Panama Real Estate: The Risk of Illiquidity

The real estate market in Panama City is all over the charts.  The "low end" is the most healthy part, with buyers, sellers, and inventory in a progressive balance.  By "low end" I mean the local neighborhoods where the prices are $150,000 and less.  The middle market is also hanging in there.  It is not uncommon for an apartment worth $200,000 to command an 8% return on rental income. The "high end" market is where the problems are right now.  There is a lot of inventory.  For some reason builders keep building commerical and residential skyrises that take years to sell.

I am going to focus on one  part of the problem that nobody else wants to talk about in the Panama real estate market:  illiquidity.  What I am about to report is not a one-time unique situation that I got unlucky with.  This is common business and beaurocratic practice in Panama.
It is not uncommon for a seller to take over a year to sell.  Don´t expect your real estate agent to be truthful about this, especially in Panama, where it is part of the culture to never say no and lie rather than give bad news.  Agents get paid to sell the dream, remember?
I got lucky.  I sold my apartment in Paitilla in about 3 months.  I accepted $35,000 less than an offer that was made a year earlier but I could not sell it because my stubborn tenant refused to move out early on the lease, despite the law that says both tenant and landlord can give a 30-day notice regardless of the lease terms.
In addition to the time it could take to sell your property, be aware that the process in Panama is not like the US.  It is, for lack of a better word, dysfunctional.  The buyer and I signed the contract on June 10, 2013.  He is a cash buyer.  Because the property was in a Panama corp name, the lawyers we hired had to do that are called "updates" to the registry.  We were told that this takes about two months.  On August 11th I asked my lawyer and the buyer´s lawyer if the "update" is done.  Long story short it took another few weeks for this particular "first" update.  So now, we are ready to close, right?  Wrong.  There had to be another "update" at the tax department - DGI.  After the "update" to DGI was done, DGI told my lawyer that the taxes owed were much more than we had estimated.  About $7,000 more!  My lawyer assured he would get this fixed.  He even had to bribe one of the beaurocrats there to speed up the process because he threatened that it could take "weeks" longer.  In Latin America, "weeks" means months.  Long story short, it took another two months anyway to get the final "updated" tax amounts for both the transfer tax and the capital gains taxes, both of which must be paid before closing of the sale and transfer of deed.  It is now the end of October, and my attorney said he finally has the tax situation settled.  Now all we need are two "paz y salvos" from the condominium administrator saying I, the seller have paid all bills current and another that says the administrator has paid the IDAAN water bill, which is included in my association fees.  Long story short, my attorney tells me that another dysfunctional Panamanian beaurocrat refuses to allow the sale because the association is one month late on the water bill.  So even though they have the first paz y salvo that says I, the seller have paid my part of the bill, the sale can´t go through until the building pays its bill.

At best, this sale closes next week or sometime in November.  I think.  At best, that is about 5 months.  I got lucky because the buyer paid me in full about two months ago.  A normal buyer would have had plenty of good reasons during this delay to cancel the contract.  Now, he is a cash buyer.  Could you imagine if he needed financing and had to jump through the numerous loopholes that banks require?  My honest real estate agents tell me it is not uncommon for a closing to take more than six months!  So in addition to the fact that your house may sit on a market flooded with inventory and not enough buyers for more than a year, once it sells you can realistically wait 5 or 6 months to close.
Conclusion:  Panama City real estate is dangerously illiquid right now.

UPDATE:  As of today, November 18, this deal still has not closed.  My lawyer doesn't even bother to call me to explain why.  I guess this must be "business as usual" in Panama.

Is Panama a Good Place to Live?

For the last 10-15 years, Panama has been promoted by most international living gurus as one of the top places to live in the world.  In fact, it is even ranked #1 by some offshore pundits.  I bought into this promise and in 2006 I invested in real estate and set up a business in Panama City.  I finally moved to Panama permanently about two years ago.  I traveled to over 50 countries before I decided to move to Panama and another dozen or more since moving here.  That may not make me an expert, but after reading what the "experts" have to say, maybe I don't want to be one anyway.

I have come to the conclusion that - regardless of your age, income, health, skills, etc - Panama City is a terrible place to live.  Before I give the details about how I came to that conclusion, I want to report on the same reasons why all the experts believe this is a fantastic place to live.  For one, the economy in Panama has been on fire for a good number of years now.  What I admire most is that the economic growth has had a huge impact on the poor and middle class here.  The middle class is bursting at the seams, and even the poor people here all have jobs (under 5% unemployment) that allow them to afford a place to live and food for the family.  The poor in Panama are doing better than the middle class in most third (is there a second?) world countries.  If you want to start a business here that caters to the locals, you will probably succeed.
Some other key points that make Panama a better place than most places to live:  low crime - Panama is super-duper safe, non-violent culture, the police do not extort gringos (like Mexico), the rest of the country outside of the city are incredibly beautiful, cheap, quality healthcare, many residency and citizenship options including discounts on everything from groceries to movie tickets just for showing your pensionado card.
     So how did I come to the conclusion that, given all these wonderful things, Panama City is a terrible place to live?  I also asked myself another question: Are there cities in the United States that, given the cost of living, amenities, culture, cleanliness, safety, etc - would they be better or worse than Panama City?  There are many reasons, and the top two are the pollution and the traffic.  The traffic is what gets all the press, but in my opinion the pollution is the #1 problem.  As far as the traffic goes, if Panama City was in the United States, it would be ranked the worst traffic city in America.  The traffic here is beyond insane.  It is not uncommon to be able to walk faster than a car can drive for stretches up to 2 miles!  I used to drive from central city to east, about 11 miles, in an average time of about an hour and fifteen minutes during rush hour, which could last well past 7:30pm.  Saturday and Sunday used to be better, but not anymore.  I read a lot of wishful thinking articles about how this problem will go away soon because of the conclusion of construction projects. Lie.  When those projects finish, others will start, and even if all the projects vanished, the infrastructure of the streets is insufficient to handle the amount of vehicles - in other words, not enough lanes, no turn lanes, etc.
Now to the #1 problem that, in and of itself makes Panama City a terrible place to live:  POLLUTION
I now only ride a motorcycle, so I am up close and personal with much of the filth coming from trucks, cars, construction sites, etc.  I am going to create a separate post with pictures dedicated just to the topic of pollution in Panama.  Every morning there is a layer of black death dust on the floor of your apartment, especially if you live in a low level unit in the heart of the city (ex: El Cangrejo).  There are multiple sources for this, but one I can't stop cringing about that makes me sick when I think about it is that in Panama there are no regulations or enforcement for vehicle exhaust.  So every commercial truck blasts out a cloud of black death smoke every time the driver hits the gas.  Cars are no better.  Someone told me an excuse that the gasoline here is inferior so it affects the cars, and so as I ride my bike down the street all the vehicles are killing me with the black cloud.  Besides Costa del Este, a master-planned community, there is no such thing as a clean street.  I will post pictures in my pollution report coming soon.  Even in the "high end" neighborhoods such as Punta Paitilla, as you walk down the street you are reminded - and disgusted - by the filth that is everywhere.  No, it is not as bad as Cairo or Alexandria (I was in Egypt in May), but Panama is supposed to be this great place to live.  How can it be if at every turn, in every street, you are exposed to the dirty, filthy air and ground?

To be fair to Panama City, not many third world tropical cities do city life very well.  They don't seem to know how to manage these problems and the excuse is usually, "well, we don't have the money to fix this problem like the US". The problem is, Panama does not have that excuse.  Panama is NOT a poor country.  With the revenue from the Canal, the taxes generated from PTY being an international hub, foreign investment, etc - there is no excuse for the filth.
Other reasons why it is a terrible place to live are not as important, but when you add it all up they count.  I ask myself, "What things make me say WOW... I have to live in PTY because its got____ that other cities don't have for the same price or convenience or other benefits to living in a place.  I can't find any reasons why PTY is a top city.  In fact, I don't even put PTY in the top 100, or even 200 cities in the world to live.
Cost of Living.  Put simply, you can live in a first-world city like Las Vegas (where I lived from 1994 to 2006) or Miami, clean, superior amenities, for LESS than it costs to live in PTY.  Why would you pay more money to live in a filthy third world city?
I just sold my apartment.  I am leaving Panama.  The 70-year old American guy that bought my place loves it here.  He keeps buying more real estate, close to the hospitals.  He tells me he picked Panama over all the other places he traveled to because of the reasons above and because he wants city life but also to be close to good hospitals.  I have heard this excuse before and if your health is so bad that you have to factor in being a rock's throw to the doctor, then it probably doesn't matter where you live.  I think some retired people put an illogical overweight on the need for instant access to cheap medical care.
As far as the rest of the country goes, Panama is a dream come true tropical fantasy.  From Bocas del Toro to the rainforests and mountain towns like Boquete to the San Blas Islands.  But not one of these places are any good to LIVE.  Great places to VISIT, but not for permanent stay. There are no real beach communities.  To me, Coronado doesn't count.  There's not enough to do there and there really aren't any young, fun people living there, just old retired people.  And almost nobody uses the beach because its ugly.  You would die of boredom and beg to come to the city every weekend.
In conclusion:  Panama is a great place to visit and do business, but a terrible place to live.

Panama Police

My girlfriend, Coral is Dominican.  She owns a hair salon in Pedregal, a low/middle class area of Panama City.  Her brother, Alfonso, works at the barber shop right next door which is owned by a Panamanian police officer.  I have known Coral and her family for almost two years. They are simple, hard-working people who came to Panama to pursue a better life than they had in the Dominican Republic.  They have their proper documents to be in Panama, don´t commit crimes, do drugs, etc.

I found out last night that Alfonso was arrested and taken to jail, again.  Long story short what is happening is the police in this neighborhood have decided that the Dominicans, Colombians, other poor foreigners that live in this area, have to pay their extortion fees otherwise they spend the night in jail.  I asked Coral how many times this has happened to Alfonso, since she tries hard not to bother me with her family problems.  She tells me this is happening a lot more recently.  Last night the police literally came right up to the barber shop, confronted Alfonso, who has been working there for over a year, and, without cause, frisked him.  Even though he had his documents in order and was not under suspicion for any crime, they arrested him anyway.

Why would the Panama police do this?, you ask.  Simple:  because they can.  Who is going to report it?  A poor 20-year old Dominican with no contacts in Panama but his older sister who runs a small hair salon?  In contrast, I am a US citizen living in Panama for two years.  I am financially rich by any Panamanian standard.  I have been stopped, mostly while riding my motorcycle, about 40 times in two years.  This is only because the Panamanian police profile motorcyclists.  I can almost understand why.  Lots of motorcycles are not registered, stolen, used to commit crimes, etc.  In those 40-odd times I was stopped, I was only once very subtly, very indirectly asked to pay a bribe to settle a minor traffic infraction.  I paid 20 bucks.  No problem.  The other times I can objectively say that as long as I had my proper documents in order, the Panama police always just let me go, even if there was a traffic violation involved.

In my opinion, what is happening is that if you are a rich gringo, like me, the Police have been told to lay off.  We are the country´s bread and butter (beyond the Canal).  They don´t want to get a reputation like Mexico where the police are robbing the tourists more than the criminals.  The political powers that be have probably told the police that if they get any negative news about gringo shake-downs they will fire the cops perpetrating the extortion and their bosses.  As far as the poor Dominican and Colombian immigrants are concerned, there is no political or financial incentive to protect them from police-officer extortion.  The victims, like Alfonso, have no outlet to file a report or protect themselves from evil cops who target the weak.

What is the solution to this problem?  I have many, but only some are legal.  After all, if the police do not have to play by the rules, then why should their victims?  One legal solution I offered Alfonso and his friends that are now under constant attack by these cop-thieves is to always have a smart phone camera ready to roll with video/audio.  Record who the officers are, ask them what the stop and frisk is for, and get them to talk.  If these corrupt cops begin to understand that their dirty maneuvers are being recorded and possibly sent to their superiors, the media, etc, I believe that this would be a deterrant; they will select another target rather than pursue the clever guys who have the resources to expose their evil ways.

What do you think is the best solution for this problem?