Wednesday, July 14, 2010
I get a lot of inquiries asking me to compare different countries that people are looking to buy property in. These types of comparisons help a lot when you’re down to a shortlist of two countries, trying to figure which one to prioritize, and visit, before you buy.
The most popular countries readers ask about are Panama and Ecuador. So I’m going to take a good look at the real estate picture in both countries, touching on the most important attributes:
Price. Ecuador wins this hands-down. Prime beachfront condos run from $750-1000 a square meter on average. That’s less than half the average in Panama ($1500-2500). And mountain properties in culturally rich Cuenca or hip Cotacachi cost as little as $500 a meter. Similar expat havens in Panama’s highlands easily cost 2-3 times that price.
Construction Quality. Both countries tie for this when it comes to pre-construction condos (build quality can vary hugely from developer to developer, though, so it is worth checking out a developer’s previous projects in either country). Ecuador edges ahead when it comes to the standard of finishings. They’re usually better quality, cleanly installed, and not as mass-market as those in Panama.
Topography. Panama offers a choice of coasts, Pacific and Caribbean. On the more developed Pacific coastline a string of hotels, golf courses, resorts and small residential communities dots the beach. Ecuador’s coast doesn’t have the golf courses, and only a couple of all-inclusive hotels…but it boasts four cities (Salinas, Manta Bahia de Caraquez, and Atacames).
While the coasts in both countries offer a tropical climate, some parts of Ecuador’s coast are cloudy and overcast for much of the year.
If you want a mountain property though, you can’t beat Ecuador. The mountain peaks are higher, and the snow-capped volcanoes more dramatic, than anything on offer in Panama.
So, for cool highlands living, look to Ecuador. But Panama’s wide, light-sand beaches and sunny skies top those in Ecuador, giving us a tie.
Ease of Buying. Panama easily wins this. Years of dealing with Americans…and a real estate market that boomed between 2004 and 2008…means that local brokers, developers and sales staff often speak English. Many homes and condos reflect the taste of foreign buyers, with large open-plan kitchens (and no separate living quarters for a live-in maid).
Banks like HSBC and Scotiabank offer financing to foreign non-residents (up to 70% LTV).
Some broker regulation exists. Brokers must be Panamanian citizens, and they have to pass an exam. You’ll still come across bad-apple brokers…but it’s not a free-for-all, as it is in Ecuador. The seller pays the broker commission in Panama, and the norm is 5%. In Ecuador both the buyer and the seller can pay (the norm is the seller pays, but it varies from broker to broker…there is no hard and fast rule), around 2-3% each.
Property for Residency. Ecuador comes out ahead on this. An investment of just $25,000 qualifies you for residency, compared to $300,000 in Panama.
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, 0.5%. Guess who wins this one…
Annual Property Tax: Taxes in Ecuador are paid on the assessed (municipal) value of the property rather than the sales price, as they generally are in the US. In the coastal city of Manta, you’ll pay 0.15% of the property’s assessed value…but this will vary from one municipality to the next. In some municipalities, you can have an assessed value that’s far below the sales price, which reduces your annual taxes. In others, the assessed value can be nearer the sales price.
In Panama, some properties have tax exemption of up to 20 years. Condos with 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%, though. Properties without an exemption pay tax on a sliding scale. For a $100,000 property, you’re looking at around $1,362.50 a year.
Remember that for property in Ecuador, you’ll pay considerably less than you will for a similar property in Panama…which means lower annual taxes. But if your Panama home falls into the tax-exempt category, you’re sitting pretty.
In both countries, I’d strongly advise you not to under-report the sale in order to reduce your tax burden. While this is not uncommon, it could result in legal penalties and will almost certainly raise your capital gain liability when you sell.
Transaction costs: In Panama, closing costs average 1% of the purchase price, and transfer taxes 2%. Legal fees run to 1-3% of the sale price. In Ecuador (again in Manta) purchase tax is 1.6% of the sale price. Legal fees average 1% of the sale price.
Overall, Ecuador wins the holding costs round.
Property Management. This is easier in Panama…period. Panama offers a wider choice of rental management companies, and more rental potential, than Ecuador. You’ll likely have better occupancy, and higher rental rates, in Panama. Ecuador’s market for short-term rentals is in its fledgling stage.
Investment Potential. Panama’s real estate market boomed from 2004-2008. An influx of foreign buyers pushed property prices upwards rapidly. Since 2008 though, the market slowed. Today, it suffers from over supply, and lack of demand. It’s not an investor’s market.
Ecuador isn’t an investor’s market, either, strictly speaking. That influx of foreign buyers hasn’t happened—yet. More foreign buyers are waking up to this country’s potential, though…and its highly affordable property prices. It’ll take a while, but Ecuador’s low starting prices means it offers more potential for appreciation.
Ecuador emerges as the clear winner in four categories, and ties in another two. Two of its winning categories carry more weight in my book (Price, and Investment Potential). Of course you’ll need to evaluate other things like climate, health care, and residency. But for real estate, Ecuador takes the honors as a second-home destination, whether you’re looking for the beach house of your dreams, or a highlands hideaway.
P.S. If you want to see just what you can get for your money in Ecuador, contact Amy Pinoargote here. Amy is one of the developers of a condo project close to Salinas, on Ecuador’s South Pacific. The first of two towers is almost complete, but there are a couple of smaller units left…including one for $57,629. The beachfront condos are close to shopping, restaurants, medical clinics, a country club and a yacht club. If you’d like to see the condos for yourself, Amy can help you arrange a trip here, too.
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