Choices: Costa Rica versus Panama?

Expat Lifestyle Choices series is a collection of articles that highlights the pros and cons of two countries which expats are comparing.

So you’ve decided that Central America is your next move.  With great weather, growing economies, and governments working toward making their quaint countries friendly to foreign money and secure for your real estate investment, Central America is fast-becoming the hottest expatriation destination.

When considering which country is the best fit for your expatriation plans, there are almost innumerable factors.  Cost of living, security, immigration requirements, the language barrier, real estate costs, and more are elements that need to be carefully weighed.  Two countries that are topping the list of places to expatriate or retire are Panama and Costa Rica.  Let’s take a look at the two countries and compare what each has to offer.

Costa Rica
This small country of just under 5 million people is considered the jewel of Central America.  Starting with the abolishment of a standing army in 1948, Costa Ricans have made education, social services, and development the mainstay of their social philosophy.  Statistically being ranked the “happiest country on earth”, Costa Ricans live a peaceful and nearly conflict-free lifestyle embodied in the local phrase “Pura Vida!” meaning Pure Life!  With a literacy rate of 96.1%, universal health care, and a growing middle class, Costa Rica is the regional leader in terms of how poor country can pull up its bootstraps and become globally competitive and attract significant foreign investment.  The economy of Costa Rica heavily depends on tourism, agriculture, and electronics exports.  Foreign direct investment in Costa Rica increased to a record $2.1 billion in 2011.

These are all relevant statistics in how they influence the outlook for those considering expatriating or retiring in Costa Rica.  A stable government, a peaceful and educated population, and steady economic growth can nurture a healthy environment for foreign residents.  With the average income of a Costa Rican hovering around $12,000USD per year, and a strong consumer demand for imported goods, the country supports an infrastructure that lends itself well to expat needs.  This means you can easily get many of the items you would expect from home, in large American-style supermarkets and shopping malls.

Real estate in Costa Rica is reasonably priced and plentiful.  Whether you’re looking for a beachfront property in Jaco Beach, a little five acres in the coffee rich mountains of Heredia, or a resort-style development in the sunny province of Guanacaste, Costa Rica is chalk full of options.  The past 25 years has seen a steady stream of expat and retirees buying up condos, properties, and homes all over Costa Rica.  This has not adversely affected the housing market to price real estate out of reach.  Quite the opposite in that real estate prices have risen steadily with the country’s low inflation rate.

Immigration requirements in Costa Rica are well-established and relatively painless with the help of good legal counsel.  Upon entry to Costa Rica, North American and European visitors are granted up to 90 days on a tourist visa to explore the country and start any paperwork required for residency.  There are various types or residency from Pensionado (retiree), Rentista (long-term renter), Permanente (permanent resident), or Inversionista (investor).  All of which have clear guidelines including the amount of guaranteed income needed from long-term annuities, savings, or pensions.  Simply purchasing property at a specified minimum value is not adequate to qualify for long-term residency status in Costa Rica.

Panama
South of Costa Rica is the Republic of Panama.  Panama has a smaller population of 3.5 million people, and a larger land mass of about 76,000 square miles.  North of Colombia, Panama is bisected by the famous Panama Canal.  There is a chain of mountains in the west, moderate hills in the interior, and a low range eastern coast.  There are extensive mangroves and forests throughout the Caribbean region.
Panama is a constitutional democracy and the currency is the Balboa which is pegged to the U.S. dollar.

Having a dollarized economy, Panama boasts a robust service sector accounting for nearly two thirds of the country’s GDP.  The largest of these services are operation of the Panama Canal, banking, and tourism.  In 2007 expansion on the canal began and is expected to reach completion by 2014.  At a whopping $5.3 billion price tag, this project constitutes approximately 30% of the nation’s GDP.  Panama is not a signatory to CAFTA (Central American Free Trade Agreement), rather chose to negotiate an independent agreement with the United States in 2006.

Panama is a poorer country than Costa Rica in most senses.  The vast majority of people in Panama are living on less than $2 per day according to statistics in 2005.  That same statistic in Costa Rica only amounted to less than 13% of the population.  The distribution of wealth and social services in Panama is not nearly the level seen in Costa Rica.  This level of poverty, in concert with significant drug related crimes, is what often turns many expatriates in the direction of the somewhat more expensive Costa Rica.  Costa Rica also has a much higher literacy rate and superior education.

Panama has a more recently devised retiree (pensionado) program than Costa Rica.  Panama is working hard to attract expats to their country by offering tax free allowance on personal goods brought into the country, property tax exemption for the first 5 years, and lower fiscal requirements to obtain the status at $500 per month.  The Pensionado Visa is granted indefinitely but it is necessary to prove to the Immigration Department on an annual basis that the income is still active.

Cost of goods in Panama is significantly cheaper than in Costa Rica.  Appliances, electronics, cars, and more are not subject to the level of import and sales taxes seen in Costa Rica.  In fact, many Costa Ricans fly to Panama regularly to take advantage of the better deals.  On big-ticket items like a car in Panama that costs $20,000 one can expect to pay upwards of $35,000 for the same vehicle in Costa Rica.

Another tick in the “win” column for Panama is definitely the price of real estate.  You can purchase land in Panama for a fraction of the cost in Costa Rica.  A five acre ranch in Panama that sells for $90,000 is a cool half-million in much of Costa Rica.  Large retiree and expat developments in Boquete and areas in and around Panama City are taking advantage of these prices, tax incentives, and rising popularity of Panama as an expat destination.  In fact, there are many expats leaving Costa Rica for the more affordable lifestyle in Panama.

Crime is both a matter of statistics and opinion.  Though petty theft, car jackings, and robberies are on the rise in Costa Rica, Panama isn’t without its issues.  The 2009-2010 UNDP Human Development Report for Central America shows the homicide rate in Panama in 2008 was 19 per 100,000 inhabitants; much higher than the 2007 statistics, estimated at 13 per 100,000 inhabitants, and the 2000 figures that showed 10 per 100,000 inhabitants.  Where you live, how you take care of your own personal security and common sense are part of the picture no matter where you live.

Despite the pretty night panoramas of the banking district in Panama City, the city itself is quite small, congested, and very poor.  There are indeed a number of attractors leading many toward Panama as a expat destination, especially in the Boquette regions for retirees.  However, Costa Rica has all that Panama has, and arguably more.  The diversity to be found in Costa Rica in a small, manageable space coupled with a long-standing expat community makes Costa Rica the clear winner for many.  At the end of the day, some of the minor inconveniences or expenses that can be associated with Costa Rica are justifiable – especially when you find the tradeoff is not having to live in a gated community miles from anyone or anything, all to save a few dollars.  Costa Rica offers the perfect blend of adventure and creature comforts you’d associate with being and expat in Central America.

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