The Current Market December ’07

Its changing. (Now there’s some real insight for you).

The global markets are in the throes of change. The US dollar is at an all time low. The Canadian dollar is, for the first time in some fifty years, stronger than the US dollar. Even here in Costa Rica, the Colon, for the first time in anyone’s memory, gained against the dollar.

So, whats happening here in Costa Rica with land sales and investments?

A little history:
We boomed here, super hot, from about mid 2004 up through mid 2006. Properties were snapped up and the biggest concern that us real estate agents had was, is there enough property to go around? Literally – I had numerous discussions with other Realtors on the topic. “Do you have anything to show your clients?”

After the boom, we settled into a steady flow of business with the occasional BIG story happening. Talk of big money hoteliers coming in, or at least, having an interest in the area started up and are continuing on at this writing. One seller that I have spoken with had some serious talks with Marriot about a hotel here. But the thrust of the market was and is single family lots that offer an ocean view.

The equity buyers from the land boom and easy financing in the States powered a lot of what we did here. People were enjoying large chunks of equity capital from the appreciation in their homes in the various hot markets such as, from Florida up the Eastern Seaboard, Colorado, and Southern California. Liquidity was rampant.

The change:
Lending practices (among other things) in the US have thrown that country’s economy into a tail spin and it is now difficult at best, to get financing. The equity buyers are gone and the prestige and buying power of the US dollar is declining.

United Kingdom:
A few months ago I went to England to a real estate expo put on by a reality television program there called “A Place in the Sun”. It is evidently a big deal over there. “A Place in the Sun” is a program that locates single family properties in beautiful parts of the globe and then screens applicants that are looking for such properties. They take these couples to the various selected properties where the prospective buyers view, and then likely buy, that property. They film the whole thing. The show is a hit.

I was helping a friend with a booth there that was exclusively for Costa Rica real estate. Walking around the expo was an enlightening experience. There were maybe two other booths that dealt with Costa Rica real estate, but only peripherally. Ours was the only one that dealt exclusively with Costa Rica real estate, so I would say that Costa Rica was not represented in a big way. But Spain was. And Croatia, and Turkey and Morocco etc… It was quite the exotic presentation.

The Brits have got money, plus their currency currently is enjoying about double (and increasing) the buying power of the U.S. dollar. My few days there in England were easily the most expensive few days of travel I have yet experienced in my life. The hotel where I stayed charged ₤285 (sterling) which equated out to $570 US per night. We got a break for being at the Expo, but still… I didn’t even think that the hotel was all that great – and it was packed!

The flush Brits have lots of interest in spending their money outside of the UK. There are tax laws in the UK that have the effect on the residents there of wanting to get their money out of the country. It seems strange to me that a country would have such laws, but there it is. They have effectively pushed ocean view land values, especially in Spain, Turkey, and Croatia through the roof. The booths in the show were elegant and peopled with some gorgeous human specimens. Big screen displays showing how you can buy into a nice ocean view condo along what some marketer had name “Costa Blanca” in Spain for a mere ₤750,000 ($1,500,000 US) and so on.

From our booth at the expo we would watch as a couple would saunter on by. They’d glance up at our sign that said “Costa Rica” and keep on walking. A short piece down the way they would stop, talk with each other, turn around and come back. First question: “Where is Costa Rica?” Many, of course, thought Costa Rica to be an island. I eventually printed out an add-on for our marquis that said “Central America” to try and help a bit.

So, the conversation would go from what I would call an absolutely cold beginning, to some pretty serious interest in investing in Costa Rica.

United States:
A few months ago, a Realtor from Boston Massachusetts referred a stock trader from New York down to me that ended up buying in the San Buenas area. They bought a beautiful 6+ hectare (2.48 acres to the hectare) property alongside a year round waterway that features a 50 foot waterfall. The property listed at $265,000. This resulted in a generous referral commission check to that Realtor.

My most recent travels took me, as chance would have it, to Boston. I just gotta say, it was COLD there. I had the chance there to talk with a number of Realtors there about the state of the market. They all had done extremely well in the recent years of prosperity in the States, and were now, well… quite frankly, they seemed a bit scared about the situation in the real estate market there in the States. Consequently they had a pronounced interest in Costa Rica as a possible referral option for branching out and developing an alternate income stream from their existing client base. Their clients have money. The equity buyers may be gone, but there is still, evidently, a good amount of money in them thar States.

So here is my guess as to what we are heading into here in Costa Rica as regards land sales and investment opportunities. I think that we are going to be seeing more investors from Europe, and a new breed from the States.

Yesterday I was out on our San Buenas Golf Resort with some investors from France and Italy. They bought two lots. We had to use horses to get up onto the properties and we stood amongst the Melina trees and peered through them at the ocean, and over the golf course. They moved easily into the concept of investing there since it seems that investors the world over can relate to properties in a golf community. This particular deal though was more than investment only; they intend to use the properties for family and friends to enjoy as vacation homes, as well as income generating properties. They purchased three lots.

The day before that, I was out in the same project with an old hand here at investing in Costa Rica real estate. He has been living in Costa Rica for some ten years and has done extremely well. His interest in some of the proposed condominiums in this development piqued my interest as I have been trying to formulate where we are headed here in our land sales.

My summation:
The loss of the equity buyer does not appear to indicate that we are out of buyers. I think that we are seeing a wave of well heeled global investors, including US, buying into property in Costa Rica as a strong international haven for their investment funds. Take and put the sagging dollar into land that is being bought up by those that have the strong currency now. Our land values, although having risen sharply over the last few years, are by comparison to what I saw in the UK, quite low. To be invested in a market where strong currencies are buying seems to offer a hedge against declining currency strength in the US.