across the border last week my wife, a Panamanian, exclaimed that it looks so different just as soon as you make the crossing? Costa Ricans notice a difference too as they come into Panama. For us it is the abundance of vegetation in Costa Rica and the stark reality of open cattle pastures in Panama.

Panama has long ago sacrificed its accessible rain forests and jungles for cattle farms and agriculture. It is not that the Costa Ricans are by nature more ecologically minded than Panamanians. The fact of geography is one of the reasons they have had little deforestation. Within a 15 minute drive as you cross the border into Costa Rica, you notice that the terrain turns from flatlands to mountains. The Talamarca mountain range which runs 30 kilometers back from the Pacific all through Panama, becomes much closer as soon as you enter Costa Rica. Mountains are more difficult to clear for cattle and with the lack of good roads to remove the timber, it is the main reason Costa Rica has so much more forest and Jungle. Certainly the laws Costa Rica enacted and enforced protecting the environment in the earlier part of the 20th century have helped to protect the land from ranching after road building began in earnest there, but the geography and lack of good roads early in its history has played a major part in protecting its environment.

By contrast,the next time you take a plane from Panama City to David, look below and notice from the mountain tops to the Pacific and you will see that the land has been stripped of all its timber. Even in the higher elevations you see the distinct criss crossing of dirt roads and cattle trails along the mountain ridges. These roads were used by the settlers  in the beginning of the 20th century to clear the land of jungle and make way for the cattle ranches that now fill the landscape. The only areas where you see any forest, other than the national forest preserves, is on the undeveloped Caribbean coast where there are no roads to access the forests. There is little tourism development there either for the same reasons.

By contrast, the mountains along the Pacific coast of Costa Rica meet the sea bringing their forests and the abundant nature with them. You hear the sound of howler monkeys as you drive along the road that in most places meets the ocean. This type of geography also produces the beautiful  crescent shaped beaches of white sand that are in abundance all along the coast.  It is in these mountainous coves where you find the great numbers of small eco hotels catering to the tourists seeking the eco adventure advertised in every brochure and media outlet on Costa Rica. 

Along the coastal areas of Chiriqui the sand is dark and the beaches stretch for hundreds of meters between low and high tide as the slope of the land is very shallow. The numerous rivers bring a great deal of silt as they travel through the cattle pastures and rice fields. Even some of the islands close to the shore have been turned into cattle ranching. Only in the national forest of the Chiriqui highlands will you find the pristine jungles that once flourished across the whole province. And, other than on the Caribbean, only on  the numerous small islands in the Gulf of Chiriqui will you find the white sand beaches and jungles that are similar to those of our neighbor to the west. What areas of natural beauty we have left in the province are incredibly beautiful, but they are not nearly in abundance as in Costa Rica.

The Panama advantage
Yes there is no doubt that the advantages of the Costa Rican environment is strikingly different from that of  Panama, but there is the other side of the coin that needs to be addressed. Panama has some significant advantages over her neighbor to the west. We have a number of foreigners who live in Costa Rican who cross the border and stay in our resort in Chiriqui. They are amazed at how civilized Panama appears to be over the country they chose to live in. The roads are much better and they can buy just about anything here at much lower prices. From the moment they cross the border into Panama they are not thinking about how we have cut down all the forests. They are thinking about how great our four lane highway is and how nice to see shopping centers and hospitals along the road way. They wonder why they have such very high duties on their goods and vehicles in Costa Rica while we have very little. They are amazed that our home prices here are less than half that of their country. Crime is a growing concern in Costa Rica as they have become a victim of their great success at attracting foreigners to vacation and live on their shores and mountains. Another great advantage they see in Panama is the corporate and tax structure. Many of them cross the border to  open bank accounts and form Panamanian corporations to protect their assets in Costa Rica.

In conclusion
So the facts are that Panama can never really compete with Costa Rican as an ecological tourism destination. Panama has the advantage of a well documented and incredible history of transformation from a 1500's backwater to the center of the universe in transits for goods and services in the 21st century. It is in her unique combination of modernization, infrastructure, history and culture that make Panama  a major attraction as a place to live and live well rather than just to visit. Panama cannot afford to spend millions in marketing to be something she will never become, but she can and should focus on her strengths and attract people to her shores to live here rather than just pass through along with the containers in the canal and money  through her many banks.

There are many foreigners who long to live among the forests and monkeys and are willing to share that world with the many visitors that come to gawk at the incredible world of nature. If you can afford to pay for it and are willing to sacrifice some of the many comforts of the first world, then Costa Rica may be the right place for you. If on the other hand you want access to all that natural beauty on a few hours away, but still want to live where  goods and services are reasonably priced and in abundance, then Panama may be the right choice. After having lived in both countries I find Panama to be more to my liking.

 

Panama invited to Barcelona real estate show

La Prensa ran this story this morning and it states that an invitation has been made for the government of Panama to participate in the real estate show in Spain. It is not made clear whether the government as accepted the offer. If they did, it would be the first time the government would participate in a promotion of real estate that I am aware of and a sign that things are not goingvery well in the real estate market. In the past the private sector has been the real estate promoter in various fairs around the world.

Panama has been invited as a guest country to participate in the real estate fair Barcelona Meeting Point, one of the most important in Spain, which has been held for 11 years.

The fair will give Panama the opportunity to present itself as a real estate investment option and perfect location for second homes. Organizers of the international event report already having had discussions with various parties involved in the Panamanian real estate sector, including the Presidencia de la República, the Instituto Panameño de Turismo (IPAT), and real estate associations.Panama will have a 2000-square-meter exhibition space at the fair, which last year attracted some 8,500 companies and 22,000 visitors.

Among the other countries participating in the fair in 2007 were Brazil, Turkey, United Arab Emirates, Hungary, Romania, Poland, Portugal, the Dominican Republic, Panama, Mexico, Netherlands, Germany, United Kingdom, United States, Argentina, Bulgaria, Nicaragua and Morocco.During the last two years Panama has run an intensive promotional campaign to attract foreign investment in all sectors of the national economy.

European style socialism comes to Panama

Last Thursday and Friday, IPAT (now officially the Panama Tourism Authority) hosted two very important seminars on subjects that are critical to the future development of tourism and residential construction in Panama – “Residential Tourism” and “Territorial Ordering”.

Leading the presentation was Mr. Miguel Rodriquez, an academic, consultant and land use official from the Canary Islands in Spain. Mr. Rodriquez’s experience comes primarily from his home country of Spain and specifically from the Canary Islands.   Tourism is one of Spain’s leading industries and each year the country receives over 35 million visitors.  The Canary Islands are one of Spain’s most popular destinations and over 12 million people visited this tiny island chain last year.  The Canary Islands have less than 7,500 square kilometers of land and a population of fewer than 2 million people.  Incredibly, they have over 350,000 hotel rooms squeezed into this small area.

It wasn’t surprising to learn that Mr. Rodriquez takes a very strong position against development in general and residential tourism in particular.  This is only natural considering that his home country has seen nearly unlimited development over the past 20 years and he has witnessed the problems this has caused.  In his view, in order to prevent overdevelopment the government must take an aggressive role in deciding who can build, where they can build, what they can build and how they should run it once it is completed.   According to Mr. Rodriquez, only the government can properly determine the right mix of development for the country.   But, this doesn’t mean that he’s against capitalism. On the contrary, Mr. Rodriquez went on to point out that, “By enacting these regulations and restrictions, we can assure the profitability of the business sector”.  How government policy can “assure the profitability of the business sector” was not explained.

This is European socialism at its finest.  In Mr. Rodriquez’s view the government is best suited to choose which builder is best, what areas can be developed, what business activities can be allowed and even setting the standards for operating the smallest details of your business.  For example, Mr. Rodriquez believes that government should set standards down to “the type of sheets used on the beds in tourist hotels”.

It was encouraging to note that “residential tourism” is at least being recognized during these presentations as a legitimate sector of the tourism industry.  However, Mr. Rodriquez felt that residential projects play a limited role in tourism development and, if fact, take resources away from the industry.

On “territorial ordering”, Mr. Rodriquez was clear – the government must take steps to designate certain development zones in the country for specific uses.   Each area of the country must be studied to determine carrying capacity as well as environmental, economic, social and cultural issues.  He believes that the tourism authority is best suited to address these issues and must work in a “multidisciplinary” fashion with all the other affected government agencies to come up with a comprehensive tourism development plan.  Key to this plan is the establishment of “buffer zones” where no development of any kind is allowed.

Why is all this important?  The recently passed tourism law allows for the creation of a multi-year tourism master plan. Central to this master plan are the concepts of “residential tourism” and “territorial ordering”.  In his introduction to the presentations, Panama’s minister of tourism, Mr. Ruben Blades, took pains to point out that the views presented by Mr. Rodriquez were his own and did not reflect the position of the government.   However, it was clear that the tourism authority was sympathetic to the arguments of Mr. Rodriquez.

It was interesting to see that quite a few people from the various government ministries were in attendance at these presentations and it was encouraging to hear the questions they asked.  There was healthy skepticism expressed about the level of control and restrictions that Mr. Rodriquez advocates.  Overall, the people attending the presentations understood the dangers associated with uncontrolled development but they also saw the need to protect the rights of private property owners.

In the end, the argument is about balance.  In Spain and the Canary Islands, the uncontrolled building of the past 20 years resulted in the real need to control growth, protect the environment and create strategies for sustainable development.  However, the experience of the Canary Islands is not necessarily applicable to Panama.  In Panama, our growth cycle is just beginning and we need to determine ways to encourage rational development in a way that benefits the country and provides incentives to investors.   If the restrictions and regulations proposed by Mr. Rodriquez are adopted in the new Tourism Master Plan, development of any kind may stop altogether.

As the new Tourism Master Plan for Panama is developed, it is important that all sectors of the tourism and real estate industries participate and make their voices heard since the policies created by this plan will have wide reaching implications in the future.

Panama’s fiscal surplus increases and then what?

Good news is coming out of the Economy and Finance ministry regarding the income derived from taxes and the lowering of expenditures of the government. As I have been harping on for the past year, this is exactly the reforms needed in order to fund the expansion of the canal with outside sources of capital. The boys at Finance have done a great job.

Last week we had both Fitch and S&P ratings raised and this week we will hear more about the details of the governments progress in getting their fiscal house in order. On the surface this is all good news and I am sure many of you wonder just why I would not be elated over it. The fact is that much of the burden of taxes are, and will continue to be, placed on our industry, the foreigners who come to live here and the working class, who will be left to shoulder the huge debt of what may turn out to be a white elephant.

As many of you know who have followed this blog, I made no negative comments about the governments push for the referendum last year in support of the canal expansion.  I felt that if the world lenders want to invest money into a major infrastructure project, it is better to be here in Panama than in some other far flung country. I did not anticiapte that in order to get their fiscal house in order they would sacrifice our emerging industry which I consider much more effective in eliminating poverty and bringing forth a stronger and more democratic society than would the canal expansion. Instead of only enriching only a few, residential tourism begins by employing those in the interior of the country who need work the most. We have seen hundreds of new locally owned and operated businesses  start in order to cater to the growing demand for services where none existed before. I won't go into another dissertation on the many benefits of residential tourism as I have expounded on the subject many times in the past. All one has to do is look at what has taken place in the province of Chiriqui over the last 5 years to understand my point.

The fact is that the canal is an infrastructure project that will bring short term benefit by employing locals, but only during its construction. Anyone in the interior will need to move to the city to work on the project. They must either leave their families or move them to the city, adding to the already over- burdened infrastructure. Those few elite who are involved in the many lucrative construction contracts will certainly benefit to a far greater degree, furthering the gap between the few rich and many poor. After the construction, which is expected to take about 8 years, what happens to those workers and their families? What further skills have they learned and what  opportunities have opened up for them? 

And, what about the ordinary Panamanian who lives in the interior, farming and scratching  out an existence on the land. What change can they expect and what opportunities have opened up for them? The fact is, he and his descendants will be burdened by higher taxation and less benefits because of the much higher debt his country is in. Panama already has an extremely high debt to GDP ratio and although todays news appears to be reversing that, the construction project will quickly put the country into much higher debt demanding more and more taxes in order to cover it.

Here is the news from La Prensa

Panama's public finance numbers look good. In 2007, the country recorded a fiscal surplus of $683 million, the equivalent of 3.5 percent of its gross domestic product (GDP), which is a historical record, reported the minister of Economía y Finanzas, Hector Alexander. The surplus is much higher than that recorded in 2006 (0.5%) and represents a marked improvement over the red ink of 2005 and 2004, when the country ran fiscal deficits of -3.2 percent and -4.9 percent , respectively.

Foreigners spend $162.5 million on mortgages

This story gives us some interesting statistics on foreign buyers in Panama using mortgages from Panama Banks. As was pointed out in an earlier post, the number of mortgages being placed for local home buying is much greater. Even though foreigners represent only 6.8% of the total in number of loans, they represent over 30% of the dollar amount due to the prices paid for the properties. These statistics are  amazing when you consider this foreign buying phenomenon has only been around for a few years.

The number of mortgages granted to foreigners is galloping ahead. According to statistics from the the Cámara Panameña de la Construcción (Capac), foreigners took out 850 mortgages in the first six months of 2007, 32 percent more than during the same period in 2006. Although these figures don’t give a complete picture of home buying by foreigners in Panama (many paid in full for the properties they acquired), they do suggest the impact they are having on the real estate market.

Those 850 mortgages represent only 6.8 percent of the total, but if you look at their dollar amount, they add up to around $162.5 million, which represents 31.4 percent of the total monetary value, said Michael Fernández, Capac's economic director.

La Prensa