Dec. 13, 2009
Casco Viejo, Panama
PLUS: The Spirit Of The Season In Ireland's Burren...Fireworks And Mrs. Claus In Malaysia...Just How Much Money Do You Really Need To Retire Overseas?...
AND: Brass Tacks--How To Budget Your New Life In Paradise...
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The Early Bird Discount for our Live & Invest in Panama Conference scheduled for Feb. 24-26, 2010, expires in two days.
You have until Midnight, Tuesday, Dec. 15 to sign up for this important Panama event and save up to US$650 off the registration fee.
Go here now to reserve your place in the room before the Early Bird window closes.
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Dear
Overseas Opportunity Letter Reader,
On the one hand, it can seem sensible to think that real estate prices in Panama City are headed for further, maybe big further fall in 2010 and that this market could crumble to disaster levels over the coming couple of years. It's happening in other markets that saw accelerated appreciation over the past decade. Look at Ireland...look at Dubai. Why not here?
This was the position argued by a friend in town this week.
"The problem in this market," he continued, "is that there is no central database (MLS), and so we are left with the opinions of real estate sales people for what a piece of property is worth.
"I read an article recently written by a Panama agent selling to U.S. clients," my friend went on. "This guy thinks the market is horrible and headed for worse. What's the motivation to buy in Panama when there are so many deals in the United States at this point? Panama is a great place to do business," my friend concluded, "but I just don't see it now as a place to invest in real estate."
Reasonable position. With which I disagree.
First, you've got to remember that Panama City isn't Panama. The capital is its own sub-market, at a very different point in its cycle than other spots in this country. But for the purposes of our case study today, let's focus on Panama City, for this is the market that enjoyed the greatest levels of appreciation in advance of the global financial meltdown we all continue to struggle through. Other regions of the country are only now beginning their upward marches. But Panama City moved up fast and furious over a half-dozen years and reached bubble status by 2008.
Has that bubble burst...or is a pop just around the corner?
No...and no.
The market has slowed, certainly, and Panama City values are down 10% to 20% across the board and 20%+ at the high end. Two years ago, a seller could name his price and find a buyer in short order. Today, the buyer is more in control. Sellers must be realistic in their pricing and flexible in their negotiating to close a sale. But apartments are still selling. Rental yields, too, have fallen but, again, only marginally. To keep our Avenida Balboa rental occupied, we reduced the rent starting in November but only slightly. We continue to net better than 12% a year (based on our purchase price).
Compare this with Ireland, another market I've been personally involved with over the past dozen-plus years and know from the inside. The Auld Sod is a classic bubble-burst story. Some parts of Ireland saw appreciation at rates of 30%, 40%, and more a year for two, three, four, or more years running through the 1990s and into this new millennium. We were living in Ireland at this time and were dumbfounded by what we watched going on around us year after year. Surely, this year is the top, we'd say to ourselves every 12 months...only to watch further hefty rises over months and years to follow
The trouble in Ireland was not only that values were rising too far too fast, but also, and more to the point for the purposes of this case study, that they were rising so far so fast for no reason. From the day we arrived on the Emerald Isle in 1996, we began trying to make sense of the Celtic Tiger market we found ourselves faced with. "What's behind all this growth?" we'd ask anyone who'd entertain the conversation.
No one could offer a reasonable reply, and the Irish themselves realized the fundamental inconsistencies at work. They recognized as well as we that there was no reason for prices in this country to be moving up the way they were. There was no underlying economic explanation that held water, for, frankly, there was no underlying economy. The Irish imported an economy during this period but neglected to use the foreign investment capital to develop any viable industry of their own. When the foreigners left, taking their capital with them, therefore, Ireland didn't stand a chance. She collapsed.
What's the difference in Panama City? Ask me why I do not believe this market will crumble, and here's what I'll tell you:
First, the buying pool in this market is well diversified. Maybe 25% of it is made up of buyers from the States. Those buyers have been thinner on the ground this past year and are slower to the table with their cash. Meantime, other buying pools continue to expand, specifically those from Venezuela, Colombia, and China.
A lot of money has disappeared over the past two years or so, but that is not to say that nobody anywhere has any capital. If you're a Venezuelan with some cash right now, you're desperate to get it out of your homeland. You look around your world and notice that, not so far away, in little Panama, the investment picture looks very different from the disaster you fear is on the horizon for you, and you use any means you can to move whatever assets you've got out of Venezuela and into the Hub of the Americas.
The Colombians and the Chinese, too, see Panama as a safe haven for their capital, as do the French, the Germans, the Brits, and on and on. While the buying pools from North America have dried up, those from other important markets worldwide are expanding, and this will continue.
Second, it's not only personal investors and private citizens of less free markets who recognize opportunity in Panama. It's businesses, too. Big ones, including Dell, Catepillar, 3M, and two mega-international conglomerates that are right now searching for thousands of apartments for the executives and other staff they intend to move to Panama City over the coming two years. These last two have asked that their names be kept out of the press. They're having enough trouble as it is, they say, sourcing enough apartment inventory at reasonable enough pricing.
Foreign investors, both private and corporate, were moving into Ireland in big numbers, too, of course, in the days of the Celtic Tiger. Why, from the day we arrived on that island until the market collapse began, finally, a couple of years ago, were we calling for the End of Days for the Irish property boom...while here in Panama City we're predicting not collapse but further growth?
The fundamental difference between Ireland and Panama is that Panama has an economy of its own that has been built around the very real asset that is the Panama Canal. Since the Panamanians took control of this hard asset, they've shown the world they mean business, generating good profits from canal tolls, which have held through the global recession. Meantime, the Panamanians are hard at work plowing capital back into their most important asset. The US$3.1 billion canal expansion project begun last year continues in earnest, and the new set of locks being developed is scheduled to open in 2014, heralding an era of even bigger business for this vital international trade route.
Panama, unlike Ireland, has a viable economy built on both trade...and financial services. The world's investors, big and small, continue to recognize and appreciate the advantages Panama offers when it comes to business, banking, taxation, and asset protection. Few jurisdictions worldwide can compete.
That is to say, in the current global context, certainly within the region, what better option do investors, private or corporate, have? When inflation roared in Celtic Tiger Ireland, investors of all description packed up and moved on to more emerging Europe, especially Eastern Europe, or back to the States from whence they'd come. They could no longer afford the Emerald Isle and so identified better options.
Where else are the Venezuelans, the Colombians, the Chinese, et al., who've been moving into Panama these past several years, going to go?
As long as this country keeps inflation under control, and prices for living, for doing business, and for labor, don't rise too high too fast (as happened in Ireland), I'll tell you where all the foreigners invested in Panama are going. Nowhere. They're going to stay put, invest further, and attract others just like them.
Meantime, yep, right now, prices in Panama City are down. And they may fall a little lower.
What is it they say? Buy on the dips?
Kathleen Peddicord
P.S. I'm not the only one convinced Panama is firmly on the path of continued economic prosperity. Credit Suisse released a report last week calling for "stronger growth and healthier fiscal accounts" in this country. "We expect that economic activity will strengthen significantly in 2010," the report continues, "after remaining quite resilient to the global economic downturn in 2009..."
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P.S. What else this week?
- We began our Countdown To Christmas with a report from Ireland Correspondent Lynn Mulvihill: "'One more song should get us to Santa,' the elf up the front shouts down the line, before leading us in another chorus of 'Jingle Bells,'" wrote Lynn.
"Our little group does its best to join in as we watch our feet on the ups and downs of the wet, winding path. The timing of our leader's 'Jingle bells, mind your heads' is perfect as the taller among us have to stoop to under five feet.
"We're feeling our way through the dimly lit Aillwee Caves in the heart of Ireland's Burren region, all eyes waiting to spot the man in red. Five hundred meters in, we stop before a small stage and see him sleeping before us.
"It's the job of the 20 children of the group to wake him. They do it on the third shout, then fall silent when he calls each one, by name, to his side..."
- And another Countdown To Christmas report from Asia Correspondent Wendy Justice: "Malaysia has only a minority population of Christians," wrote Wendy, "so it came as a surprise to us our first year here to discover that Christmas has as much of a presence in this country as it does. Kuala Lumpur is especially festive. Streets are decorated with banners with holly leaves and the greeting, 'Selamat Hari Krismas' ('Wishing You A Happy Christmas'). Santa Claus is in the shopping malls, attracting large and diverse crowds, and we've seen women from the Middle East, wearing full-face veils, posing for pictures with their children alongside him and Mrs. Claus. The malls all have elaborate Christmas displays with gingerbread houses and massive Christmas trees with all the trimmings. Some of the decorations are a bit odd--giant mushrooms, for example, or suggestive, scantily clad angels--giving the impression that they aren't quite sure just what Christmas should be..."
- "On a recent trip to the United States," wrote retire-early expert Paul Terhorst in this month's issue of the Overseas Retirement Letter, "my 40-year-old friend Bill told me he believes he needs US$5 million to retire.
"'Part of that will be equity in my home,' he explained. 'But I'd like to have US$4 million invested. With today's low interest rates, even with US$4 million I'll barely have enough to live.'
"Bill figures that, even if he can earn 5% on his US$4 million stash--tough to do these days--that's still only US$200,000 a year. If he pays half that in taxes, he'll have to live on US$100,000 a year, in an expensive house, in the fast lane he's used to. Also tough to do.
"Bill ran some more numbers by me and asked me how soon I thought he'd be able to retire.
"'That's easy,' I said. 'Never..."
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