This Is The Next Panama
I visited Panama for the first time in early 2000.
The United States had just handed over the Canal Zone to the Panamanians. Everyone was worried. Would Panama be able to manage the Canal on its own?
Meantime, Panama’s economy went into shock after the tens of thousands of U.S. military who had been based here went home and took their disposable U.S. income with them.
When I first appeared on this scene, I found the shops empty and restaurants closing.
It took only a few years, though, for the Panamanian government to show the world that, indeed, it was capable of managing its Canal. In fact, it wasn’t long before Panama was operating the Canal more efficiently than the U.S. military ever had ever done… and, as a result, at a substantial profit.
About this time, Panama also became serious about taking a page from Costa Rica’s ecotourism playbook. We’ve got everything Costa Rica’s got, the Panamanians said to themselves… and then some. Foreign investors, retirees, and tourists should be paying attention to us, too. We just need to get the word out…
Then, with that realization, Panama began working in earnest to make a name for itself on the global stage.
In 2003, I bought a pre-construction condo in downtown Panama City for about US$1,200 a square meter. Today, 15 years later, it’s worth at least US$2,500 a square meter (maybe as much as US$2,800 per square meter, based on recent sales in the same building), after the ups and downs of the global real estate cycles over the past decade-and-a-half.
Meantime, it has also thrown off a reliable rental yield every year… a minimum of 8% net up to as much as 14% net per year.
In other words, this apartment in Panama City, bought at the beginning of what has played out to become a bonafide and sustained economic boom, turns out to be one of the best real estate purchases I’ve made in my 23-year-long global property investing career.
I’ve identified the market that I believe will be the next Panama… specifically, the next Panama City.
The circumstances aren’t quite the same in the Dominican Republic today, but I see the same potential I recognized in Panama City a decade-and-a-half ago in the DR’s capital city Santo Domingo right now.
The economy in the Dominican Republic has been the fastest- or one of the fastest-growing in Latin America for the last five years. You might conclude from that that you should have bought in this market years ago.
In the case of some of the country’s top beach resort areas, that could be true. The earliest-in opportunities could be history.
However, this country’s capital has been quietly ignored until now.
Local investors are buying small apartments targeting the expanding business traveler and tourist markets in this city… while local developers are building more and more buildings featuring these kinds of business and tourist traveler-friendly units.
This was the situation in Panama City when I bought my first rental property here in 2003. The local developer I bought from had designed the building specifically to target the foreign business person and tourist trades.
Previously in Panama City, the focus had been on large apartments suitable for families with children and maids, etc. But the tourist or business man… or, indeed, the city’s growing middle-class workforce… had limited options.
That’s the case in Santo Domingo today, and several developers have begun creating inventory to address the undersupply. As I said, local investors copped on early to the potential of this opportunity… and now international investors are buying, as well.
When this construction boom hit Panama, the Chicken Littles began screaming about overbuilding… and, sure, supply and demand have cycled over the past decade-and-a-half, as you would expect them to do in any growth market.
Bottom line, though, apartments have continued to sell and, critically, to rent.
I can vouch for this from my own very consistent 15 years of experience as a landlord in this town.
The metropolitan area of Santo Domingo is home to twice as many people as Panama City. In fact, it holds almost as many people as the entire country of Panama. Anticipated growth and expansion—of tourists, of business travelers, and of the local the middle class—will keep construction crews busy for years.
Furthermore, no one has been building 50-story high-rise buildings in Santo Domingo… the way they have long been doing in Panama City. Most buildings in the DR capital are 20 stories or fewer. This is only just beginning to change.
Prices for pre-construction apartments in Santo Domingo in the high-end neighborhoods (where you should focus your search for an investment property) start at around US$1,700 per square meter. Will those values more than double in 15 years (an annualized growth rate of 5%)? Impossible to say… but I’d take that bet.
More important, it’s the annual net rental returns that should get your attention…
Projected and achieved rental yields for these types of tourist and business rentals are in the 8% net range and higher.
Note that I’m quoting (as I always do) true net yields. I notice that others in the industry talk about gross rental returns. I find gross rental yield references meaningless. Tell me what I’m going to walk away with after all fees and expenses. What good a gross rental return of 18% that nets to less than 5%… as can be the case in some markets depending on many factors.
In addition, right now in the DR, capital requirements for getting into a top-tier rental investment remain low, with apartments starting at US$97,000.
But, wait… there’s more.
You can get a mortgage in this country as a foreign buyer. It’s a straightforward process for a foreigner to finance the purchase of property locally. This was the case in Panama 15 years ago but is much less true in Panama today (with some notable exceptions).
Get a 60% loan-to-value (LTV) mortgage (which is possible) and you can own an investment property in Santo Domingo for as little as US$40k out of pocket.
The DR’s size and location position this country to become the regional economic leader in the Caribbean. Tourism is strong and growing. The easy residency programs are attracting growing numbers of retirees.
It’s Panama 2000 all over again.
Frankly, I wish I’d picked up an apartment or two in Santo Domingo over the last few years. I simply haven’t had the bandwidth to make it happen.
However, this year I’ve made an investment in this city’s rental market a focus with the help of our new Access Dominican Republic group and its manager Abel Aldebot.
Stay tuned for details.
Lief Simon
