Headlines - Investors Business Daily - "Real Estate Is Going South - In This Case Straight To Panama"

Real Estate Is Going South - In This Case Straight To Panama Marilyn Alva Thu Mar 6, 5:57 PM ET

A Florida developer is making hay while the Sunshine State wilts in cloudy weather.

Todd Gates has headed from Naples, Fla., to Panama, where real estate market conditions are presently much sunnier.

This sliver of a nation south of Costa Rica links Central America to South America. It has coastlines on the Atlantic and Pacific and lush mountains in between. Here, Gates has found his idyll: a revenue base not tied to boom-and-bust Florida.

Panama is where he's now developing resorts, commercial buildings and residential areas worth $25 million to $500 million each.

"I spent two years visiting every Caribbean island and Central American country," Gates said. "Panama had exactly what I was looking for."

Gates liked that the service-based economy, growing nearly 9% a year, wasn't tourism-centric but diversified with banking, commerce and shipping. Panama is home to the world's second biggest free-trade zone. The $5.2 billion expansion of the Panama Canal should help keep the economy pumping.

Bustling Bargain

Many developers see Panama, population 3.2 million, as a growing business hub and house-hunting target of foreigners angling to live well for less money.

It has become popular among the growing ranks of Americans retiring and buying vacation homes south of the border. Panama's seen as more affordable than Costa Rica and an alternative to Mexico.

Attractions include the tropical climate, low-cost lifestyle, U.S.-style shopping, low crime and good health care. Floridians like that it's below the hurricane belt. Panama doesn't tax income earned elsewhere, and new home buyers don't pay property tax for 20 years.

Gates likes "cosmopolitan and sophisticated" Panama City. It seems like "Manhattan, Miami and Las Vegas all mixed in one," he said.

Projects under development by his real estate firm, Gates, include an island resort, a residential and mixed-use project on 2,250 acres outside Panama City, and two residential towers in the city.

While a depreciation drain is stressing U.S. homeowners, homes continue to appreciate in Panama. Prices have risen 15% to 25% or more in the last couple years in popular spots, but vs. U.S. equivalents they still look like relative bargains.

Affordable homes exist on coasts and in mountain towns such as Boquete. The average price of a new 3-bedroom 2,500-square-foot home in one small gated community is $177,000.

Irish native Tom Byrne, co-founder of First Panama Investment Corp., which is developing the community, says he and his brother looked first at Florida and Costa Rica, then settled on Panama.

"Basically we missed the boat for Florida," he said.

But some observers worry about a Miami-style housing bubble. With cranes lining the skyscape, Panama City looks like Miami in its mid-decade boom, when speculators flipped apartments not yet built and pocketed profits before the bust.

A study sees about 11,000 new apartment units entering the Panama City market from 2007 to 2010.

"Panama is in hyper-growth," said Casey Halloran, co-owner of Panama Real Estate Pros, in an e-mail. He bought a condo in Panama City two years ago for $93,000 and sold it 15 months later for $170,000.

Before the U.S. slump, Americans were "buying four to six at a time," said Matt Landau, president of online portal the Panama Report. "A similar unit that cost $1 million in Miami would cost $250,000 here."

Atop the luxury market is the 65-story Trump Ocean Club, still under construction. Units run from $400,000 to the multimillions.

The building boom has made labor and building materials scarce. As credit has tightened, at least a few ambitious projects have stalled, been cut back in size or cancelled. But tighter credit terms are weeding out speculators, which is considered a good thing. Bank loans now typically require 30% down.

Skyline Reshaping

Dozens of bayfront and business district high-rises in Panama City are moving toward completion. Furnished executive apartments in the 100-unit Denovo, with its brushed aluminium exterior, sold out in December, Byrne says. Prices for spacious one- and two-bedroom units ranged from $285,000 to $330,000.

Baby boomers and retirees aren't the only demographics attracted to Panama. Panama City's vibrant social scene lures young people. Some call it "the next South Beach."

"Panama City is a cool place," said Landau, who is restoring a hotel in the city's gentrifying Old Town. "My generation, the 25 to 35-year olds, are just getting enough money to pick up a beautiful oceanfront unit for less than elsewhere."

The U.S. housing downturn has thinned ranks of American buyers, who still lead the foreign influx. Canadians, Europeans and South Americans -- especially Venezuelans looking to invest outside president Hugo Chavez's grip -- pour in.

Since the U.S. deposed military strongman Manuel Noriega in 1989, Panama's been a peaceful country. Tensions among Panama's southern neighbors are high now, after Colombian commandoes killed leftist rebels in Ecuador allegedly linked to Chavez. But a treacherous swamp separates Panama from South America. One hundred miles long and 30 miles wide, the Darien Gap leaves a chunk missing in the Pan-American Highway.

Americans are no strangers to Panama. They've lived there in relatively large numbers since the U.S. built the Panama Canal in the early 20th Century. Many stayed after the U.S. ceded the Canal to Panama in 1999. An estimated 30,000 Americans live in Panama full-time.