Making Property Investments In Panama Or Colombia

I was invited to speak last week at an Oxford Club seminar here in Panama. The premise was investing beyond U.S. borders.

You know my position on that agenda. I say: Diversify or die broke.

The question I tried to address in my talk to the Oxford Club group was whether it makes more sense to diversify beyond U.S. markets in U.S. dollars or in a foreign currency.

The group was assembled in Panama but departing later in the day on a cruise ship bound for Colombia. Panama, as you know, uses the U.S. dollar, while Colombia uses its own peso, meaning these two markets made relevant examples for my remarks.

The Colombian peso is at an all-time low against the U.S. dollar (and against the Canadian dollar, too). In Panama, again, U.S. dollar holders have no exchange rate risk. Which country is the better real estate investment play right now?

As Mark Twain might have put it (and as our correspondent Paul Terhorst observes in the latest issue of my Simon Letter service), news of the dollar’s demise these past several years has been premature. How much longer will the U.S. dollar remain as strong as it is today versus currencies worldwide? Will it get stronger before its inevitable downturn?

The truth is, no one knows, and certainly no one could predict the dollar’s position versus any particular currency according to any timeline with confidence. That’s why I say don’t try to time foreign real estate investments according to currency exchange rates. Base your investments in foreign markets on the underlying fundamentals of the market and on the particulars of the investment.

In other words, when trying to decide between making a property investment in Panama or making one in Colombia, the question isn’t: Does it make more sense to invest in a dollar or a non-dollar market?

The question is: Which market offers better opportunity for you?

Just as many have been predicting the death of the U.S. dollar for years, pundits have long been calling for the collapse of real estate markets in Panama. If both predictions were to play out at the same time, property investors in this country would be hit doubly hard.

I’m not worried. Neither of those things has happened to date, and neither is likely to happen anytime soon.

Panama City property prices fell post-2008 but have rebounded and are above pre-2008 levels. Different specific regions and neighborhoods have cycled and will continue to cycle up and down within tight ranges. I say watch for the downs and buy on the dips.

Long term real estate in Panama City is one of the surest investment bets I can imagine. Property in this city will continue to hold and to appreciate in value near, mid-, and long term for many reasons, including the diverse pools of buyers and renters active in this market. Panama City property values are not dependent on American buyers. Nor will they stumble if regional buyers exit the market. And they won’t collapse if European or Asian investors pull back.

Panama City’s property market enjoys active attention from all those investor universes and others, including a fast-growing local middle-class market.

Not long ago, you could have bought almost anything in this city and made money. That’s no longer true, as values in particular locations are inflated. However, buy the right property in the right neighborhood in this city, and you can expect a net yield in the 7% to 8% range… plus steady value appreciation year after year for years to come.

Real estate values in Colombia have seen good growth in peso terms each of the last half-dozen years; in some areas, values have nearly doubled.

However, the Colombian currency has depreciated almost 100% versus the U.S. dollar since I bought property in this country in 2011. You can buy now for 50 cents on the dollar in peso terms, meaning you can get into the Colombia real estate market today for prices close to what I paid in U.S. dollar terms five years ago.

That’s an opportunity. Whether you believe the U.S. dollar will collapse globally or not, the Colombian peso should strengthen at some point.

Remember: Buy on the dips… both market and currency. The currency dip in Colombia right now is dramatic. It should have your attention.

A similar opportunity exists in Brazil today. Brazil’s real is weaker today against the U.S. dollar than when I first recommended this country for property investment in 2002. Brazilian property values have appreciated since then, but, thanks to the local economic slowdown and the currency tumble, you can find some great real estate buys right now. New correspondent John Clites has more for paid subscribers to my Simon Letter service in this month’s issue.

Bottom line, U.S. dollar-holders are in a better position for internationalizing their lives today than they have been in more than a dozen years.

Take advantage of it.

Stay diversified,

Lief Simon

“Lief, I am interested in permanent residency through the Specific Countries visa program in Panama. Are you aware of agricultural investments (teak, mango) in Panama that would qualify?”

B.B.

Yes, both the teak investment I’ve reported on and the mango investment in Panama would qualify you for this residency visa program.

Note, though, that you don’t necessarily have to invest in property to qualify for this visa. You can also qualify by setting up a corporation.