Retiring Way, Way South of the Border in Panama

REAL ESTATE

• July 25, 2013, 7:21 p.m. ET

Retiring Way, Way South of the Border

Americans are starting to head into Central America for retirement, lured by luxury real estate and eased residency requirements.

By KATY MCLAUGHLIN
   

When Steven and Robin Fine started searching for a place in Latin America to spend their early retirement, they looked at spots in Mexico and Costa Rica, both popular destinations for American retirees. On a trip two years ago, they decided to stop by Panama, too.

"We thought we would like Panama the least," Mr. Fine, 51 years old, a former communications executive said, "but we liked it the best."

The combination of luxury apartment buildings, good restaurants and modern hospitals drew the couple to Panama City, where 1½ years ago they spent $1.1 million, plus about $250,000 on renovations, on a 48th-floor penthouse with a view of the Pacific. It is now their full-time home.

The Central American nations of Panama, Belize and Nicaragua are increasingly competing with Costa Rica and Mexico for North American retirees and second-home buyers. New luxury developments, outfitted with spas, restaurants, marinas and golf courses, are on the rise. Builders say they are using more high-end materials and adding upscale amenities designed to appeal to affluent American buyers.

Bobby Pereira for The Wall Street Journal

Steven and Robin Fine renovated a $1.1 million, 48th-floor penthouse in Panama City.

These countries offer packages of residency and breaks on taxes and fees that imitate Costa Rica's pensionado program, which was introduced in 1971 and helped set the groundwork for a boom in retiree emigration from North America. Nicaragua added such a law in 2009, offering foreigners with retirement incomes tax breaks on everything from cars to construction materials. Last year, Panama, which has a long-established retiree program, created a path to citizenship for retirement residents and introduced a new residency program for people under retirement age that has lowered requirements for investment in property, business and other ventures.
Despite their inroads with American retirees, these countries still don't attract the same numbers as more established destinations, such as Mexico and Costa Rica. In 2011, more than 50,000 Americans collected Social Security in Mexico and more than 5,000 in Costa Rica. But Mexico's well-publicized drug war and escalating violence are starting to push Americans to look at new places for retirement. Central America, however, has its own problems with crime. 
The U.S. Department of State labeled the crime rate in Nicaragua "critical" and the murder rate in Belize "extremely high," though concentrated in Belize City and not in tourist areas. In Costa Rica, petty crime such as theft and "smash and grab" muggings have increased in the past couple of years, along with home invasions. In Panama, murders and gun violence have decreased in recent years, but reported rape and theft have increased. 
"Panama remains relatively safe when compared with other Central American countries, yet crime rates are higher than one would encounter in most of the United States," says the State Department's 2013 report.
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For the full text, see http://online.wsj.com/article/SB10001424127887324879504578599770182918926.html

Retirement: Why Panama Is the New Florida

Murdock and Johnson on the beach near their home in San Carlos Jeffrey Salter/Redux

Michelle Conlin

Prospective retirees: Panama wants you. The pitch? A plane ride just 21/2 hours from Miami enables the newly poor to swap a wretched retirement in the U.S. for one befitting a royal in the balmy Central American nation. Cash out! Emigrate! Feel rich! Panama—the new Florida.
Spin aside, Panama is increasingly popular among retirement-age types looking to hedge against—or skip out on—the recession. The Migration Policy Institute, a Washington-based think tank that studies the movement of people around the world, says the chief factors prodding professional-class Americans to flock to Panama include its First World health care available at Third World prices and the country's pensioner program, which offers some of the deepest retiree discounts in Latin America. Seniors get up to half off on nearly everything, including movies, motels, doctors' visits, plane tickets, professional services, and electric bills. Expats also pay no tax in Panama on foreign income. Nor are they required to pay property tax for the first 20 years.
The fact that a luxe beachfront manse can be had for the same price as a dump in Daytona doesn't hurt, either. "We would have been looking at $3 million in Miami," says Jon Nickel of his 3,000-square-foot oceanfront penthouse in Panama City. Nickel and his wife, Gretchen, bought the place in late 2007 for $250,000, right after Nickel retired from his corporate law job in Portland, Ore., and sold the family's mortgage-free home for $800,000.
The skinny isthmus—nearly all coastline, with a mountain range slicing through the middle—boasts some of the best weather and lowest crime rates in Latin America. Other draws include guilt-free conspicuous consumption, with laughably low prices—by gringo standards—on splurges such as a day of beauty ($10) and a maid ($15 a day).

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That's not to say life there suits everyone. Things in Panama movereallyslowly. A repairman who says he will be right over might show up days later. Water and electricity service can be spotty. In Panama City, drivers treat stop signs as a mild suggestion. "It takes a little bit of balls to retire here," says Matt Landau, a New Jersey native who is the founder of Panama City-based online portal The Panama Report. "This is not for type As. It's not your turnkey Florida retirement."
Still, boomers who have recently relocated to Panama say they feel as if they have figured out a successful geographic arbitrage. When Stephen Johnson and Linda Murdock were living in Aromas, Calif., they used to moan half-jokingly about how they'd have to retire to Barstow—the armpit of the Mojave Desert, with summers in excess of 100 degrees and winters that can dip below freezing.
Stephen, 63, retired as an executive of the Salinas Valley Solid Waste Authority in June 2008. His wife, Linda, 57, owned a dog-food business.

The pair had watched several friends retire on depleted cash cushions. Many weren't fully eligible for Medicare and wound up spending 50% of their income on health care. The couple's retirement agita was worsened by the fact that they got a late start building equity. "We bought our first house when I was 40 and Steve was 46," says Linda. "We knew we would never have our house paid for by retirement."
Over late-night pinot noir on their patio, they started talking about moving to a developing nation to stretch their money further. They had discovered Panama on a trip there in 2004 and saw it as a bargain-basement paradise. The low cost of living appealed to Steve, whose pension amounted to 40% of his pre-retirement income of $150,000. The surf-perfect weather lured Linda, who took up the sport on her 50th birthday.
CRACKS IN PARADISE
Johnson and Murdock are now known as the gringos who live in the house with the red door. They bought their newly remodeled 1890 hacienda near the beach in San Carlos for $100,000 cash. They moved in last year and rented out their California ranch house. The rent covers the carrying costs on that house.
But Panama isn't only about the beach. The Boquete region in the mountains—Panama's answer to Boulder, Colo.—boasts loads of U.S.-style gated retirement compounds. The big draws of the area are tennis and golf. For those who are more interested in urban amenities, Panama City, which is by the sea, is sprouting yoga studios, bohemian boutiques, health-food stores, and artsy coffee houses.
Still, there are tradeoffs in this seemingly easy life. "Paradise is just a place you visit," says Johnson. "If you live here, you begin to see the cracks." Those include the three months it took them to get their driver's licenses—a process that involved blood tests, a hearing exam, and lines that make a U.S. Motor Vehicles Dept. seem like a fast-food joint.
But Johnson and Murdock have no major complaints, and Panama is certainly better than the Mojave. Murdock surfs—every single day—and says Johnson looks 20 years younger since retiring. They both love the way their dog can run on the beach without a leash and the fact that their doctors, many of them schooled in the U.S., happily give out their cell-phone numbers and actually answer when called. And their social life is far more active than it was in Aromas. They go out with new friends, a blend of expats and natives, almost daily, often for evenings of fish tacos and endless margaritas—for $20. "We have more time," says Johnson. "And apparently we have more money."

Conlin is the editor of the Working Life Dept. at BusinessWeek.
Full text at businessweek.com ...

Advantages to Investing in Real Estate in Panama

Foreigners will find that Panama has special regulations which favor investments in real estate.   Unlike other tourist destinations, foreigners and nationals can:

• Buy almost all kinds of property (except for the rainforest 5km way from the border)
• Own property through shares in corporations, private foundations and trusts
• Open bank accounts in US dollars free from exchange conversion loss, as well as in euros and other hard currencies
• Live without having to file Panama tax returns as long as they are not making an income from their Panama property or their activities inside Panama
• 5 to 20 year property tax holidays, depending on the date of construction of improvements.Foreigners have the added advantage of bilateral investment treaties with the U.S., France, United Kingdom and most European countries which further ensure protection of their investments in Panama.

Just as with any investment, proper due diligence is necessary before paying for any property - even before that first downpayment. A savvy buyer must verify that the seller is the true owner of the property for sale and that no restrictions or liens forbid its sale. The first payment must be accompanied by a written agreement describing the property and executed by a seller property authorized to do so under local law. Appropriate counsel can assist in avoiding unnecessary delays in the transfer of title.

European, Canadian, US and citizens of several Asian countries can stay in Panama with tourist visas for up to 90 days. Full residency is granted to foreigners:

• Investing US$160,000 in a Panama non-retail business and effectively employing 5 Panamanians,
• Holding a US$300,000 CD time deposit (plazo fijo) account in a Panama bank for at least 3 years or in the National Bank yielding US$2000.00 monthly for 5 years,
• Buying a house in Panama mortgage-free for US$300,000 and/or a mixture of the house paid for and time deposit for at least 3 years totalling US$300,000,
• Investing at least US$60,000 to buy at least 10 hectares of rainforest for reforestation
• Earning a pension from a social security or any foreign government pension authority above US$1,000.00 monthly as Pensioner ("Pensionado").

Other residence categories exist that are applicable to foreigners sponsored by local employers or educational institutions as part of a foreign worker quota of no more than 10% per company or who marry a Panamanian spouse. Residents for 5 years can apply for naturalization as Panama citizens and have a Panama passport.

Information is valid as of 9/2/2008 and is subject to changes. More information is available from Alvaro Aguilar aaguilar@ nysbar.com Tel. +507 340-6444 / 6638-8707

LOMBARDI AGUILAR & GARCIA - Aquilino de la Guardia St. Ocean Business Plaza, 12th Floor, Panama City, Panama
Tel: +507 340-6444 - Fax: +507 340-6446 - P.O.Box 0831-1110 - http://www.laglex.com

Lombardi Aguilar Group is a civil law partnership registered in Panama with registered number SC-25029 and its members are regulated by the Panama Bar Association

This information is not meant to provide any legal advice. Foreigners are always subject to the laws of their countries of citizenship or residency and should seek appropiate additional counsel in their countries. This information is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under tax regulations or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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