Panama City Beyond the Myth

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Created on Thursday, 16 August 2007 19:48

Panama City: beyond the myth

Boomers, your attention, please!  Panama offers a real estate's ball and you are its special guests. The dreams factory is very busy organizing the feast, counting on you to populate the numerous waterfront resorts and towering condominiums aiming to the clouds.

Don't worry about etiquette.  Tuxedos are not required.  Local weather is H2, meaning too hot and humid for formal dressing.  All you need is some available cash, prime credit history and good will to relocate.

In addition to quick buck condo flippers, Panama is also attracting those retired on a modest fixed income.  Traditional destinies have become either very expensive (Florida), extremely insecure (Mexico) or crime prone and chronically affected by inflation (Costa Rica).

Tropical weather, public security and first world class services in the Sunshine State are unaffordable for many retirees and although the real estate bubble is finally deflating and housing prices are starting to draw back, they will not retreat to where they were five years ago.

However, when considering expatriation, security is one main factor.  America is a much more secure place to live than any country south of the border.  The World Health Organization considers Latin America as the most violent region in the world, after Africa.

Reasons abound: murders reported for 2005 average 0.19 deaths per 1000.  One murder per five thousand persons!  That's more than twice the world average.  Street crime has reached alarming proportions, fueled by widespread poverty, corruption and skyrocketing drug consumption. www.usinfo.state.gov/dhr/Archive/2005/Apr/21-965427.html

But if that was then, this is now: on July 27, Alexandre Addor Neto, Sub-Secretary of Security of the Organization of American States (OAS), declared that Latin America is the most violent region in the world, tripling world rates in violent deaths, with 150,000 murders per year.  Most deaths are connected to organized crime.  Juvenile gangs are immersed in the cult of violence and crime as an expedited way to reach economic and social status www.granma.cubaweb.cu/2007/07/28/interna/artic03.html

Although relatively safer than its neighbors, Panama is not a safety haven.  Forget about what some unscrupulous promoters have published about Pinkerton Consulting & Investigations praising Panama's security.  It is a shameless deceit.  Pinkerton has not reported Panama as one of the most secure places in the world for tourists.  Astonishingly, many promotional magazines have mimicked this deceptive statement without checking the source!

After directly inquiring with the official source, on May 14, 2007, they answered: "Pinkerton has not conducted any recent assessment of Panama.  We are not familiar with any such assessment."
On July 19, local newspaper La Critica reported that during the conference promoted by the Panamanian Society of Business Administration, there was a general concern about increasing insecurity.  According to recent data provided at the event, 130 juvenile gangs are actually operating within the metropolitan area.  www.critica.com.pa/archivo/07192007/cierre.html

Walking throughout Panama City, we found many policemen patrolling the streets.  Some were heavily armed.  To protect visitors, authorities created the Tourism Police.  Visiting the ruins of the Old Panama, as well as the narrows streets of San Felipe's Old Quarters, we enjoyed a pleasant experience when a dedicated officer proudly showed off his cultural heritage while simultaneously protecting us.

Although the above-mentioned places seem relatively safe, they are pretty close to Boca la Caja and Santa Ana, two dangerous neighborhoods, the same as El Chorillo and Curundu, both plagued by drug-dealing gangs frequently engaging in rivalry shootings and assassinations.  These vandals have dared to exchange fire with Police forces.

Likewise Dorian Gray, the ambivalent protagonist of Oscar Wilde's masterpiece novel, Panama's capital has two faces.  One reigns with beauty and splendor.  The other lies in the twilight zone. Economically, socially and architecturally speaking, the city is sharply divided between two main sections: upscale and downscale.  Tourists are encouraged to avoid the last one.

La Cresta, El Cangrejo, El Carmen, Obarrio, Marbella, Punta Paitilla, Coco del Mar, Punta Pacífica, Costa del Este, among others, are high and middle class neighborhoods.  Security is tight.  Upscale Panama provides the best housing, shopping and life quality, but entry level rents double and triple Panamanians' average wage ($340 monthly), while luxury condos and penthouses cost thousands monthly.  US Dollars share with Balboas as official currencies, a big advantage against countries competing to attract American expatriates.

Santa Ana, El Chorillo, Curundu, Calidonia, San Miguelito and many eastbound areas, host the blue collars and the alienated poor.  The majority of gang related wars occur in these neighborhoods, although pick pocketing, robbery and assaults are also very common.  Small food markets, mostly run by hard-working Chinese families, are among preferred targets for thugs.  Although rents are really easy on the pocket; you wouldn't dare to live on such places.  Life there is notoriously hazardous and downgraded.

While a dense forest of new condominium towers, mostly owned by well-off foreigners, grows up steadily, 40% Panamanians are struggling against poverty, pariahs in their homeland.  Inequality causes anger and social disengagement, rooting criminal attitudes early in life.

Authorities actually have a huge problem with juvenile delinquency which often turns out deadly violent.  Narcotics and weapons trafficking, as well as money laundering, are also main concerns. Panama is Drugs Cartels' first stage before the long trip across Central America to reach US borders.

Panama is a major cocaine transshipment point and primary money-laundering center for narcotics revenue; money-laundering activity is especially heavy in the Colon Free Zone; official corruption remains a major problem. (CIA Factbook)  www.usdoj.gov/dea/pubs/cngrtest/ct061300.htm Police repression and overcrowded jails may provisionally contain crime, but it's not a final solution.  A healthy society cannot afford to have half of the population living below the poverty line.  Misery feeds the lawless armies.  Panamanians are constantly complaining about high insecurity and widespread corruption.
   
Fast-paced tourists may not notice these contrasts, but residents do.  Foreigners living in poor countries are often preferred targets to resented outlaws.  It's possible to live caged in the protected environment of a luxury condominium, but what's the point in living such an excluded existence during the golden years?

However, Panama's upscale neighborhoods are safer than its Costa Rica's counterparts.  We have walked unharmed throughout these areas very late at night.  No one with a sound mind would dare to do the same in Costa Rica, where thugs have the upper hand against authorities. Panamanian police seem better prepared to deal with crime.  LINCES squads (Lynxes) are special two-men units (equipped like SWAT) permanently patrolling on motorcycles.  While one officer drives, the one at the back seat is armed and ready.  LINCES can fly through heavy traffic, thus reaching any place within minutes from the call.

Nevertheless, public security cannot be determined by how successfully the state could repress illegal activities, but by how well a society provides opportunities for its citizens to socially and economically advance while abiding the Law.  Unfortunately, Latin American governments tend much more to punish crime than to supply hopes to those less fortunate.  Panama is no exception.

Before taking the life changing decision to relocate abroad, do an extensive investigation of cultural differences.  Can you readapt to the new environment?  Panamanians speak Spanish.  If you want to interact, learn their language.  Those saying than anyone could do well in Panama speaking in English, might be referring to professionals trained to work with foreigners.

Promoters stating that life in Panama is very similar to America are notoriously misguiding readers.  Truth is that Panama, due to our long time presence in the Canal (which wasn't always a good relationship) might be relatively closer to American standards.  However, the Panamanian's society is quite different.

Metro areas are extremely noisy.  Traffic horns, loud music and all kind of high-decibels pitches pollute the city.  Infrastructure, although unquestionably better than its neighbors, does not match American standards by far.  Once you leave the buffering well-protected premises of your condo, the real Panama comes up to chase you.  Peddlers and beggars knocking on your car windows are vivid reminders that, skyscrapers and shopping malls apart, Panama is still one third world country.

Therefore, if you have your mind set on Panama, make several trips to get acquainted.  Life is much bigger than biased promotions.  Expatriation is not worthy if later found that it was a mistake.  To perform a reality check, lease a furnished apartment ($700-$2500 monthly).  You will need two personal references and a local bank account, but if able to pay for six months in advance, then things can be smoother.

Although speaking fluent Spanish, we totally failed to contact landlords directly.  Brokers have managed to monopolize the booming housing market.  But there is a bright side to it, they can show you more options and guarantee a fair deal.  A better price is possible if willing to bargain. Also bear on your mind that US standards are not established worldwide, so never rent an apartment without checking it first.  Dwellings are usually not ready before firmly rented, meaning that they are not painted yet, conditions have to be improved and such.

Different to Costa Rica, where cellular services are limited to residents, Panama's private companies offer mobile phone plans to nonresident foreigners, using prepaid cards ranging from $5 to $20.  We were wireless connected in less than an hour!

But cellular services apart, it's fair to say that likewise any other Latin American country, time runs slowly in Panama. It's not a geographical matter, but cultural. "I'm just getting there" could mean, luckily, within two hours.  Maybe two days later.  It's a laid-back culture with a different concept of life ruling on almost every aspect of society.  Be ready to deal calmly with it.  If you want things to happen the American way, then stay home and live forever happily stressed.

To get the real taste of the capital, rent a car and drive throughout the city, avoiding rush and late hours.  If afraid to deal with Panama's traffic madness, cabs are very affordable and will take you anywhere for a few bucks.  Cab drivers try to rip-off foreigners, but that happens worldwide.  A couple of bucks covers most trips.  To avoid problems, don't hire "pirates" and agree on a fare before to step in.

Public buses, though very folkloric indeed, are not recommended.  Although really great for tourist pictures, "Los Diablos Rojos" (Red Devils) are hot, noisy and unsafe.  They are like mobile Pop murals, spreading the dubious Art leaning of their owners.  "Red  Devils" can be held accountable for many traffic accidents.

Another kind, "Las Chivas Parranderas" (Party buses), are  like Discos over wheels, offering open bar service, loud music and sometimes including small typical bands performing live!  The party bus side is open but for a few ropes serving as guard rails!  There are benches inside to seat party goers, heavily drinking while carted through the city.

For 2009, despite fiery opposition from local unions, the authorities have promised to improve metro public transportation, providing customers with new lines of modern buses that will share dedicated lanes.

International cuisine is amply represented by restaurants spreading mostly within the upscale areas.  Via Argentina (Argentina's Boulevard) is packed with nice coffee-shops and bars with open terraces, good to spend time and socialize.  Service quality depends on price range, but it's by far more affordable than in America.

Panama City's nightlife is hot!  For body shakers, Latin Salsa Discos abound, crowded by beautiful Panameñas and Colombianas willing to "socialize."  Casinos are legal, as is adult prostitution. For Urban Cowboys looking for a walk on the wild side, there are plenty of stripper's nightclubs, dating bars, massage parlors, whorehouses and a plethora of illegal drugs.  Sins are cheaper here, no doubt. Safety depends on where you go and whom you are dealing with, so common sense applies.

Panama's metropolis offers plenty of amenities and entertainment, but still lacks a strong cultural destination.  Those accustomed to a healthy cultural life should better look for some other places.  Buenos Aires (Argentina), Montevideo (Uruguay), Santiago (Chile) . . . ? Although  Panama comes forward against more traditional retirement destinies, due to its lower cost of living, better public security, infrastructure and services, in addition to a complete set of benefits for investors and retirees that none other countries remotely match, it's not the rose-colored "Parnassus" nor the safety haven that some hired pens are forcibly portraying.

Considering living standards and building costs, suitable properties are actually over-valued.  Prices have increased threefold within the last two years.  New ocean front-side apartments sell now for S400, 000.  One ten-year-old condo at Balboa Avenue, sold last year for $150,000, was resold four months later for $190,000!   It's now on sale again for $250,000!  Avid to swell profits, condo flippers are betting hard on advertising.

In spite of that, the "Wizards of REA" (a.k.a. real estate advertising) has dared to proclaim that properties in Panama are not overpriced when compared to similar dwellings in North America and Europe.  REA alchemy works by "magically" wiping out the huge gap in living standards, income, infrastructure and safety between first and third worlds' countries.

Profiteers are surreptitiously trying to convince foreigners that it is possible to own a share of "paradise" for a bargain.  Compared to what? Pasadena, Miami Beach, Cí´te d'Azur?  Low purchasing power keeps most Panamanians out of this deceptive equation, while the wealthy among them are just too smart.  Considering the huge income gap between USA and Panama, real estate properties are overpriced and totally out of touch with Panama's living standards.

Vox populi says that money laundering is the backbone of many upscale housing projects.  We found no factual data sustaining this charge.  But gossiping apart, truth is that most investments were done by non-resident speculators ready to flip for a profit.  One Spaniard investor recently told us that the time for small good deals in local real estate is already over, mainly due to soaring speculation, but also to higher building costs.

However, it may not apply to big moguls.  Donald Trump is entering the ball with one 250-millions luxury development: Trump Ocean Club, International Hotel & Tower.  Nevertheless, the Donald is not infallible.  The two billion dollars' bankruptcy of his Entertainment Resorts is proof enough.

How many retirees would be willing to relocate to Panama if housing prices and crime rates keep their upward trend?  Big question!

Considering that the first wave of the postwar generation is approaching retirement, profiteers could hit the Jackpot just by managing to charm a small decimal fraction of Boomers, whose median annual income is $47,300.  That's mucho dinero (big money) when compared to Panama's $4,100 yearly average income.  Also it remains to be seen how, and to what extent, the local housing market could be affected by the recent downturn of that industry and the economic slowdown in USA.

On Mar 14, 2007, Commodities guru Jim Rogers referred to the U.S. subprime woes predicting a real estate crash that would trigger defaults and spread troubles to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the respected fund manager told Reuters, "It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.  It is going to be a huge mess."

Mr. Rogers, co-founder of the Quantum Fund with billionaire George Soros, declared that the crisis would spread to emerging markets which can be shocked by an extended bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said. "This is the end of the liquidity party.  Some emerging markets will go down 80 percent, some will go down 50 percent.  Some will most probably collapse."
www.reuters.com/article/newsOne/idUSL1470530620070314

More recently, on July 27, Simon Ballard, a global credit strategist at ABN AMRO Asset Management, declared that's the really good times are "over"... and... "what we have now is a very weak market in terms of credit globally."

Unfortunately, when US economy decelerates, the whole world slows down.  So it's plausible that a Domino's effect could eventually set off over the whole Central American region, so tightly dependant on American buyers.  Europe is also showing signs of receding housing markets.

America's National Association of Realtors recently predicted that home prices would fall even further in 2007, the first such drops since the Great Depression! A harsher tumble might be next in store for Panama's hyper inflated home prices.

On July 18, local newspaper Panama America published that "speculators and ghost projects are reigning over the real estate market," while the housing bubble is on the verge of deflation amid concerns that the cancellation of the 54 flory Park 32 project, added to the recent downward modifications to Palacio de la Bahia and Ice Tower, both trumpeted as the tallest skyscrapers to be built in Latin America, is seriously damaging the image of the country.  It seems that some iconic projects could not make it higher than their colorful advertising boards.

According to Francisco Jimenez Criado, from the Panamanian Office of Investments (OPI) in Spain, Europe has again labeled Panama as a banana republic, lacking in serious, capable and prepared people.  Investors will stop looking at Panama and will search for more serious investments.
www.pa-digital.com.pa/archive/07182007/nationt.shtml

On July 25, the Customers Association of Financial Services of Spain (AUSBANC) harshly denounced that "Panama is deceiving the world community of investors and consumers" through a false marketing campaign, selling ocean front side condos near pristine beaches at Balboa Avenue, while it's a well-known fact that Panama Bay is grossly polluted and awfully smelly, daily receiving 300,000 cubic meters of black waters. Who'll dare to swim in a gigantic toilet? "It's a worldwide big real estate scam."  www.ausbanc.es/medios/actualidad/articulos/panama/index.html

Extreme speculation, overheated market, insufficient infrastructure, legal, financial and technical problems, could all be starting to derail the housing express train.  Nevertheless, the "Wizards of REA" keep on foretelling that the sky is the limit for both, high-rise projects and housing investors.  After long time being exposed to their own toxic promos, they have come to believe that well-off foreigners have more money than brain!

Another concern, directly affecting economic sustainability, arises from the construction boom leaving behind most Panamanians.  They benefit neither from better housing nor from the wealth does it create.  A low monthly average income around $340 makes most locals totally unfit for mortgages ranking from $150,000-$300,000.

Lacking in local buyers support, Panama's housing boom relays almost absolutely on foreign demand.  Consequently, if boomers fail to show in big numbers, there will be trouble in newer found "paradise."  More than twenty five-thousand high-end dwellings are projected or already on construction.  The offer amply outmatches real demand.  Not a good sign considering that according a recent census figures from the Migration Policy Institute (MPI), the number of all Americans residing in Panama is estimated around five thousand.  Probably, many of those projects won't ever make it out of the drawing boards.  www.sovereignsociety.com/offshore2105.html

Before recent changes, non-resident Americans were entitled to stay in Panama for three months, extendable to six upon request.  Presently, tourist visas concede one-month visits, extendable for one sixty-day period upon request and previous acceptance by immigration authorities.
The new legislation will flush out "snowbirds" and "permanent" tourists, which used to stay in Panama for a trimester, later traveling abroad for seventy-two hours in order to renew their visas.

Additionally, it will affect those intending to prospect future retirement while experiencing the real Panama before taking crucial decisions. Foreigners are now forced to apply blind folded for a resident status that carries time spending and legal costs.   Furthermore, to renew visas, they must return to their countries of origin!

Panamanian authorities, under public pressure to fight crescent organized crime and insecurity, which many attributes to Colombian drug cartels, are aiming at their own foot.  Far from confronting the real causes of social distress and violence, they are strangling the golden goose of tourism.
Housing is the main engine of GDP expansion.  Neither the central government nor investors want to see it crashing.  There are strong rumors that authorities, hard-pressed by developers and real estate brokers, will intend to revert the tourist visa 30-day restriction through the National Legislature.  A limited extension of the 20-year tax exception for real estate's new property, which is due to end in August, is said to be included as well.

Considering Panamanian authorities ill-fated decisions and the current housing and economic woes in America, it's advisable to be skeptical of over optimistic forecasts about Panama's "incredible" great values.  Go to Panama.  Check by yourself.  If you think that you have found it in there, then prepare to stay for a prolonged period of time.

After dealing with the real facts and doing your homework, you should be able to realize whether you are in the right place at the right time or you are simply misplaced and late for good returns on investments.  Before buying real estate either for investment purposes or dwelling, try to realistically figure out how successful your investments could be and how well you could locally blend.  Informed decisions need time to mature, but save money and mishaps in the long run.

Do not follow the beaten path.  Be pragmatic.  Like Odysseus, refuse to be charmed by Sirens songs.  Inexperienced, wanna be rich quick investors, are regularly herded toward masked shearing-houses.  Boomers, your attention again, please!  As special guests to Panama's real estate ball, you are totally entitled to leave or stay, so don't rush to pay for the bill!

Written By: Manu Cron
Source: Escape Artist
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