Topic: Buying Land

Looking Panamanian

Looking Panamanian saves money while ensuring equal treatment from the bureaucracy and judiciary, but it makes doing business complicated.

Anyone who has traveled much in developing countries has come across a situation where tourists get charged more than locals.

The tourist price, or the gringo price as it is known in Panama, can be genuinely noble, like paying extra to visit a national monument and subsidizing access for locals while helping to fund necessary upkeep. Or it can be downright thievery, like paying several times the usual price for carpets and cab rides. Continue Reading

Land Development Stages in Emerging Markets

There are five distinct stages of land development in emerging markets each characterized by different land-use and types of buyers.

We use Market Stages in order to provide a framework for evaluating a market, property, and business plan.

Stage 1

The land is valued based on its value to the local community. Economic potential based on international valuation has yet to occur. So a location with a fantastic view or right next to a beach isn’t any more expensive than a nearby plot with similar value to the local economy.

There are Stage 1 areas all over Central America. Stage 1 areas may have great potential. Some may even be developed one day, but many will never realize the value that a global market would bring.

Buyers at Stage 1

In addition to locals trading property based on its value to the local economy, a Stage 1 buyer is like a pioneer with an eye for potential. They often have to enter on a horse or a boat to find the area, and they realize the difference between an excellent piece of land and a merely adequate piece of land. Sometimes they have a long-term goal for a return, but mostly they just love the area and the land is less investment and more passion.

Signs of Advancing to Stage 2

As international buyers with a new end-use for the land move in to the market, it’s beginning to move to Stage 2.

Stage 2

Early buyers recognize more global commercial potential and speculate on higher future value. There is no evidence of an international market for these properties at this time. Buyers are lured to the area by the opportunity to enjoy their own gorgeous piece of land at a ridiculously low price.

Often these properties have no road access or utilities, but buyers at Stage 2 can also heavily influence how the area develops by establishing the tenor of development as other investors seek to build complementary businesses.

Buyers at Stage 2

Speculators who also enjoy adopting an area, influencing how it grows, and then seeing it mature according to their vision.

Signs of Advancing to Stage 3

Word begins to spread locally about the price paid driving the price up as speculative buyers begin to purchase. As the price, and value, goes up, more money is drawn to the area feeding the cycle.

Many of the early buyers who purchased larger pieces of land for much less start to sell off small parcels from their property at a much higher price.

Stage 3 buyers who expect infrastructure, services and community to be there or to be arriving soon start purchasing land.

Stage 3

Smaller lots go on sale with a few houses popping up. The region doesn’t look much different from a Stage 2 area as very little building is happening. Most of the transactions are still speculative. Building of very basic amenities begins.

Buyers at Stage 3

Buyers start picking up smaller parcels and lots from the early large-scale speculators. A hand-full of small-scale buyers build houses, but most are speculating and plan to sit on the land a bit before building or selling. Selling of nearby large-scale pieces continues.

Signs of Advancing to Stage 4

Someone begins offering a cohesive residential product, like a subdivision, and people start to move in. The various businesses offering services to that residential base soon follow.

Stage 4

For the first time, you begin to see a critical mass of residents creating community infrastructure including restaurants, grocery stores and tourism businesses. A significant number of tourists decide they like the area so much that they want to settle and a lot more residential housing appears. Larger businesses like supermarkets and hotels start to appear as Stage 4 progresses.

The area begins to be recognized for what it is rather than its potential as businesses and community become established.

Buyers at Stage 4

Individuals, entrepreneurs and businesses looking to live, work and do business in the area start buying the properties. Simply flipping undeveloped land is a much more difficult business model in this stage.

Signs of Advancing to Stage 5

The big chains start building and plans for a full complement of amenities and advanced infrastructure emerge.

Stage 5

A full-scale large town with all of the typical commercial infrastructure, including a range of grocery, restaurant and entertainment options, medical services and maybe even an airport. Tourism is no longer an essential driver of growth as other forms of industries and incomes are established.

Buyers at Stage 5

There are all sorts of buyers mostly with the common characteristic that they plan on using the land.

Using the Stages

Each stage presents unique opportunities and challenges. By understanding these stages the investor has a better framework to evaluate a market and make better decisions.

Titling ROP

Titling rights of possession (ROP) land can be relatively straightforward or may require a patient wait-and-see approach depending on the type of land.

Article Highlights

  • PRONAT titles whole districts at a time under 2 separate programs. In both cases, the process is automatic and there are low associated costs.
  • The decision to title agricultural land is a lot easier than the decision to title coastal land. Agricultural land only requires the desire and a little bit of time and money.
  • It’s a better idea to hold on to ROP in coastal areas and wait for the titling process to improve or to wait until the property gets titled by PRONAT.

Rights of possession are a foreign concept that leave many international investors ill at ease. For many, it is just not worth the effort to learn and do what is required to acquire and maintain a healthy ROP claim. It’s quite possible to possess and sell ROP land just like titled land, but someone who is uncomfortable with ROP should make the effort to title the land for the added security and comfort.

Currently the titling situation depends on the location of the property. Continue Reading

ROP Now and the Future

Most signs point to the eventual titling of all rights of possession (ROP) as each attempt at legislation governing ROP gets progressively more balanced and fair.

Article Highlights

  • Momentum to title ROP continues to build. Legislative attempts to title ROP continue to mature. Even if the current attempts fail, it is a matter of when, not if, titling of ROP holdings happen.
  • There is virtual unanimity amongst the Panamanian professional class that ROP hinders the progressive image that Panama attempts to portray.
  • There is every reason to believe that ROP holders will be able to turn their ROP claims into full title at little or no cost.

President Ricardo Martinelli rode into power by combining populist politics with a solid business background. It sounds like a strange combination, but a President who’s already earned a fortune isn’t as likely to succumb to the pull of corruption that’s plagued many Panamanian politicians. And, as someone who understands the needs of business, there is a lot of hope that he can help both rich and poor by accelerating the expansion of the economy.

In his inaugural address, Martinelli specifically mentioned ROP as one of the government priorities.

We will begin a massive land titling program, so that I can tell everyone who’s listening who has possessory rights, prepare these rights because you’re going to have your piece of land titled.

Martinelli’s comments aren’t all that new. Continue Reading

Preserving ROP Claims

Preserving a rights of possession (ROP) claim requires a deliberate plan to demonstrate continued possession of the property.

Article Highlights

  • Preserving a rights of possession (ROP) claim requires a deliberate plan to demonstrate continued possession of the property.
  • Using the land helps demonstrate possession and makes it less likely that a neighbor will think it’s okay to use the land.
  • Hiring a caretaker who keeps everything neat and in good repair also helps maintain an ROP claim.
  • Building on the land is another way to demonstrate possession and strengthen an ROP claim.

Kurt Vonnegut once wrote that “everyone wants to build, but nobody wants to do maintenance.” Luckily for investors buying ROP, building is a large part of maintaining an ROP claim.

If an ROP claim is contested, Continue Reading

Advantages and Disadvantages of ROP

Rights of possession (ROP) has some important advantages and one big disadvantage compared to fully titled property.

Article Highlights

  • The main reason to buy ROP land is that it is the piece of land that best fits the business plan.
  • The biggest disadvantage ROP land has versus titled property is that it can’t be used to secure financing.

Purchasing ROP can be frustrating. The idea of possessing land instead of owning it is so foreign to most North Americans that many just give up and look elsewhere. But, once they understand the risks of ROP, there are just a few basic advantages and disadvantages that differentiate ROP from titled property. Continue Reading

Navigating the Risks of ROP

Poor understanding of rights of possession (ROP) on the part of foreign investors is the biggest obstacle to investing profitably in ROP as the main risks are well understood and easily resolved.

Article Highlights

  • The biggest obstacle to consistently purchasing and profiting from ROP land isn’t the unusual system, it’s the poor grasp of the system by foreign investors.
  • Historically, challenges to ROP claims come from either a family member of the seller or from a neighbor of the seller.
  • The way to resolve this problem is to go into the community and get signed affidavits from neighbors and family stating that the land in question is solely possessed by the seller.

Warren Buffett famously described the junk bond market as weeds priced as flowers. He warned anyone who would listen to stay away. In spite of the risks, Buffett found junk bonds that he actually liked. He never wavered from his opposition to junk bonds. But in a perilous market, he was able to find opportunity that justified the risks.

Purchasing rights of possession (ROP or derechos de posesorios) is as risky as any random junk bond. Unprepared and uneducated investors can get seriously burned. But an informed investigator can consistently Continue Reading

Rights of Possession in Panama: A Tradition And An Opportunity

Rights of possession (ROP) is a poorly-understood legal vehicle for investing in Panamanian land that, with proper planning and effort, can be just as effective an investment tool as fully titled land.

Article Highlights

  • ROP is a land-backed asset.
  • The biggest obstacle to consistently purchasing and profiting from ROP land isn’t the unusual system, it’s the poor grasp of the system by foreign investors.
  • The risks can be mitigated but additional expertise and effort is required beyond titled property investment.

Panama, like many Latin American countries, is steeped in tradition. Panamanian villagers still observe traditional forms of etiquette, dance and music that go back to the 16th century.

One of the many Old World traditions still alive in Panama is the Napoleonic Civil Code, which includes the concept of Rights of Possession, or Derechos Posesorios.

Briefly, this legal tradition holds that whoever occupies property and uses it for its social function has the right to possess it.

Because this tradition is poorly understood, Continue Reading