Is Costa Rica Real Estate a Good Investment?

The Costa Rica real estate market is an immature market place. What I mean is that we are WAY early in the cycle. If you think back to Boston 200 years ago, I suspect that you’d find that there were large parcels of land for sale there. These were bought and subdivided, and little by little it became what we have now, which in some of the “nice” areas of Boston, the houses go right to the property line and all real estate transactions are sales of property with a building on it.

In my years of selling real estate here, I have sold very few built homes. Most of my deals have been raw land, either large parcels that could be developed in any number of ways: subdividing and selling lots, farming, reforestation, commercial ventures such as a golf course or a restaurant, yoga retreat etc…

The large parcels are rare now, and a lot of the subdividing has been done. We are now strongly, into the re-sale of lots phase of the cycle. We are also seeing more houses on the market.

The Costa Rica Formula

It went like this: purchase a piece of land, say 12 acres for not much money at that time. Cut off a piece and sell it. The Costa Rica real estate marketplace was rapidly appreciating, so you could essentially own your resulting property for free. You were able to sell your cut-off piece for what you had in the purchase of the whole piece.

This formula is pretty much gone. It can still be done in a moderated sense, which is, to purchase a piece that is large enough to cut into two, and by selling off one of the two, you can seriously reduce what you have in your resulting piece of land.

Where We Are Now

The pressure is on the land with the real estate cycle doing its thing. The density of lots is growing, and there is a maturing of both the country, with its efforts to preserve the natural beauty of Costa Rica, and the maturing of the type of buyer that we are seeing here.

Costa Rica Law

The Costa Rican government has recently stepped up its vigilance of the use of land. Also, its agencies for enforcing the nature preserving laws of the land are stronger. Many laws which have been on the books for many years but have never been enforced are being enforced. There have been some rude awakenings for the large scale developers and the small time formula investors as well.

Permits for cutting in new roads and building sites are now being handed out judiciously, which is a change over former years where arguably it could be said that most of the developers didn’t even bother with getting permits. Now you get shut down for not having permits, and slapped with a fine. There is some talk about jail time for serious offenders, but I’ve not personally seen this.

Offenders of illegal road and tree cutting are frequently reported by neighbors, passersby, hang gliders, and even the fishing boat captains and tourists who, from their vantage, look back up toward the land and see a new orange cut in the clay soil against the green of the forest.

The Type of Buyers

The tipping point for the land boom in Costa Rica’s southern zone happened by my reckoning in 2004. This date will vary depending on who you talk with and what their personal experience has been with respect to the land business. Back then, land transactions happened easily and quickly. There wasn’t a lot of due diligence applied to the purchase of a piece of land. Some deals would happen in a single day.

We had the equity buyers, fat with a recent re-finance of their home in the exploding U.S. market place, walking into our real estate offices to pursue the $100,000 ocean view lot. Those were indeed heady times. We thought about implementing an ice cream shop-like ticket dispenser for our office: “take a number”. The big challenge for buyers back then was being able to find an available real estate agent to take them out to look at property.

That type of buyers is gone. The easy financing programs of the U. S. have all been shut down. Now what we’ve got are serious business people looking for an investment that’ll deliver a decent return on their investment annually, or they may be planning for their retirement. These are people who have been working their jobs and businesses over the last 30+ years and have a diverse portfolio of investment and retirement accounts. Now they are simply taking the next logical step. The U.S. stock market is a little scary, and the real estate market there doesn’t yet seem to be bottomed out.

These buyers are more sophisticated than in earlier years. They are not accepting the answer, “over there” when they ask where the boundary line is. They need to walk the lines, perhaps with a topographer. They are not satisfied with a photo of me standing by an open spigot with water gushing out to demonstrate the presence of water on the property prior to closing. They want to see the legal document verifying the right that they get to that water.

Positive Indicators

Tourism Industry is Strong

On a country wide level, Costa Rica is enjoying a 12% annual increase in tourism. The other Latin American countries are right around 4%.

The Highway

Perhaps the most immediate and forceful event that will influence investment values here is the paving of the coastal highway that runs from Quepos to Dominical. I wrote an entire article on that recently that you can read by clicking here. The impact of this highway on Costa Rica’s southern zone will, I believe, be extreme.

The Hospital

There is also the new, state of the art hospital that is located near Cortez. The word on the street is good about the services available there. This is a huge consideration for retirees moving to the area (read: baby boomers).

The International Airport in Palmar Sur

This is taking steady strides towards what is undoubtedly an eventuality. I believe that some day we’ll have an International airport in Palmar Sur, just like up in Liberia, with direct flights from lord knows where all on the planet. With my investors, I generally encourage them not to factor this in to their investing considerations. If it happens any time soon, that’ll be a bonus in a financial way. I’ll write about my opinions and views of the International Airport at some other time.

Financing

This is the “Third Thing” that I wrote about years ago. The big investment indicators in the past have been the improved coastal highway, and the International Airport. Again taking my real estate career as the case study, the vast majority of my sales have been non-financed. Financing is here, but since it is a little different than in the States, and often times is done in Spanish, there is some trepidation about its utility for the average buyer. Financing in Costa Rica comes with a few extra transaction point fees that many foreigners find dissuading as well, but many are dealing with these concerns and starting to finance their acquisitions here, figuring that the asset appreciate will more than take up the slack. This too is having, and will continue to have, a stimulating affect on the value of property around these parts.

Spirituality

I know that this may seem like a strange word to find in an article entitled “Investment Indicators”, but I feel that it is appropriate. I can’t tell you how many times I have seen the therapeutic affect that this little spot on the globe has on its visitors. It seems that right around day 4 of a visit here, the visitor slows down. I think that a lot of the ubiquitous media chatter that is life in the States finally goes away and we can start to think thoughts of our own originality without influence. When I mention Costa Rica’s ability to help quiet our “internal dialogue” to a visitor, I almost always get a resounding confirmation that this is one of the truly agreeable virtues that our area offers to its visitors and residents. I think that this point factors into our consideration of land investment indicators. My opinion is that the demand for such havens globally will only increase in the coming years.

When considering investment indicators for Costa Rica, these are all points that I feel are favorable. The market is growing up, but it is still early, or “immature”. The growth pains that are being felt are of what was a previously casual market place becoming formalized. This is a good thing. The results will be enhanced living conditions for both humans and nature.