Source (www.journalcr.com) By Peter Freeman
The real estate market in Costa Rica, in response to booming investment and international attention, is entering a stage of sophistication. With better financing options, more established developers, and more savvy consumers and businessmen alike, Costa Rica is a secure and transparent investment. As the market matures, however, it is also tightening, and prices across the country are reacting quickly. Nevertheless, very few buyers are feeling excluded from the rush and the full gamut is making the plunge.
Costa Rica, with an average annual growth rate of 4.5 percent over the past ten years, has become increasingly seen as a strong and sustainable economic environment for both foreign and domestic investors. Where the country used to rely on exportation of produce like bananas and coffee, real estate is the currently indispensable market.
The economic environment over the past few years has reflected investor confidence in Costa Rica. Capital investments in 2006 grew at a rate large enough to cover the public sector’s account spending. There were $1.89 billion worth of private capital investments in 2006, which translates into 8.7 percent of Costa Rica’s gross national product (GDP). Similar investment in 2005 was limited to $1.4 billion – 6.8 percent of the country’s GDP.
According to Dr. Luis Massalles, Costa Rican economic think tank analyst, a large portion of this investment is coming from foreign direct investment in real estate. Real estate FDI alone accounted for 1.1 percent of GDP in 2005, and Masalles expects it to amount to a similar figure for 2006 and continue to grow.
The real estate hot spot last year was the northwest Guanacaste region, Costa Rica’s seventh and largest province and home of some of the country’s most coveted beaches. In 2005, Guanacaste captured 53.2 percent of real estate FDI. The San Jose province, including the Central Valley, captured 25.4 percent. The Puntarenas province, including Jaco, Manuel Antonio, and the South Pacific, received 29.7 percent. Alajuela received 12.7 percent, Cartago 7.9 percent, Heredia 13.7 percent, and Limón 4.4 percent.
Guanacaste is dominating both the volume and nature of real estate investment in the country. It has some of the country’s most beautiful beaches and can be quickly reached by the Daniel Odubar International Airport in Liberia, the province’s capital.
The controlling trend is the development of resort and residence communities designed to provide the services and amenities of a full town. The Los Suenos Resort in Jaco was the leader of this trend, although communities like Pacifico Beach Club and the Papagayo Golf Club in the Playa de Coco area seem to be popping up everywhere. Like the course of development booms everywhere, infrastructure and services have taken a while to catch up to the speed of construction in Costa Rica. Instead of waiting for the government, such projects are taking the initiative to flesh out the local economies with anything from luxury furniture stores to medical clinics. The Four Seasons, Papagayo Peninsula in Guanacaste provides its guests Internet access from their own private grid, for example, because they feel it is more consistent than the service provided by the government run monopoly, from which the rest of the country connects.
The condominium market is also in full swing in areas of Guanacaste like Tamarindo, and the rates of appreciation are offering various opportunities for investors to make a quicker profit than through the purchase of land. Many think that prices have peaked in the area, however, for the time being.
The Central Valley is becoming a less expensive alternative to the beach, as well as having access to more developed infrastructure and governmental services. In addition, the Juan Santamaria International Airport in San Jose is centrally located in the middle of the most populated suburbs. For those who are raising a family, the education is notably superior to the options in periphery, especially for private schools.
In contrast to the residential developments dominating the coastal regions, the driving force in the Central Valley is commercial construction. Most of this investment is in speculation of a future residential boom, although many think that it is outpacing residential growth and an over saturation of the market is occurring.
In the southern Nicoya Peninsula region, prices have been shooting up for the past five years. Properties are appreciating at rates between 20 and 100 percent and the low-end market is becoming non-existent as a lot of any size five minutes from the beach can’t be found for less than $150,000.
The low end market is still robust in the South Pacific regions of Golfito, however. The Caribbean side is largely undeveloped and cheap, although has not seen much investment due to security concerns.
Countrywide, analysts are seeing the beginning of a boom, and there are a number of reasons why the market is growing now and will continue to grow. Due a number of factors regarding Costa Rica’s economic and political climate, Costa Rica is, according to Jim Gale at Paradise Brokers in Dominical, “one of the best and most secure real estate purchases in the world.”
The number one reason Gale cites is accessibility, principally convenience of travel to and within the country. There are now two international airports - the Daniel Oduber International Airport in Liberia, Guanacaste and the Juan Santamaria International Airport in San Jose - welcoming almost 1.7 million tourists last year. The large majority of those tourists are still form the United States, who fly here in two hours from Miami, three from Dallas, Texas, for example. After touching down, the beach can be as close as 20 minutes away from Oduber, never more than a three hour car ride from Juan Santamaria.
The second most influential factor is an aging demographic of buyers sitting on retirement funds. Gale has seen evidence of the baby boomer generation putting the same pressure on foreign markets as it has in the United States. 70 percent of his customers are from the United States, he says, mostly looking for a retirement getaway.
Second home sales surged this past year, equalling a third of the market in the United States; Costa Rica is the size of West Virginia. Most attribute the attractiveness of Costa Rica to the growth potential, citing the figure that properties can appreciate three or four times before they reach the price of a comparable property in the United States or Europe.
Another motive to get away has been the rising concern over terrorism amongst United States citizens. Aside from creating a drive out of the States, Costa Rica, with a long tradition of democracy (some say Latin America’s longest, although Venezuela would debate that) and no standing army, is a refreshingly peaceful option.
Gale, along with investors around the country, have seen a recent maturation of the financial markets. The availability of financing, especially through pre-packaged mortgages and standardized plans, has attracted investors that may have been wary to put money into the country before. “Investors and buyers alike are not willing to invest until they see that these things are already underway,” says Brad Schaepp of Costa Blanca del Pacifico in Guanacaste. “Now, we are seeing the market become more sophisticated. The process is becoming standardized.”
Financing options are also expanding on all levels, says Schaepp. “Banks are competing for mortgage financing, where before, investors were financing themselves or reaching out to private lenders. Approved financing options are taking off, as well. “I am very excited about [Banco Nacional] organizing around qualified projects,” Schaepp says.
The market to the south in Manuel Antonio is seeing a similar development. Banks there are starting to offer 30 percent down financing with the option to defer payments, for example. “This is a new thing,” says Richard Lemire from Manuel Antonio Estates, one of the area’s leading real estate agency.
The standardization of the financial market is only one aspect of the progress Costa Rica’s real estate market has made. The growing market has also created more sophisticated business standards. Investing and developing in the country is becoming a more educated, professional practice. One only has to Google ‘Costa Rica’ to learn the in’s and out’s of the whole process of investing here. Much of this information is intentionally made clear by the development companies as an effort to ease buyers’ tension about dealing long distance “Developers are coming in to build up the marketing and advertising markets,” says Schaepp. “As well as more professional P.R.”
The businesses themselves are internally more sophisticated, as well. “Projects are coming in with an understanding of pro forma,” says Schaepp. This is a necessary step to reassuring and attracting capitalized investors. “This security is driving up investment because it is much easier to foretell how the process will run and how the market will reward the investment,” Schaepp says.
Costa Rica also has famously low taxes. Today, a homeowner has to pay four percent property taxes. Setting aside alternatives in the United States and Europe, Costa Rica is seen as a better investment than its neighbors. In Panama, for example, property taxes are payed on an accumulating scale that adds up to almost six percent once the value of the house exceeds $100,000. In Nicaragua, taxes are lower than in Costa Rica but the political situation is tenuous for foreign investors. In addition, there are no capital gains taxes on properties in Costa Rica and the rates of business taxation are comparably low.
No matter who you are, you will not be restricted from owning property in Costa Rica. This is not the case in Mexico and most ofCentral America and is a huge draw for foreign buyers looking to retire and put legalities behind them.
What buyers are demanding once in Costa Rica is recreation and convenient amenities. Costa Rica is the land of recreation, ranging from the extreme rip cord rides through the rain forest canopy to the decidedly safe suntanning. The retiring demographic, while probably more active than the average, is favoring the more leisurely activities. According to Dave Reynolds at Papagayo Golf Club in Guanacaste, one fifth of foreigners coming to the country are coming to play golf. The second largest leisure activity is boating and fishing, and the proximity to a marina is increasingly determining where homeowners settle.
No matter what the taste, Costa Rica is internationally recognized as being able to deliver. If one can’t already find satisfaction in the existing landscape and economy, it can probably be created. The range of possibility is has been attractive to the range of real estate investors; what is actually attracting them is the increased sophistication of the financial market. With it, the business community on both sides of the transaction is maturing.
For its seemingly irrational fluctuations and high prices, there is a firm foundation being laid to the real estate market to support a sustained growth to match the country’s strong economic progress.
