July 15, 2008

Panama City, Panama

PLUS:

n  "Wait...They Take U.S. Dollars Here?!"...

n  You Call These Sidewalks?...Where Are The Crocodiles?...

n  Master Spanish And Learn A Portable Trade At The Same Time...

n  Yes, They Have High-speed Internet In Ecuador...

n  The Best Beach Investment In Brazil Right Now...

n  An Elegant Foretaste Of Continental Living At London's St. Pancras Station...

AND:

n  Should You Buy Into A Condo Hotel In Panama City?...

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"Does it ever bother you that your life is over? I mean, you're married, you have two children, you've done the same job forever... Doesn't it make you feel sad that everything has already been figured out? What's left now?"

-- My then 13-year-old daughter, Kaitlin, to me, five years ago, on the eve of my 40th birthday

Dear Overseas Opportunity Letter Reader,

We're 48 hours into our new life in Panama. What are our initial impressions?

The shortage of hotel rooms continues. A poster in the arrivals area of the international airport asks, "Did you have trouble finding a place to stay in Panama City?"

The poster's recommendation is to turn the city's short-term accommodation woes into your profit opportunity by investing in a hotel rental. It's the current trendy play. You buy what amounts to a hotel room in a highrise condo tower. Yes, it's a way to position yourself in the city's frothy rentals market, but I'm not convinced it makes long-term (or even mid-term) sense. More below.

Avenida Balboa, the main drag along the capital city's waterfront, is a series of construction zones, all blown apart and muddy. Panama City is working feverishly to expand and augment its infrastructure to better support its surging population. I'm watching the chaotic morning rush-hour traffic from the window of my Bayfront apartment, thankful that, for now, my daily commute involves walking across the landing from my bedroom to my "office."

It's hard not to draw comparisons between Panama City and Paris, from whence we came last week.

A few months ago, when we were preparing and planning for this move, I wrote to report that, according to Lief's calculations, life in Panama would likely be more costly for us than life in Paris. (See "Panama More Expensive Than Paris?")

Eventually, when we're ramped up, it will be. Once we've engaged a nanny for Jackson...and a housekeeper...once we've purchased a car...and hired a driver...then our cost of living here will exceed the cost of our low-key lifestyle in Paris.

But right now? Right now, we're savoring the fact that Panama uses the U.S. dollar for its currency. In other words, everyday things are not only priced lower in Panama than in Paris...but they're priced in dollars.

We've spent many of the past 48 hours shopping--at the Do It Center for a toolkit...at the sundries store down the street for clothes hangers...at the electronics store a block away for a printer/fax machine and a portable phone...at the pharmacy for cell phone credit...at the MultiPlaza mall for a bookcase...at the grocery store for 18 bags of getting-established foodstuffs...

Note first that we were able to accomplish all this shopping within walking distance of our apartment.

Note second that everything we purchased was priced less in real numbers than it would have been in Paris... plus, the real number was a representation not of euro, but of Greenbacks.

We were dizzy with the liberating effect of this. The $500 bookcase...the $20 telephone...the $3.60 gallon of milk...the $1.40 two-liter bottle of Coke...these things all seemed like such bargains when we reminded ourselves (as we had to do continually) that we don't need to add 50% to the price to understand the real cost to us. The number on the price tag is the real cost to us.

On the other hand, while we were able to walk to the hardware store, the pharmacy, the mega-grocery store, etc., and to track down everything on our shopping lists...I can't say we enjoyed the experience.

In Paris, a three-block walk to the dry cleaner's, say, or to the barber shop is a pleasure. Along the way, you pass shop windows with pretty displays, you admire the architecture all around, you catch a whiff of fresh baguette, maybe you can't resist stopping for a pastry or a coffee on the corner...

Here in Panama City, you dare not look up or around. You stare down at the cracked and muddy sidewalk, focusing your efforts on keeping your footing. Here in Panama City, you don't wait politely at the crosswalks for the pedestrian indicator to turn green, as we trained Jack to do in Paris. Here, you weave among the continuous and unbroken flow of traffic watching for a chance to race from one side of the street to the other (clutching Jack's hand all the while).

And you certainly don't chat with your companions as you amble along. As a rule, Latin America is noisier than Europe. But right now the noise in Panama City is deafening. There's so much sound all around all the time that it doesn't matter what language you speak. You won't be able to decipher what's being said even by the person six inches to your right or left.

To be fair, a little ruckus is to be expected...and forgiven. Panama City, the bigger, better Panama City of the 21st century, is a work in progress. From every vantage point, from the condo tower rooftops and down at street level where the jackhammers play nearly around the clock, the sense is that this place is retooling itself right before your eyes.

Paris is polished and pretty. Panama City is jagged around all its edges and dripping with potential.

As international moves go, this one has been remarkably straightforward (so far). We've been able to settle in quickly at our little rental apartment on Avenida Balboa, where we plan to remain for six or eight weeks. Our goal is to find a bigger place, with guest quarters and maybe a home office, before Jackson begins school early September. Meantime, here at Bayfront, we've got wireless, local phone service, regular maid service, a concierge at the front door...

On the other hand, as long as we're installed here, our Bayfront apartment is off the short-term rental market, which continues hot, hot, hot. Again, more on this below.

Kathleen Peddicord

P.S. Jack says he misses his friends in Paris but likes Panama for "all the nature everywhere." He wants us to take him to see a crocodile.

Lief says he'll like Panama City a whole lot better once we buy a car and don't have to brave the city's streets on foot anymore.

I've promised myself that I will learn Spanish quicker than I learned French. After four years in Paris, I finally reached a respectable conversation level in French in the final few months. That had a lot to do with the immersion study course I took at the Accord language school near Opera (www.accord-langues.com) this past January. This time, in Panama, I've resolved, I won't wait more than three years to get serious about mastering the local lingo. I'm thinking of signing on for immersion Spanish study in Ecuador later this summer.

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Details here.

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FROM THE MAILBAG:

"My wife and I are in the process of selling our house and practice. As soon as we do that, we're free to do whatever we want. (I can't believe I'm writing this.)

"We're looking for a place with views of town, mountain, and sea, all at once and are most interested in Mexico and Ecuador. We've looked specifically at Puerto Vallarta, which seems very expensive, especially compared with Ecuador."

-- C. Massicotte, Canada

Our Man in Ecuador, Mike Sager, replies:

"I, too, looked at Mexico as well as Ecuador when considering overseas lifestyle options. I chose Ecuador because, as you say, it's cheaper. I also didn't like that I couldn't own beachfront property outright in Mexico. Here in Ecuador, I own a wonderful house right on the beach in Olon (no leasing the ground the house sits on for 99 years, etc.).

"In Ecuador it's still possible to buy a building lot on the beach for as little as $25,000...and even these very affordable lots will be a minimum of a quarter-acre."

Mr. Massicotte continues:

"Will I be able to find high-speed Internet in Ecuador? Specifically in the Manta area. We want to be able to stay in touch with our friends and the rest of the world, and the Internet would seem the tool of choice."

Mike responds:

"In Manta, you will have no problem getting high-speed connections via TV Cable, the local cable network. It's fairly priced, at less than $40 a month. You can also arrange dial-up via the phone companies. So, don't worry. You won't have any trouble staying in touch with the rest of the world. I do some stock trading, and it's been great managing my investments while glancing every now and then out my window to the sweeping view of the Pacific Ocean..."

For more, write to: Ecuador@LiveandInvestOverseas.com.

"I am thinking of moving to Ireland with the intention of establishing residency for five years then, hopefully, becoming eligible for Irish nationality and citizenship.

"I understand that you've done this already, and I'm wondering if you could comment on your experience. Did you become an Irish citizen? Is it harder to do in practice than in theory?"

-- Drew Markson, United States

When we moved to Ireland 10 years ago, the process of becoming an Irish citizen was straightforward. After the five years of required full-time legal residency, you applied...and your application was more or less rubber-stamped through.

That's no longer true. In the intervening decade, the rules and requirements for becoming an Irish citizen through extended full-time residency have become more restrictive and complicated. For decades, Ireland was the easiest country in Europe, then in the EU, in which to acquire second citizenship. I guess this is still the case, speaking relatively...but Ireland is no longer nearly as easy a place for a foreigner to obtain citizenship as it once was.

It took four years for my application to be processed

(but, yes, to answer your question, I did finally succeed in becoming Irish).The back-up at the immigration department is great and growing.
 

Keep in mind if you attempt this today that you must not only establish legal residency, but you must also file tax returns and pay taxes every year to be eligible after five years for citizenship. The review board will want to see pay stubs or, if you're self-employed, a letter of good standing from the Irish Revenue Authority.

The risk is that the Irish could change the rules of this game at any time...as they have been doing over the past decade. Don't attempt it on your own. Engage a good local immigration attorney...or you probably don't stand a chance.

ALSO RIGHT NOW:

Everybody's talking about how hard it is to find a hotel room in Panama City right now. Some say the solution is the condo hotel. In effect, you, as the investor, buy a hotel room then put it up for rental with a pool of other such units. Sounds like a great idea...on the one hand...

On the other hand, realize that you're buying in not at peak retail rates...but beyond them.

Panama City condo prices have tripled in the past five years. Top end today is $3,500 per meter. I say don't pay it.

Yet the condo hotels are going for even more. One, for example, Nikki Beach, is selling for $5,000 per square meter.

Why would you pay well beyond the current top-end going rate?

Investors who are buying in are doing so for the yield. They seem willing to pay the premium, because they're being guaranteed, in the case of Nikki Beach, two years of rental returns of at least 5% a year. The returns could be greater, say the developer (they're projecting 8%), but we promise you'll walk away with at least 5% in each of the first two years. That's a yield of $15,000 a year for two years (the units are going for about $300,000).

Not bad...

After two years? Again, the developers project 8% a year ongoing.

I've been saying for months that the current rate of short-term rental activity in this town will continue for about two more years. Given the thousands of new hotel rooms that will be coming online in the next 24 months, I don't think it's realistic to look for the current frenzy to continue thereafter. Either occupancy rates or nightly room rates will have to give (or both).

After another couple of boom years, I expect rental yields will fall to the global norm (5% to 8%, generally speaking). Given that, what could an owner at a place like Nikki Beach expect long-term, after the developer/rental manager split? I couldn't say, but be sober when trying to make these kinds of projections.
 

Here's my prediction: Owners of these condo hotel units will see no capital appreciation anytime soon. How could you, when you're paying 50% over the high end of the market up front?

Then, after the two years of guaranteed returns, you'll see lesser ongoing rental yields.

Along the way, you have some use of the place.

Meantime, you've got $300,000 tied up and at risk.

And if ever you'd like the return of that capital...who would be your future buyer?

Again, I don't have answers for these questions...so, although this hotel condo product is an interesting idea, I have trouble buying into it at current prices.

On the other hand, a real estate contact and friend in Panama City, Giulia Gonzalez, has been telling me about pre-construction apartments available right now for $150,000. These are not "condo hotel" units--but they'd work well for short-term rentals.

Here, you've got half the capital invested, you're paying a more reasonable price per square meter given the current market, you might see some capital appreciation (though, again, I believe that this market is at a peak), and you've got the same rental potential.

Plus, it's easier to imagine a next buyer.

Giulia can tell you more: PanamaRentals@LiveandInvestOverseas.com.

Last week, beach aficionado Scott Taylor turned you on to his favorite beach in Brazil. This week, he turns you on to his favorite beach investment in this country.

My favorite beach in Brazil may be Canoa Quebrada, but my preferred beach investment is Cumbuco, because of its proximity to Fortaleza (it's a 30-minute drive away), all the outside investment money pouring into this area (the place is being bought up and funded like crazy by European developers), and the fact that most land in Canoa Quebrada is rights of possession.

Specifically, here's what I recommend: off-plan apartments in Fortaleza and Cumbuco; beachfront lots in "new" Taiba (old Taiba is ROP); and off-plan apartments in "new" Taiba and Praia das Fontes.

In Cumbuco, my top find was a true beachfront apartment of 90 square meters for 260,000 reais (about $163,000 right now). This is a developer resale unit, being sold partially furnished, and the price is negotiable.

In "new" Taiba, I liked a beachfront and second-tier lot (one in front, one in back) for 100,000 reais (about $63,000). Or a one-bedroom, 55-square-meter ocean-view apartment for 104,320 reais (about $64,000). Best part here are the developer payment terms: 33% down and non-interest payments over 24 months.

On the south side of Fortaleza I like off-plan apartments in Praia das Fontes. These are beachfront with prices starting at 108,000 ($66,000) for a one-bedroom, 51-square-meter ocean-view unit. Plus, same developer payment terms as in new Taiba.

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Georgetown Trust lends in Panama, Nicaragua, Costa Rica, Belize, Honduras, and beyond. Attractive terms.

Find out more here. 

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St. Pancras International, London's newly refurbished railway station and new home to the Eurostar high-speed electric train service to Brussels, Paris, and points beyond, has become a destination in its own right.

Friend and veteran globe-trotter Paul Lewis writes from London:

"Every day, thousands come to admire St. Pancras, the soaring Victorian dome of glass and iron, painted in pale pastel colors, and the elegant foretaste of Continental life it now houses.

"Chic cafés and wine bars, restaurants, and boutiques now pack the light-filled space where once harried travelers struggled with their baggage through the smoky gloom to board the coal-burning trains of yesteryear. Marks & Spencer offers tempting snacks and screw-capped bottles of wine for the journey; at now Icelandic-owned Hamley's, children can stock up on toys; Foyles provides books and magazines.

"Overhead, a newly-installed gallery houses a Champagne Bar where a glass costs anywhere from 7 to 30 pounds and many drink in private cubicles overlooking the Eurostar departure platforms. Nearby stands a statue of the man who made St. Pancras' transformation possible by saving it from the wreckers' ball-Sir John Betjeman, poet and connoisseur of Victorian architecture, holding a battered trilby to his head as he gazes up at the canopy of iron and glass above.

"If you are planning a Eurostar trip from St. Pancras to the Continent, here is a tip: Ticket prices vary considerably, not only according to the season, but also depending on the time of day you want to travel.

"A second-class round-trip ticket to Paris in August, leaving London around noon and arriving mid-afternoon, is priced at 119 pounds. But take a later train, leaving St. Pancras around 8 in the evening and reaching Paris a half-hour before midnight, and the price drops by half, to 59 pounds. Question the ticket officer carefully when you make your reservations."

---------- Important Notice ----------

The cost of a Reforestation Visa, Panama's best residency option, is scheduled to double Aug. 26, 2008.

If you're thinking of settling in the world's premier tax haven, act now. Details here.

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