Country Showdown: Panama versus Ecuador | Pathfinder International

Wednesday, February 22, 2012

Dear Reader,

Ecuador is rated as the world’s top retirement haven. But how does Ecuador stack up against Panama as a second home destination?

Infrastructure. Panama City’s hub airport offers direct flights to many cities in Central and South America, the US and even some direct connections to Europe. Panama has a good road network and modern telecommunications systems. Panama is investing heavily in upgrading existing domestic airports and ports, and building a new metro in Panama City.

Ecuador has also invested heavily in new roads and bridges in recent years. The country’s two international airports offer good connections to the U.S.

It’s quick and easy to get around in both countries thanks to low-cost domestic flights. For medical care, you’ll find the best hospitals in major cities (Quito and Panama City). Panama, however, boasts the only Johns Hopkins affiliate hospital in the region. And overall, Panama’s infrastructure is better than Ecuador’s.

Cost of Living. With grocery shopping, the biggest difference between the two countries is the price of fresh produce. It costs up to 50% less in Ecuador. But Panama charges less for imported goods. Swiss chocolate, Chilean wine and American cookies and snacks cost more in Ecuador. It’s the same with imported electronics, cosmetics and clothing. They cost a lot less in Panama.

Both countries offer a generous pensionado program for retirees. It cuts your costs on things like travel, going to the movies and eating out.

You’ll pay less for household help in Ecuador, thanks to a lower minimum salary. Medical care costs less in Ecuador too. Factor in Ecuador’s lower housing costs, whether you want to rent or buy, and overall, you’ll live more comfortably on less money in Ecuador.

Topography/Climate. Panama boasts two coasts, Pacific and Caribbean. On the more developed Pacific coastline you’ll find a string of hotels, golf courses, resorts and small residential communities. The closest beach is just over an hour’s drive from Panama City. Or you can take a 17-minute flight to the gorgeous Pearl Islands just off the coast.

From Quito, it takes 3.5 hours to drive to the closest beach. And Ecuador’s coast isn’t very developed. You won’t find luxury resort hotels or golf courses. But four small coastal cities offer plenty of amenities: Salinas, Manta, Bahia de Caraquez, and Atacames.

The coasts in both countries offer a tropical climate year-round. But parts of Ecuador’s coast are cloudy and overcast for much of the year.

If you want a mountain property, you can’t beat Ecuador. The higher mountain peaks, snow-capped volcanoes and lush valleys are much more dramatic than anything in Panama. And Cuenca in Ecuador offers the kind of culture-rich city living in a highlands setting that you simply won’t find in Panama.

Ease of Living. You’ll find it easier to get by without Spanish in Panama. It’s also more business oriented and feels more westernized. Panama is a melting pot, with large Chinese, Indian, and Jewish communities. You’ll find cuisine from all around the globe, and modern shopping malls stocking familiar brand names.

Residency. If you prove income of $1000 a month, you get residency in Panama. In Ecuador the amount is $800 a month. If you buy a property for $25,000 or more in Ecuador, you can use it to get residency. In Panama, you’ll need to invest $300,000. It’s easy to see why Ecuador wins this round.

Property Prices. New beach condos in Ecuador cost around $1000 a square meter on average, for a condo right on the sand. That’s less than half the average in Panama, which runs $1500-$2500.

Highland properties in Ecuador cost as little as $500 a meter. Similar properties in Panama’s highlands cost 2-3 times that price.

Your real estate dollar goes much further in Ecuador.

Investment Potential. In 2004, Panama’s real estate market started to boom. A rush of foreign buyers pushed property prices up. In some areas, prices doubled in just two years. But in 2008 the market slowed. Many of the buyers came from the U.S.

The higher property prices in Panama and the economic crash back home meant they couldn’t afford to buy. Today, Panama City in particular suffers from an over-supply of condos and a lack of buyers. It’s no longer an investor market.

Ecuador isn’t an investor market either- just yet. The influx of foreign buyers we saw in Panama hasn’t happened in Ecuador. But more foreign buyers are waking up to Ecuador’s highly affordable property prices. And Ecuador’s lower property prices mean good potential for appreciation.

Holding Costs. I’ve split this into capital gains, annual property tax, and transaction costs. Remember, you may still have tax obligations in your home country.

Capital Gains: In Panama, you’ll pay 10%. In Ecuador, you’ll pay 0.5%. It’s easy to see who wins this one!

Annual Property Tax: You’ll pay taxes in Ecuador on the assessed (municipal) value of the property rather than the sale price. In the coastal city of Manta, you’ll pay 0.15% of the property’s assessed value (the rate varies from one municipality to the next). On a $100,000 home in Manta, you’ll pay $150 a year in tax.

In Panama, some properties come with a tax exemption of up to 20 years. Condos with a property tax exemption must still pay property tax on their share of the land that the condo building sits on at a rate of 1%. Properties without an exemption pay tax on a sliding scale. For a $100,000 property (with no exemption) you’d pay around $1,362.50 a year.

In both countries, I’d strongly advise you not to under-report the sale price to reduce your annual property tax. You could face legal penalties for doing so.

Transaction costs: In Panama, closing costs average 1% of the purchase price, and transfer taxes 2%. Legal fees average 1% of the sale price. In Ecuador (in Manta) purchase tax is 1.6% of the sale price. Legal fees average 1% of the sale price. In Panama, brokers charge the seller a 5% commission. In Ecuador, brokers often charge both the buyer and seller a fee of 2-3% each.

Ecuador, with much lower holding costs, nips Panama in this round.

Overall, Ecuador emerges as the clear winner on the price front. With significantly lower property prices and holding costs, it’s the best place if you’re looking for beach, ocean-view or highlands property and you’re either on a tight budget, or want to get more bang for your buck (a big beach house instead of a little beach condo).

But if you’re looking for a spot with lots of expats, excellent infrastructure, and familiar brands…where you can get by with little Spanish… then Panama will feel more comfortable. But look for a fire sale property so you don’t over-pay for your home in Panama.

Margaret Summerfield

P.S. If you want to see just what you can get for your money in Ecuador, we’ve got just the thing for you: An Ecuador coastal tour this May 1-5, 2012. It’s your chance to see the best selection of properties on Ecuador’s southern Pacific coast. You’ll see a mix of condos, houses and lots, with something for every budget. Contact Amy Pinoargote here for a full itinerary and details on how to book your spot. But hurry – only 24 readers can take part.