This article is from Richard Detrich’s Blog at http://www.RichardDetrich.com Richard is author of ESCAPE TO PARADISE
A real possibility.
I appreciate this analysis by Kent Davis has a Panama real estate company called Panama Equity and he writes a newsletter which you might find interesting. An excerpt from that newsletter was picked up by THE VISITOR, a weekly free newspaper for visitors that’s available to pick up almost everywhere. I appreciated his analysis of the real estate market in Panama and the Panama economy. Lots of times people come to Panama thinking the market here is like it is back home in the US or Europe: not so!
While 2012 was a banner year for Panama and its real estate market, experts are predicting 2013 will be even better. Here are our seven reasons to invest in Panama in 2013.
1. Business growth
Panama is very pro business, and has enacted tax breaks and broad economic initiatives to incentivize companies to relocate. Multinational companies have been setting up shop in Panama since 2007, and we expect that trend to continue as the Panama Pacifico region heats up and work starts on the new free trade zone in the Pacific.
Why are these companies coming? Because Panama enjoys a geographic position that allows efficient access to major markets in North America, South America, and Europe. Companies like Proctor & Gamble have consolidated the majority of their Latin American presence to Panama because it makes financial sense to base, for example, salesmen who call on Mexico and Colombia in a centrally located country like Panama. For the same reason, Caterpillar is building their regional training headquarters here, the same headquarters where they plan to fly in distributors from all over the world to train them on new equipment.
What are the real estate implications? Executive relocations mean furnished rental demand and increased home sales in certain sectors of Panama City. The mining sector is also starting to ramp up production in several key areas outside of Panama City, and demand for suitable housing has spiked.
2. A strong economy
Consistent gross domestic product increases, low unemployment, and banks with high levels of liquidity. Panama was hit by the 2007-2010 global slow down, and Panama real estate prices came down by as much as 25%. However the majority of Panama’s workforce is employed and will continue to be employed by private sector growth and a long pipeline of current and future government projects.
Panama, as opposed to Costa Rica for example, appeals to a wide range of demographics. From retiring baby boomers to young tech expats to families looking for a better life, the allure of Panama is real. Families moving from countries like Brazil, Colombia, and the UK are drawn to Panama for its comparatively affordable lifestyle, excellent private school system, and it’s relatively safe urban center, Panama City.
Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades. Just look at what’s happened in Miami with the Brazilians. It’s the same thing that happened and is still happening in Panama with the massive influx of Venezuelans, some of whom have been here for more than 10 years.
What are the real estate implications? The demographics driving Panama’s growth are not just coming from one source (like retirees), but multiple sources, meaning a shift (either a reduction or an increase) in demand from any single one of these countries will not affect the market drastically. Furthermore, many Asian and European countries are just starting to discover Panama.
4. The Government
Consistently investing in new infrastructure to make the city more attractive and more livable, fast tracking pro-business laws and policies, including free trade agreements, tax incentives, and government sponsored initiatives in sectors like energy and agriculture. These are items that have been on the current administration’s desk now for several years and projects are most definitely moving forward. The Panama Canal is producing over $1 billion dollars in revenue and the expanded canal is predicted to generate twice the traffic as the current canal. That means an additional $2B in canal revenues alone which can be reinvested into projects that benefit Panama’s residents. By 2015, Panama will have a world-class infrastructure system of roads and mass transit, meaning new funds can be used for new projects. The current administration is pro-growth and pro-business and the administration to follow, much the same as the one that preceded it, will likely be the same.
Real Estate Implications: A stable and fiscally sound government that continues to reinvest in infrastructure to create more jobs and a more attractive and livable country will have a compound effect of bringing more business, more immigration, and more demand for real estate. Waves of immigrants flocking to new projects mean increased demand.
Panama’s banks are flush with cash. Panama continues to be an economy with high cash reserves. Panama’s banks are traditionally very conservative and were not hit by the credit derivatives market.
Real Estate Implications: banks are still writing mortgages, meaning there is ample credit for buyers.
6. International Banking
Panama is caving in to OECD laws and becoming a recognized international player in the world economy.
7. Increasing diversity
Panama has always been a melting pot of cultures, but now, more than ever, diversity is lending itself to the social landscape. As immigration and working laws are relaxed, we expect an influx of immigrants from countries discovering Panama as well as a second wave from the US, Spain, and Colombia seeking gainful employment and a stake in what may end up being the world’s “golden boy” economy for 2013.
When we were searching for a place to retire both my wife and I made lists of the 15 things we wanted in a retirement country. We then compared our lists, which were remarkably similar, and distilled it into one list. I tell all about this and how we compared various countries in my book ESCAPE TO PARADISE: LIVING & RETIRING IN PANAMA. This article touches on several things which were of importance to us. A strong economy, which, interestingly in the eight years we’ve lived here, no thanks to us!, has become one of the world leaders in GDP growth. A reliable currency and since Panama’s currency IS the US dollar, although it’s called the Balboa, our money is as safe as the US dollar, which unfortunately has been constantly devaluing, but that’s another story. We were also looking for a country with a positive growth outlook where people felt good and positive about their nation and its direction. And we were looking for a stable government. Who wants to move somewhere where there is a coup every other year?
So if you are thinking about Panama here’s two things to put on your “to do” list as you do your due diligence and study Panama as a possible retirement location. First, of course, get ESCAPE TO PARADISE: LIVING & RETIRING IN PANAMA and study it. Readers appreciate that I tell it like it is. Second, consider joining us on the Panama Relocation Tour. In a few days I will be leaving Boquete to join the tour group in Panama City. When we get to Boquete everyone will be coming over to our house for wine and cheese. I love meeting people and sharing our experience of living in Panama. Unlike other tours, no one is going to try to sell you anything! The tour is an opportunity in one week to experience several of the most popular retirement destinations for expats and to meet and chat with real expats and find out the straight scoop. On most other tours developers, real estate agents, etc. – all those folks with something to sell – pay to address the tour members and, almost, but not quite, like a timeshare presentation, it’s hard to get away and ask questions with unfiltered answers. The tours are intentionally small groups and have been going now for two years. The 2013 tours are filling quickly but, last time I looked, there was still some space on most tours. They are operated by my friends Jackie and Doug Lange and whenever my schedule permits I join the tour. The textbook for the tour is . . . you guessed it! . . . ESCAPE TO PARADISE: LIVING & RETIRING IN PANAMA. What can I say?
Flying high . . . Panama’s Copa Airline
Copy has recently added direct service from Boston to Panama.
Panama-based Copa continues to outperform nearly every airline group in the world, recording an operating profit margin of 17.9% for 2012 as profits increased by 5% to USD327 million. Copa has been consistently highly profitable since its 2005 initial public offering, with annual operating margins every year of at least 17%. During this period the average operating profit margin in the global airline industry has been in the zero to 4% range.
Copa, which has more than tripled its annual RPKs since 2005, expects more double-digit growth and industry leading profitability in 2013. Panama has the fastest growing economy in Latin America and the region overall continues to have healthy GDP growth, fuelling demand for travel within the region. Copa is well positioned to cash in on the continued rapid growth in international travel within Latin America as Panama City is the largest intra-Latin America hub and, unlike most other airports in the region, is committed to expanding the infrastructure to keep up with Copa’s rapid growth trajectory. [From CAPA where you can read the whole story about Copa]
Panama is near the top of the list of countries where there is the most acute shortage of skilled labor
In Panama, 47% of employers said they have difficulties in filling jobs with the right people. In Guatemala this percentage is 36%, and in Costa Rica it is 35%.
A Manpower report identifies the key strategies cited by respondents, to overcome the problem:
Employers were asked what strategies they implemented in order to overcome the difficulty of filling positions. Responses varied widely, from providing additional training to current staff and improving compensation to forming partnerships with educational institutions in order to provide candidates with the essential skills that organizations cannot provide alone. However their answers clearly pointed to a need for solutions to help them close the skills gap disabling specific efforts to promote their organizations. The percentage of employers who have adopted strategies to overcome the problems of lack of talent, increased from last year. [Newsroom Panama]
Also a problem is finding people who speak English, preferably American or at least British English. Many Panamanians who do speak English learned English from native Spanish-speakers and over generations the pronunciation has been compromised. What major industries, like the Panama Canal and call centers, need are people who speak English with a universal, i.e. American or British, accent. Even the Queen of Carnival in Panama City made headlines by urging people to “learn English” as the universal language of commerce and business.
Of course nothing is perfect . . .
Panama struggles with some major imperfections, one of which is the legal system. I’ve commented on the legal system before [The Devil You Know vs. The Devil You Don’t Know.] It’s well worth spending some time looking at The World Economic Forum reports on Panama. According to the World Economic Forum judicial independence in Panama is lower than that in countries like Ethiopia, Albania and Zimbabwe.
Panama is ranked 132 out of 144 in its Global Competitiveness Report for 2013 the WEF calls corruption and inefficient government bureaucracy as two of the most important challenges in the field of competitive development.
A study by the Department of State of the United States, called the Panamanian judicial system “weak” and cited reviews compiled by the Congressional Research Service include the nomination of “political allies” of the current administration as members of the Judicial leadership.
While the rate of resolution of conflicts the judiciary continues to fall, it solved only 43% of existing cases in 2012. In 2007, the rate of resolution of existing cases was 50%. La Prensa comments that investment in institutional development in Panama has a long way to go. Although the Inter-American Development Bank (IDB) has operated since 2007 a program with the state to improve access to justice and strengthening judicial institutions, several international organizations still are concerned about the shortcomings in the administration of justice in the country.