Panama Investor Blog

Is Panama a safe place to live?

There have been a number of comments to my post earlier about bringing cash into Panama that have turned to the subject of crime in the country. There is no doubt that crime is increasing in Panama and certain folks are more likely to become a victim of crime than others. 

Why is crime on the rise? Why doesn't the government do something about it? And are gringos more susceptible than Panamanians? What should individuals do to protect themselves? Is Panama a safe place to live? These are the questions I get very frequently in emails from readers considering moving to Panama.

Everyone agrees that crime is on the rise, but it is the type of crime that is on the rise rather than crime in general that is disconcerting. Panama has always been plagued by opportunistic petty crime as is every country, especially in the third world. My wife's sweet aunt who has lived in David for over 70 years says malientes in the neighborhood break into her yard to steal her propane tanks and valves on a yearly basis. Her husband has hundreds of valuable Bonsai trees in pots he has raised for 30 years all over the yard and no one bothers to take a leaf.  They are after what they can use or easily sell. She says she has dealt with these types of crime for years and even with a dog in the yard they manage to take her gas, so she probably knows the thieves.

When I came to Boquete 15 years ago we occasionally would hear about a Panamanian vacation home being broken into while no one was there and everything including the fridge was removed. But we never heard of home invasions until recently. Most homes and businesses have bars on windows which should tell you something about how Panamanians deal with crime. Prevention!

Like bees to honey, criminals have found easy marks in Panama and they do a lot of preparation and due diligence before they strike these days. Oh there are the occasional muggings and opportunistic robberies, especially in Panama city, but now the criminals are more sophisticated. Most crime in the interior of the country are home robberies while the owners are away. Criminals are cowards and would much prefer an easy target than a possible angry homeowner who is prepared. So they carefully case the home from a distance and watch the comings and goings and learn the pattern. They have scouts and cell phones and can know when the owner is returning down a long road home and be long gone with your stuff when you pull in. And what stuff do they prefer? Laptops, jewelry and other small items that are easy to carry and easy to sell. 

So what about the home invasions. In these case the criminals are much more brazen and want cash. They may break in the home, tie up one of or more victims and send the other to the local bank to make a hefty withdrawal. They may have heard there is a safe with cash and valuables and they will make you open it. Even in these horrible incidents, it is rare to hear of someone injured which makes it no less traumatic or dangerous. Again most of these crimes take place in the city, but there have been several incidents in the Boquete area in the last year or so and one was a foreign couple.

Are the police any help? Not really because in the interior there is usually only one patrol car per town and they don't patrol because they don't have a budget for gas.  So don't count on police protection. Aren't Panama laws enforced? No, but think about it. How do you protect a wide square mile area with homes scattered all over it. Even if you patrolled the crooks would just have a lookout watch your pattern and avoid you. So you have to take matters into your own hands.

Are gringos more of a target? You betcha. North Americans flocked to Panama and Boquete buying up land as if they were running out of it, and build beautiful homes on the sides of hills to take advantage of the views. But few gave much thought that maybe these very friendly neighbors may not be the only folks they have to deal with in the future. So home robbery is becoming rampant and the occasional invasion happens too. A gringo house is easy to spot in the countryside as it will be  comparatively large and with a new car in the drive. Few Panamanians can afford such luxury so crooks can be sure there are more valuables in that home  than the Panamanian house down the road. What can you do? If I lived outside of a gated and guarded community I would have a full time caretaker and his family living on the property. They are just more eyes and ears. What about a dog? Dogs are easily poisoned or killed outright, so only count on them to warn you of someone entering your property when you are there.

I have a number of friends who live on small farms scattered about and have no problems because they keep people always on the property. Sure it costs more, but you have built in security at the sacrifice of some privacy. So the fact is if you don't have some kind of security you are an easy mark and in time  you will likely be robbed.

Do you need a gun? Depends on you and your ability and willingness to use it should the time arise. Should you get a permit? Sure if it is no big deal to secure one. But I hear it is more difficult now and can take many months to acquire. The crooks won't have a permit and won't be afraid to use a weapon should they feel threatened. If you have to protect yourself from physical harm the last thing I would think about is the legality of the weapon at hand. This is not going to be a regular occurrence so if the permit is a hassle to get why worry about it. It is just another unenforceable law in Panama. And what should you do if God-forbid you kill or wound someone? Let your conscience be your guide. Once bad people know you are able to take care of yourself, you will probably not encounter another problem. Thieves like easy marks and you aren't one of them. All in all, it is best to live in a gated and guarded community where you can leave your home for weeks or months and only worry about the mildew invasion when you return.

So is Panama safe? Yes it is. In 15 years I have never been accosted and neither have my friends living in the area. Just don't be an easy mark and become a victim. Be prepared as you would living in your home country. No one sleeps with their doors unlocked anymore and they count on their neighbors for help when they need it. If you don't have close neighbors you better look at other options.

It is more than worth the extra vigilance to live in Panama because freedom thrives in places that are more self reliant such as the Panama countryside. Freedom thrives in a reasonable chaos where the biggest crooks, (government) are unable to watch your every move and don't much care. Panama is still a wild and wonderful place full of pristine beaches, jungles and mountains with adventure and sport like no where else on the planet. The people are friendly and will accept you with all your many faults you bring with you. Panama is not perfect and I thank God it is not. There is no freedom in perfection in this world.

Panamanian skill levels not expected to improve

The message came through to me loud and clear last year when I interviewed the minister of commerce. He said, "we have many issues we will tackle, but the Panama labor code is not one of them!" Like most businessmen in Panama, both he and I realize that the labor code in Panama is what really holds it back from making true advances in the skills of its work force, which is truly the future of the country. An article in La Prensa on Saturday was about Panama business leaders bringing up the matter to the minister of labor and getting a similar response as I did. You can't really blame the administration for not wanting to touch this hot potato. Labor unions would revolt and there would be violent demonstrations against any changes that would allow Panama to become more competitive in the world market place. After all, to allow foreigners to fill the many  lacking skills  may force Panamanians to improve their own skill level, and we can't have that. Best to keep things as they are and not rock the boat!

From La Presna;

MINERVA BETHANCOUTH
  [email protected]

  Authorities from the Ministry of Labor and the Immigration Service have held meetings with business demand to increase the standing of foreign workforce.

  The Union of Industrialists of Panama days ago raised the need to ease immigration rules because they need manpower in certain disciplines.

  However, the director of the Ministry of Labor Employment, Samuel Vargas, warned that changing the rules on hiring foreign staff would change the Labor Code, a fact which is not covered now.

  He said that the issues raised in meetings with the private sector are related solely to expediting the time to get permits to work in the country.

  The director of the National Immigration Service, Maria Cristina Gonzalez, said to be respected Panamanian labor and enforce the rules that stipulate the hiring of foreign staff.

CNN/Time reports on the Trump adventure in Panama

Well, coming from the main stream press you can take this story for what it is worth. Lots of positive quotes from Trump, real estate agents and Khafif the developer and a few one liner negatives from yours truly, a Panama  university professor and Eric Jackson of the Panama News. Not that I am negative about the project, but I provided the reporter with a list of positive things and he chose the negative to make it more "balanced".  What do bloggers know anyway?

Excerpt: Donald Trump has never been accused of subtlety. So there is nothing retiring about the celebrity real-estate magnate's venture into Panama. His 70-floor sail-shaped Trump Ocean Club, under construction in Panama City's exclusive Punta Pacifica district, will be the largest and most expensive building ever built south of the Rio Grande. "Nothing like this has ever been attempted in Latin America," says head developer Roger Khafif, whose K Group construction firm is handling the $400 million project. "When you think of Sydney you think of the Opera House, when think of Paris you think of the Eiffel Tower, and when you think of Panama, you are going to think of this building."

Read more at Time.com

A Panamanian goes to Washington

This story crossed my radar today and I could not help but post it as it gives me the opportunity to share my opinion on the issue of illegal immigration. It is not because the perpetrator of the crimes is Panamanian that I bring this up, but it shows the lunacy of the U.S. regarding illegal aliens and the stark difference for any foreigner coming to live in Panama.

In 2008, a convicted Panamanian murderer escapes from La Joya Prison and makes his way to Mexico and then  on to Washington D.C.. Last week someone tipped off the FBI that he was going to fire rockets into the metro. He was captured with a number of false ID's, $21,000 in his bank account, 3 cars including a Lexus and he was living on government subsidies. "Barrera reportedly told authorities he used the bogus Social Security card to get the driver's license and secure his U.S. Department of Housing and Urban Development subsidized apartment, court documents said. A property manager for Brookland Manor Apartments told authorities Barrera paid his rent for one year in advance." Read more at the Washington Examiner.

Could an American pull this off in Panama? Not that there aren't American crooks in Panama, but few would be able to enter and stay in the country illegally and get around all of the check points. He could not easily get a bank account, and he certainly could not live on government subsidies.

To come to Panama and live here legally requires a lot of patience and paperwork. To acquire a retiree visa  you must  submit documents to immigration that  proves you are not wanted by the law, show bank accounts from your home country with references and proof that you have adequate income to support yourself and your family. Should you be granted the right to stay and spend money, you are NOT allowed to work (compete) in the Panamanian job market. All of this can take from 5 months to two years depending on the attorney you use and the immigration department doesn't lose your paperwork.

There is no question that America is the land of opportunity and it is no wonder that so many in Latin Americans want to go there any way they can. Who can blame them? It is also true that illegal immigration is one of the reasons many Americans are willing to go through the hassle to live in Panama. They see the immigration issue in the U.S. as just another example of their government run amuck. In my opinion, the U.S. government enables illegal immigration in order to get more voters to vote themselves largess and therefore enlarge the government. Right after supposed health care reform you can bet we will have immigration reform which is "statist speak" for illegal alien amnesty.

If the U.S. controlled its borders and immigration as does Panama, and forced everyone to either be legal or gone, many Americans who are now living here probably would still be living there.

Panama Cuts Corporate Tax from 30% to 25%

From Tax-News.com

Panama’s President, Ricardo Martinelli signed on March 15 a bill to reform Panama's Tax Code, adopting several tax measures to lower the company tax burden, ensure fiscal sustainability, and simplify the tax system.

In order to improve Panama’s international competitiveness, the bill lowers the corporate tax rate from the current 30% to 25%, though the timescale for this reduction is as yet uncertain.

The bill however will introduce higher license fees on banks resident in Panama. Fees will range from USD75,000 for institutions with assets of up to USD100m, and a fee of USD1m for institutions with assets of more than USD2bn.

The bill will alter the country’s sales tax rate to 7% from 5%, and introduce sales taxation on fixed telephones and prepaid mobile phones. Public houses and restaurants that do not serve alcohol will be granted an exemption from paying sales tax under the bill. Childcare items have also been made exempt under the bill. In addition companies operating in the agricultural sector will see their exemption threshold increased from USD150,000 to USD250,000, and will not be required to file an income tax return.

Finally, the bill modernizes the tax code and abolishes more than 30 taxes. The code also contains provisions for the creation of an administrative court which will host tax appeals.

Provisions in the bill will enter into force on July 1, 2010.

News.com

Don't be caught with cash at Tocumen

From time to time I hear of people being caught with a lot of cash at the Panama International airport. Things don't go well when caught carrying lots of cash. According to the law, you must declare cash or monetary instruments over $10,000. Of course if you declare a large sum of cash you will be subject to scrutiny as a money launderer or worse be hijacked on your way from the airport by crooks who somehow found out you were carrying valuables. In this most recent case where the Latins were caught with nearly $250,000 in cash and of course it was confiscated. So now they are on the list as money mules and they lost the money. Only bright spot was they get to keep $500 so they can pay their bills while in Panama. Some consolation!

Many folks ask me about bringing cash or gold into Panama. It is not ill-gotten gains but, their hard earned money that they don't want tracked by their government for possible future confiscation. My advice is be careful to have less than $10,000 per person in the family and be sure to individually fill out the custom form and carry it individually. If you are carrying gold coins do not just go by face values because that argument will fall on deaf ears in Panama. Just make the number of needed trips to get whatever amount of your cash and coin down here. And then be very careful and get robbed. It might be easier to just wire transfer or a gold courier service.

NAM NEWS NETWORK Mar 17th, 2010

PANAMA, March 17 (NNN-PRENSA LATINA) – The Panamanian National Customs Authority reported the confiscation of US$249,600 of undeclared money during operations carried out at Tocumen international airport as part of action against smuggling.

From that number, US$18,480 was seized in the luggage of a Mexican while the rest of the money was carried by two Guatemalans.

Those involved received US$500 for personal expenses in compliance of the customs legislation.

Trump; What's in a name?

When a deal goes bad its like an ugly divorce. In the beginning everyone is happy and the future looks ever so bright. But when things make a turn for the worse, the name calling is just the beginning and the Trump name  is certainly getting its share of being raked through the mud.

It used to be if Trumps name was on a project it meant a certain level of quality and cache that would add value to a property. Developers lined up to buy the rights to the name and property buyers lined up too, many in hopes of a making a quick buck by flipping the property before the project is even completed. But the devastating economic downturn has hit Trump especially hard. He had made deals where he "licensed" the use of his name, but had little control over the financial viability of the project if the unthinkable happened.

For example, a lawsuit was filed Monday by a group of buyers who lost their deposits in a Baja California resort charging Donald Trump and his executive children with fraud and negligence.

The seven plaintiffs say they were “duped” into buying hotel-condo units in the Trump Ocean Resort, a 526-unit, twin-tower project planned for 17 coastal acres a short drive south of the Mexican border. When the project collapsed in 2009, dozens of buyers lost their deposits, totaling more than $32 million.

Even The Donald’s name couldn’t save the Trump International Hotel and Tower – Fort Lauderdale.

The condo-hotel project became the latest fatality of the economic downturn when it was hit with a foreclosure action late last week.

The 298-unit beachfront project, which has yet to open, has also been the target of lawsuits filed by disgruntled buyers seeking refunds.

One of those lawsuits alleges they were misled about Trump’s involvement. Although he licensed his name to the hotel, he is not among the developers. (From IPJ)

Then there is Vegas, Dubai, Hollywood and other projects scattered about the world that the Trump name was used and misused in ways that have brought shame and lawsuits by the dozens. All of these can really be chalked up to bad timing. If easy credit were still flowing and the housing bubble had not collapsed when it did, the vaulted Trump name may have come out fine, but it was not in the cards and although the name may be tarnished by all the bad luck and bad press, I doubt if much of the financial debacles will touch the Donald. After all, he just licenses the use of his name and maintains some controls over project integrity, but I doubt if you will find anywhere in sales contracts or brochures where he claims to be the developer or guarantees the projects to be a success. That will rest on the developers, finance houses and those who bought into the project. They all took a gamble and Trump, by using only his name took the least financial risk. With development only a part of his financial interests, I doubt if these high profile defaults with his name on them will count him out. In fact I bet in a few years the Trump name will again be selling something and folks will line up in the hopes of riding that name into easy money.

What about Panama's Trump Ocean Club? Here we have a different kettle of fish. First and foremost we have guaranteed financing for construction. Remember that just before Bear Stearn's went belly up, they sold $220 million in bonds for the project construction and that money is available to finish the project. The sales of TOC are a bit different from other Trump projects in that many of the sales have been to folks in countries like Venezuela and Colombia who were/are looking for a safe haven in which to park money and Panama is a perfect place where the Society Anonymous protects the identity of ownership. Many buyers in the U.S. and Europe may have been speculators and, as I have stated in previous posts on the subject, few will have much sympathy for them should they not be in a position to close when the project is completed.

It is interesting to note that the Ft Lauderdale project had 298 units and a mortgage of $139 million and was not completed. The Hollywood project has only 200 units and costs $335 million, while the Trump Ocean Club is spending a mere $220 million for a building with 5  times the number of units. That translates into the fact that construction and land costs are so much lower in Panama that they can build a project of such magnitude for a fraction of the costs  of that in the U.S.. It also means that the 30% down by buyers will cover much of the construction costs which, should many decide not to close, won't hurt the project much. The concern will be available bank financing for those who really want to live in the property and were not just speculating to make a quick buck. Local banks are limiting their mortgages to  $1500 a meter, which is about 30% of the sale price of these units. Many Latin buyers never expected bank financing and will pay cash when ready and I have heard that the developer is working on financing options for those who will qualify and should have something available soon.

Do Golf Courses Really Sell Second Homes?

Kevin Brass asks this question in his recent article by the same name in International Property Journal. I have my opinion on the mater which to some degree is substantiated by IPJ. There was a time when a golf course was a must for a successful master planed community, but the demographics of the buyers has been changing in the last decade and even more so in just the last few years. Even in the old days, only a relatively small number of community residents played golf, but all liked the amenities and manicured open spaces provided by the sport. If the community was large enough the maintenance fees were not so high and the added perceived and real value of a golf course home justified the extra expense. You could count on a 20-25% premium just being in a golf community.

But things have changed, especially in just the last few years with the economic downturn. Maintaining an 18 hole first class golf course is expensive and with so many home defaults, communities are struggling to keep maintenance fees down because there are less homeowners available to pay them.

Every golf course developer in Panama struggles with this cost of maintenance even though most of them make their courses available to any golfer willing to pay the fee. There are just not enough golfers in Panama to justify the cost of maintenance, so the developers end up carrying the cost of course maintenance hoping to make it up on homes sales in the future.

When I designed Valle Escondido I decided to put in an executive golf course that would provide an amenity that could satisfy a golfer and at the same time provide open green space that so many people cherish in a community where usually every square meter is devoted to housing. I had researched executive courses and found that if done properly they can be very enjoyable and provide a challenging play even for those who play it several times a week. In addition the initial cost and upkeep would be a fraction of that of a full size course.

Besides having limited space for a course (our whole project is only 125 acres), the cost of maintenance was a big factor in the decision. Where the cost of maintaining an 18 hole course might be anywhere from $25 -$60k per month for 100-200 acres, our executive course runs between $5-8K a month because the whole course covers less than 25 acres. This allowed us to charge a reasonable monthly fee and only to those who played golf rather than everyone in the community. The homeowners in the community get the advantages of the manicured open green areas, but if they don't play golf they don't have to pay for the maintenance. This turned out to a good decision for us, as most residents are happy with the arrangement.

When I hear a developer plan a golf course community in these challenging economic times, I cringe and consider the project doomed before it even gets started. The world is awash in examples of this losing situation of finished and unfinished courses and no or low home sales. In my opinion it will be many years before this reality will change and during these years the new generations interest in golf may not be that of their fathers or grandfathers. Now they want gardens, health spas, tennis or other sports that require a lot less space and upkeep. And as the world's inhabitants are forced to be more austere due to continued economic realities, the dream of a second home on a golf course in a far off land may be impractical and even frowned upon. 

Excerpts: from International Property Journal.

Talking to Nicaragua developer Kevin Fleming the other day, the subject turned to golf—specifically the value of golf in a modern second home resort.

Plans for Fleming’s 923-acre Seaside Mariana Spa and Golf Resort include a Jack Nicklaus Signature course, which will be a milestone for Nicaragua. The course and the Nicklaus name are a key asset in marketing the project, he says.

But Fleming is also among a group of developers who wonder about the importance of golf in future projects. His studies show 15 to 20 percent of potential clients are interested in the game, compared to 50 percent who love the idea of a spa.

“There’s more interest in eco-adventure [than golf],” Fleming says. “I don’t think you can go to market as a complete brand if golf is the only amenity.”

While not a new debate, this is an increasingly common discussion these days, as developers wonder if turning over a huge chunk of a property to an expensive course is really the best way to sell homes.

A marina sells more home, Ashley Bretecher, executive director of marketing for the Los Sueños Resort and Marina in Costa Rica, said in a recent interview. “Golf doesn't bring us real estate clients.”

The worst sector hit by the economic downturn, (the report found), were courses associated with residential developments, with 78 percent reporting a “negative impact.”

Read the whole story at IPJ

Even with foreign direct investment down 25%, Panama is still ahead of the game

Xenia De Leon writes an interesting article in La Estrella about FDI in Panama. She point's out that  FDI is down 25% from $2.4 billion in 2008 to $1.7 billion in 2009. Yes this is a big drop, but when you compare it to historic data it is still way ahead of where FDI used to be in Panama. Like everywhere in the world, Panama rode the credit bubble and FDI flowed to her shores in great waves. So the water has calmed and things are getting back to some semblance of normalcy, which is really a good thing IMO. Of course governments always want to see growth, but in these trying times I am happy to see some conPublishsistency and return to lower, but possibly sustained growth.

XENIA DE LEON
[email protected]

 PANAMA.  Panama managed to climb the big wave that brought the international financial crisis to reach a Foreign Direct Investment (FDI),  $ 772 million last year.

  This figure is lower by 26.2% compared with 2008 when it reached a peak of 2,401 million.

According to analysts, the difference in the figures is linked to the global economic crisis that affected some sectors such as banking and general business license from the Colon Free Zone, where the country only grew 2.4%, while in 2008 came to 10.7%.

  However, experts estimate that to maintain these levels of investment or elevate, Panama must show that the companies have legal certainty.

  The IDE is only the placement of capital from a foreign country in which companies want to internationalize or installed in other countries.

  Once A year after installing the transnational corporation in the country, and their investments will be considered as an IDE.

  This situation changes if a bank or company seeking money from outside the country to make a new investment.

STABILITY

  Aristides Hernandez, an economist at consulting firm BDO, said that maintaining these levels of investment in a crisis is good news for the country. This taking into account the historical average has been less than one billion dollars annually.

The economist said that to maintain investment in Panama must sell abroad an image of legal stability for business, where it ensures the economic and social stability of the country.

  For Gaspar García de Paredes, president of the National Council of Private Enterprise (CONEP), it is important to assess the figures obtained to date in order to determine a strategy that goes in terms of increasing investments.

Paredes government raises a question: "What are other countries doing to promote good performance and make the investment to stay in your country?"

  Garcia de Paredes agrees with Hernandez that it should maintain a good investment climate to attract more foreign investment.

  The employer stated that there is market the strengths of the country: jobs that are generated alternative to the Panama Canal, logistics and development of the petrochemical industry.
Although it was attempted to obtain statements from the Ministry of Commerce and Industry on this issue did not have answers.

Why you won't see rock bottom prices on condo's in Panama

Miami has certainly had  problems with over-speculation on construction of high rise condo's. The news has not been good for developers for some time now, but it is very good for bargain hunters. How about condo's that were selling for $224,300, or $329 per square foot now at auction starting at about $50,000 or $63 a square foot. This is well below the cost of construction and a super deal for bottom feeders.

Could this happen in Panama? There are several reasons why I don't think it will. Miami is in a completely different world of bank financing and sales transparency and Panama is a shell game with a shrewd group of happy go lucky conspirators. A Miami developer MUST make sales or go bust and in Panama it is just not the case.

Surprisingly few banks are on the line with the developers in Panama and those that are have plenty of hard assets and cash flow to back the loan. Many of the buildings were financed with old money from cash abundant Colon Free Zone operators and some others may be financed by ill gotten gains where sales are not so critical as owning a clean asset. Foreign developers (mostly European) looked at land and construction costs as "cheap" compared to their home countries and brought construction money with them. Pre-sales with 30% down may even pay for a great deal of the construction costs because costs were running under under $1000 a square meter and many apartments were sold for two and three times that. There is no MLS, and without transparency the only way to know how slow sales really are is to wait until the buildings are completed and see how many lights are on at night. Even before the boom, I was astounded at the few lights on in the apartments in the city. How was it possible that there were so many empty apartments, yet rents were not cheap and neither were apartment prices down.

The developers with  significant unsold inventory may only be saddled with high building maintenance and taxes on the land that has gone up significantly with the new tax reforms. That is a small price to pay for a $50-100 million dollar asset that can be used as collateral in the future.  Even the government does not really care if they are sold because they gave property tax exoneration's for 20 years. It is a grand conspiracy where the developers will not be crying, the banks won't foreclose and nobody is the wiser.

So who are the losers? Just a bunch of "greedy speculators" who bought apartments hoping to make easy money on the quick sale before building completion. Few people have sympathy for speculators who bragged on how much easy money they were making during the boom times. After all speculation is a high risk game and as many have or soon will find out, you can lose it all with that kind of gamble. In fact when you look at most of the Panama apartments for sale on the internet they are being offered by speculators just hoping to get out with some of their money back. There are not a lot of completed units on the market as many of the projects are as much as two years behind schedule.

So all the concern about all the buildings and the thousands of people living in them using up water, electric and sewage is something we should not to worry too much about. Traffic won't get much worse and should get much better with the new metro. And best of all, as travelers make their way from the airport to the city they will be wowed by the cosmopolitan look of Panama City and wonder at the prosperity of this small country. These Panama folks must be geniuses to be prospering in a world of financial difficulty. And just maybe some wide eyed visitors will pony up and buy a condo at inflated prices because there is little or no discounting going on, at least from the developers.