Whether you’re a seasoned property investor looking to add a little sparkle to an existing global portfolio or a first-time investor searching for that elusive “win-win” opportunity, it's important to assess opportunities based upon a risk/reward philosophy. Basically, you need an area and development that is going to rise in value but that doesn't carry too much risk - for example, consider avoiding first time developers, do cost per square foot (or meter) comparisons vs. rival developments etc.
With all that in mind, investors in the US and UK are now all talking about Central America, and particularly Panama City (Panama) as the next really hot real estate market.
I've spent a year investigating this, visiting the area, speaking to the appropriate organisations, meeting with developers, comparing developments etc. and I believe these investors are absolutely right to be considering the area. These are some of the reasons why:
The Panama government has been instrumental in kick-starting inward foreign direct investment into the real estate sector. This influx of investment generates its own momentum in terms of capital appreciation. The good news doesn’t end there, however; major infrastructure development is ahead, including: Better roads, creation of new economic zones with tax incentives and special high tech facilities designed to nurture a high-tech economy boom. Significantly, there’s also the widening of the Panama Canal (a stone’s throw from Panama City investment opportunities). A mammoth project, due to run for the next 10 years, spelling very positive news for sustained high rental yields and occupancy rates.
All of these plans illustrate that the Panamanian government are committed to a sustained programme of making their country more desirable, their people more wealthy and their economy more stable. These are all great indicators that the fledgling investment property sector in the country is being built upon solid and sustainable foundations.
Solid Economy
Panama City is one of the most modern urban centres in Latin America, boasting around 150 banks from all over the world. Panama is known as the financial heart of Latin America and, as such, ranks as one of the most important banking centres globally. Of course, also home to the incredible Panama Canal, Panama commands enormous strategic importance. In addition to this pivotal role within Latin America, Panama also benefits from the lowest inflation rate and hence, undeniably the most stable economy in Latin America.
Stable Currency
The national currency (technically the “Balboa”), is matched on a 1:1 basis with the US$, and for all but minor transactions, the US$ is normally used. Naturally, being allied with the world’s foremost currency has its benefits, and the net result has been monetary and price stability almost unique in emerging markets.
Personal Safety in Panama
Panama is a very safe place to be out and about. In a recent global survey, Panama was given a safety rating in the highest class (along with the United States), thus meaning it’s amongst the world’s safest places. These results come direct from the Pinkerton Intelligence Agency.
Tax Incentives
In addition to all the background factors that make Panama a great investment prospect, one should also consider that it offers significant benefits in financial legislation terms too:
There are significant tax incentives offered to investors in Panama. First, there are no exchange controls in existence. Second, foreign investment is welcomed and can be freely repatriated, so extracting gains from Panama is no problem. Third, Capital Gains Tax is very low. Finally, 20 year exoneration is also available for property tax on some new construction projects.
Retirement Benefits
Agencies around the world rate Panama the number one place for retirees, and for good reason. Aside from the “near perfect” climate, personal safety and not to mention the hospitality of the locals, there are a host of additional government benefits to retirees in Panama. Small wonder the property market is responding as retirees are buying their second homes there.
Other questions:
What to do in Panama?
Panama offers a wealth of opportunity for the visitor. World-class shopping, eating out, sport fishing and some of the finest golf courses in Central and South America. For those of a more adventurous disposition, then there’s wildlife watching in the rain-forest as well as excellent diving opportunities. If you’re looking for great beaches then look no further than the islands of Panama Bay; amongst the finest beaches on the planet.
What is the cost of living like?
Well, taxis are $2 anywhere in the City, live-in maids are from $300/month, restaurants are very cheap etc. In fact, the country was awarded the perfect score recently in an independent analysis into Central American economies, in that is offers the highest salaries and the lowest cost of living for any country in Central America...
What's the sort of cost involved for buying a property?
I concentrate solely on pre-construction units right in the City. If you want water-front, prices range from $120/sq ft to $400/sq ft. Inland, from around $90/sq ft. I'd focus on the water-front ones in the range $175-225/sq ft, as these represent best value, considering all factors. Avoid the Trump Ocean Club offering, as it's not great value, isn't in a great location and is way, way over-priced.
Closing Costs/Mortgage etc.?
Closing costs are around 2% of the purchase price, and mortgages are available (subject to status) at rates of around 6.25%, 80% LTV over a maximum period of 30 years.
What's the weather like?
Hot all year around. Dry in the peak season (Nov-Apr) and wetter in the other months. When it rains, tends to be very heavy for a short burst, then dries out quickly given the heat. All in all, it's about as good as it gets, and perfect for golf (my passion). And, the City has never experienced a hurricane or earthquake. Despite this, most developments are built to Florida hurricane standards.
Summary:
For investment, retirement or as a second home, Panama City should definitely be considered. Summary points are:
1. It's a capital city investment, with plenty of high-earning locals
2. Low purchase cost (from c. $100 per sq ft, even in prime residential areas)
3. High yielding (residential units can achieve a 7-8% yield)
4. Borrowing available (high LTV, low interest rates)
5. Major infrastructure changes ahead; widening of the Panama Canal, better roads, huge influx of retirees from North America and a solid economy
6. Various taxation benefits
7. Amazing retirement package
8. Costs are rising very quickly, and taking prices with them.
I've personally bought a unit in the City, and have advised countless others on where to buy, what to do, which advisers to use etc. I firmly believe it's a fantastic place to invest right now, prices are rising and will continue to do so, and feel it's probably today where Dubai was 5 years ago for real estate investment. In other words, there's some good profits to be had.
Please feel free to contact me to discuss, as I've "lived and breathed" this area for real estate investment now for a good, long time.
I'd be very happy to hear from you.
Written by
Andrew Richardson
Andrew Richardson, Managing Director of www.property4wealth.com and Expert Adviser for The Property Investor magazine and can be contacted via email at andrew.richardson@property4wealth.com