WHEN Larry and Honey Dodge of Jackson, Wyo., first visited this fledgling eco-tourist destination two years ago, they were thinking about retiring abroad and decided to take a vacation here to check it out. They had read about Panama's diverse climate of tropical beaches and mountain cloud forests, as well as its recent efforts to lure foreigners with residential visas for anyone with just $500 a month in personal income and generous breaks on property and income taxes.
Committed libertarians, Mrs. Dodge, 58, and Mr. Dodge, 63, both retired, also liked the country's laissez-faire stance on private property rights and entrepreneurship. Best of all, land prices as low as a few thousand dollars an acre and building costs starting around $40 a square foot meant the two could afford to sell their house, build a new one in Panama and still have plenty of money left over to cover their living expenses.
Their trip to Panama, an S-shaped isthmus with 1,600 miles of combined coastline on the Atlantic and Pacific Oceans, was a success. Before they returned home to Wyoming, they put down $27,000 for a small plot of land in Altos Del Maria, a mountainside real estate development an hour and a half drive from Panama City. "Almost from the minute we got there, we were, like, 'This is the place,' " Mrs. Dodge said of the creek-side building site with a view of the surrounding mountains. "It was perfect."
Little wonder that Panama is increasingly lighting up the radar screens of those searching for an affordable alternative to more traditional south-of-the-border retreats in Mexico, Costa Rica and the Caribbean, where escalating prices increasingly rival those along America's own beachfronts.
Touted as the "next Costa Rica" by travel magazines and newsletters like International Living, Panama is undergoing a land rush as its Tocumen Airport fills with planeloads of eager foreigners with cash in hand.
Since 2001, once sleepy rural towns like Boquete, which AARP's Modern Maturity magazine named one of the world's best places to retire, have seen real estate prices rise as much as fivefold as developers transform farmland into high-end developments like Valle Escondido, a gated golf-course community where half-acre lots now sell for $100,000 and more. Prices in coastal areas like Bocas Del Toro, on the Caribbean Sea, have also skyrocketed, and a restoration under way in Panama City's historic Casco Viejo neighborhood has drawn foreigners eager to get a piece of its 330-year-old history.
Yet despite the price increases, property here remains a fraction of what one would pay for similar real estate in the United States. And with enticements like a 20-year suspension of property taxes to those who build houses or renovate in a historic district, and an income tax hiatus for those starting some small businesses, the opportunities are appealing not only for those seeking a place to retire but also for entrepreneurs.
At least that is what Douglas Lonneker, 39, and Gloria Esguerra, 28, are counting on. Eager to spend a few years in a foreign country before their 2-year-old child is old enough to go to school, the couple recently bought, as an investment, development property in the western highlands near Boquete and in Bocas Del Toro along the Caribbean Coast, as well as an apartment in downtown Panama City, where they plan to live full-time. A real estate investor and stock market trader, Mr. Lonneker was attracted by Panama City's thriving business community, including more than 100 international banks and a tax-free manufacturing zone, as well as a technological sophistication, including high-speed Internet service in his new apartment. "Everything works," he said. "And because it's a financial center for Latin America, it's easy to establish banking relationships and locate money managers and accountants. You don't get that in places like Costa Rica."
Then, of course, there is the lure of Panama City's urban lifestyle, including a young, hip population and a bevy of good restaurants, bars and nightlife. Ms. Esguerra, a dog groomer, is especially taken with Casco Viejo, where high-profile residents have renovated once-crumbling buildings, like the waterfront three-story home of the musician-turned-politician Ruben Blades, who is now the country's minister of tourism.
Resembling a cross between the French Quarter of New Orleans and Old Havana in Cuba, the neighborhood is situated on a small peninsula that juts out into Panama Bay on the Pacific Coast. Its ornate Spanish colonial and neo-Classical architecture offers a stunning counterpoint to downtown Panama City's glass-enclosed high-rise buildings poking up across the water.
Largely abandoned by the city's wealthy beginning in the late 1950's, many of Casco Viejo's buildings fell into disrepair as squatters moved in and growing drug use gave it a reputation as the city's most dangerous neighborhood. Yet the United Nations declared the neighborhood - one of the oldest settlements in the Americas - a World Heritage site in 1997 (the Panama Canal didn't even make the list), and the government has since poured millions into infrastructure improvements, building restorations and additional policing.
Thanks mostly to property tax breaks, low-interest loans and other incentives, once crumbling buildings like the Hotel Colombia have been transformed into upscale apartment houses with stunning views of ancient churches, palaces and the Pacific Ocean.
"It's like walking through one of the old cities of Europe," Ms. Esguerra said of the neighborhood, where she and Mr. Lonneker hope to find a building to renovate. "It's absolutely where we want to be."
While property prices have approximately doubled in the last five years, "there's still a ton of upside potential in Casco," said Kathleen Peddicord, publisher of International Living, which recently renovated a building there to house its local office. "Every time I visit, it gets more cleaned up, and these grand old buildings are being resurrected. The more that happens, the more people will want to come."
She is less sanguine, however, about some other areas on buyers' radar screens. For example, she does not recommend buying in Boquete or Bocas Del Toro, two of the most popular places for foreign buyers in recent years. "It's really beautiful, but there's been a buying frenzy in that little pocket of the country," she said of the highland and Caribbean coastal areas near the country's border with Costa Rica.
There is also the problem of untitled property, especially in the coastal areas around Bocas Del Toro, where several lawsuits are now pending over land illegally sold to foreign buyers by the former municipal government.
"It's definitely a place where you need to be very careful about what you're buying," said Michael Manville, a real estate consultant who leads buying trips to Panama. As for Boquete, he, too, is wary of rising prices, and instead recommends areas closer to Panama City, such as Sora, where the Altos Del Maria development is located.
The Dodges heartily agree. They consider towns like Boquete and Volcan too far from Panama City. So enamored were they with Altos Del Maria that they recently decided to trade up to a larger lot nearby to build their dream house, part of which they plan to open as a bed-and-breakfast business. At $105,000 just for the land, "it wasn't cheap," she said.
"But it's got 50 papaya trees, 100 banana trees and a dam on the creek that makes a little pool where you can swim," she added. "And if the B&B thing doesn't work out, we'll have extra bedrooms for everyone to come and visit."