LAND BANKING IN PARAGUAY: IS IT STILL POSSIBLE?

“Land for $50 per acre?” asked my friend Dave, as if he could hardly believe what I was telling him. Over the next few years it would become the stuff of legends.

from Peter Macfarlane

It’s undeniable that going forward, there will be more mouths to feed.

Not just human mouths, either.

As meat consumption increases too, and disproportionately so in rapidly developing economies like China, there will be plenty more animals requiring fodder. In turn, producing that animal food will require ever greater quantities of fresh water. There is little doubt that agriculture is undervalued as an investment opportunity today.

There is another agricultural revolution on the way. And there is one particular country on our radar for agricultural investments, because it in itself is unknown and undervalued.

Dateline June 2006. I’m savoring a glass of Malbec in a trendy bar in Buenos Aires and having a lively discussion about a topic that’s as old as the hills: is the offshore financial services business dead? Sitting on the bar stool next to me is a British expat and perpetual traveller – let’s call him Dave for the purposes of this article.

Dave, originally from Nottingham, had moved to Buenos Aires the year before to be with his Argentinian girlfriend. Despite having no prior experience nor relevant qualifications, he had landed a part time job as a “financial advisor” in the Argentinian office of a rather questionable outfit based in Marbella that specialized in selling over-priced and poorly performing pension plans to expat Brits the world over.

The commissions were high, but Dave – to his credit – felt uncomfortable pushing the product.

I, meanwhile, had just come back to the “real world” from a three-week “boots on the ground” trip to Paraguay.

Although not my first trip to Paraguay, this was the longest I had been in the country as yet. The main focus of my trip had been scouting out agricultural investment opportunities, as well as opportunities for acquiring second passports on behalf of clients.

As fate would have it, Dave had contacted me a few months earlier through the Q Wealth Report because he needed help on a completely different matter. We had agreed to meet up in B.A. Now, however, with the prospect of buying land for $50 per hectare, Dave’s original interest was taking a back seat.

“Of course,” I explained, “we are talking about the very cheapest land. It’s not irrigated, it’s not particularly fertile, and it’s probably not even accessible by road. And you have to buy thousands of hectares to get that price.”

I remember Dave because he was one of my first Paraguay clients.

As our conversation continued, it turned out that Paraguay residence would be of great use to him too. He was living in Argentina on a tourist visa and had not even attempted to extricate himself from the tax system back home in the UK.

A Paraguay residence card and mailing address was just the ticket Dave needed to declare himself non-resident to his home country. The Paraguayan cedula made it easy for him to float around South America’s Mercosur region as a permanent tourist with his girlfriend. And three short years later, in 2009, I accompanied Dave and his lawyer to the Paraguayan interior ministry and he became my first client to acquire Paraguayan citizenship and passport.

Ah, those were the days. (Citizenship is still possible these days, but more difficult, especially for those not spending time in Paraguay).

During that trip I had dozens of meetings with real estate people, agricultural experts and economists, all of whom confirmed my belief that land in Paraguay was undervalued.

Besides that, I had meetings with Germans who were offering almost instant Bolivian citizenship – a two week hotel stay in Paraguay seemed to be the main qualification.

At that time, most of the investors in Paraguay were Brazilian and Argentinian farmers – for whom ‘land banking’ killed two birds with one stone.

First of all, land in Paraguay was much cheaper than equivalent land across the border – hence my opinion that it must be undervalued. And secondly, Paraguay welcomed inward investment and didn’t much care if tax had been paid or not in other countries. Most of the money crossed the border as cash US dollars in briefcases.

This was, of course, in the days before Argentina had trained its pack of dollar-sniffing dogs to work on border customs posts.

European investors (mainly Spanish and German) were, however, also taking an interest in Paraguay, as were American ranchers and agriculturalists, including the family of George W. Bush.

The main motivation for these investors was different – although they obviously hoped to make money, the main attraction was the freedom and frontier spirit of Paraguay.

For only a fraction of the cost of living back home, they could live in a tax-free paradise, be self-sufficient in food and still make an excellent financial return on investment. And most importantly, they would be free to do their thing without interference from the government – something virtually unknown these days in the US or Europe.

The Bush family’s motivation is unclear to this day, something we can only speculate about.

Now, it must be said that I am no agricultural expert.

I know which cuts of beef taste better than others with a glass of wine, but that’s about my limit.

When it comes to soybean, stevia or sorghum I would not even be able to tell the plants apart. And one of my golden rules of investment is not to invest in things I don’t understand. That’s why you don’t find me knee-deep in mud or chasing crocodiles on a ranch in Paraguay.

For people like me the Paraguayan stock exchange offers plenty of opportunity too. Or for a hybrid solution, you could always consider Paraguayan “beef shares” – a financial instrument that is, literally, backed by cows.

I have, however, worked with several families who already had vast farming experience. In one case a family limited partnership sold land in the US agricultural belt, bought about three times as much land area in Paraguay and was left with plenty of cash in the bank to work the land too.

The family is still living happily there as far as I know.

Another one of the great attractions of Paraguay, as I’ve said before, is the vast amount of fresh water there. The Guarani aquifer is a huge underground water system that also irrigates vast swathes of Brazilian agricultural land.

Fast forward to October 2013, our last Q Wealth meeting in Paraguay.

Surprisingly little has changed.

You really can still buy that fabled $50 land. Realistically, most Q Wealth readers won’t – unless you have many millionsbehind you and are taking a really long term view, it will probably make more economic sense to buy a little estancia within striking distance of the cities. Here you could easily be self sufficient in food and water and enjoy a great lifestyle, free from government hassles.

Why have the prices not increased in nearly ten years?

Truth be told, they did.

Then they fell again in 2008-2009 so they are back to pre-boom levels. Like everywhere else, Paraguay has been hit by crisis. I can’t predict the future, but from what I see, major multi-national ag companies are now showing an interest in Paraguay and this could easily drive land prices up to those of neighboring countries, which could represent a fantastic profit for those who buy now.

How would such an investment compare to, for example, Chile or Argentina, two popular expat destinations at the moment?

The answer is very favorably.

In my view, it would be an easy choice, as you would get so much more for your money in Paraguay.

Chile is certainly more sophisticated, so it does depend if you prefer a more cosmopolitan life, or the quiet backwater life that Paraguay has to offer. Argentina has a lot to offer as well (good wine comes to mind) but also a loony left statist-mentality government, compared to Paraguay’s business friendly and laissez-faire approach.

All in all, I do suggest if you are considering an investment in South America, that you take a look with your own eyes.

Visit Asuncion, and meet our trusted experts.

Then do your own due diligence.

Ideally, take some time to visit different areas of Paraguay, such as the tri-border area and the Chaco. It’s certainly not for everybody, but it’s worth a look!

Note: there’s less than a month left until our third Paraguay event, but still time to book.

Paraguay is being discovered and the Q Wealth team will help you get in ahead of the crowds.

At our informal meeting you will get to meet lawyers, bankers, real estate experts, agriculture experts and even members of the government… not to mention the chance to network informally with Peter Macfarlane, Adam Richardson and other Q Wealth members.

Since Peter no longer takes on new consulting clients personally, attending one of our get-togethers is now the ONLY way to get your questions answered by Peter in person.

A limited number of slots are still available: contact us or visit qwealthevents.com to receive the very latest details