State of the Market – March 2013

There might be a b… b… A b-b-b… Hmmm I can’t quite bring myself to say that word, maybe later. Let’s just say that we seem to be experiencing a hot time in the real estate business in Costa Rica’s southern pacific zone. I feel like we are at a new beginning of sorts here in Costa Rica’s southern pacific zone.

From where I sit, overlooking the industries of real estate and hospitality, I’d say we are at the beginning of a new day here. What exactly this means for real estate is a bit hard to say.

Hospitality Sector: Vacation rentals and restaurants are enjoying a brisk business. ICT, the Ministry of Tourism for Costa Rica says that the overall numbers are up. However, the numbers for Hotels are down. I find this interesting. Hotel occupancy is generally the indicator of how tourism as a whole is doing. Costa Rica may be an exception since so many find alternate lodgings, such as vacation rentals, B & B’s, hostels and so on. Pam, over at the Flutterby House (beach hostel) in Uvita says that they are having a swell year.

From Frank Walker’s March Newsletter:
Where Have All The Tourists Gone??? – If you listen to the ministry of tourism people are flocking to Costa Rica.  However, figures from the hotel industry tell a different story.  Figures indicate that the occupancy rate for 2012 was just slightly above 54%.  That’s below 2011 figures.  Industry wide the breakeven point  is 74% occupancy.   A recent survey by the Camera National Turismo which is separate from the ministry of tourism revealed that for the two months of December 2012 and January 2013 which are supposed to be the height of the tourist season occupancy rates ranged from a low of 22.1% in the central valley to 45.3% in Guanacaste. 

Real Estate: There have been a number of sales here on luxury homes above the $2 million mark. One fellow come into the area and has so far purchased a hotel and a number of high-end homes. Reportedly he pulled out of his homeland entirely and has chosen to work with his available resources in this way. Not to discuss the merit of his strategy, but the effect of his acquisitions – they can skew the trends a bit. He is one buyer that caused a number of high-end sales.

In recent discussions with realtors, across the board they are BUSY. They are all managing more leads than they can handle. AND they are closing business, not just showing properties. Osa Tropical is hiring 2 new agents, Rod’s company United Country, is looking as well. I have spoken with Keith over at Costa Rica Real Estate Services and they are quite busy. J & J Properties up in Platanillo are selling property hand over fist. 2 Costa Rica up in Manuel Antonio are smoking hot.

Publicity: The Zone is getting some pretty good press with reports coming in from visitors about the “word on the street” back home. In Costa Rica itself The Zone is viewed as the hotspot for tourism and real estate activity. The Envision Festival brought in large numbers of visitors from various parts of the world to the delight of local restaurants and lodgings providers. This year they had a Woodstock-like experience with some unseasonable rains coming in and drenching the proceedings, enhancing the experience for some and ruining it for others. And then there is the top ranking that Travel & Leisure gives to Bahia Ballena (another name for Uvita) as the #1 travel destination for 2013.  Click here for article

We are seeing a whole new “type” of visitor here now. Tour buses are a regular feature in The Zone which is a rather recent phenomenon aided by the improved access options. Young families are moving to The Zone. End-of-the-Worlders and escapees make up small but significant segments of those looking to re-locate. The retirees are back in force.

What about prices? Well now that is an interesting question. You’ll likely get varying responses, depending on who you talk with, but not from real estate agents in The Zone. I think that the answer from them will be consistent. Houses are generally valued at replacement cost with some deals on the market that are actually below replacement value. Lots are the lowest they’ve been since 2004.

There are some sellers who have been trying for quite awhile to sell and are at what John Wieland over at Coldwell Banker refers to as the “capitulation” part of the cycle. John is big on systems and information. Ask him how many times a particular property has been shown and he’ll tell you – with precision, the number of showings for a given property in the last X-number of months.

John’s cycle starts with idealistic denial. This is a justification regarding the actual value that a seller feels their property has, despite market indicators. We all know that our property has that unique and special something that will compel a buyer to step up to the plate and buy. These sellers will ignore the evaluation that the real estate agent gives them. Oftentimes this part of the cycle sees the seller valuing their property based on what they have in it – imagine that.

Imagine the real estate agent telling the prospective buyer the price. Imagine that they have been out looking at properties all day, and now they are at this one, the one where the seller is intuitively aware that their property is “special” and that they are not willing to sell for less than they’ve got in it. The buyer says “why is this one more than all these others? The realtor then says “well they’ve got “X” into it. Nuff sed – no sale.

Next comes anger. “The stinking realtors are not doing their job, they are not bringing the buyers.”

Then comes capitulation where they are beaten down, and perhaps even a little humbled, by the realities of the unfeeling and oftentimes cruel marketplace. They then do some rather serious price slashing, likely based on input that they get from their realtor, and also likely quite a bit lower than the figure they heard back when they were in the denial phase. Prices have been on a consistent decline here in The Zone for the past 4-5 years.

My guess is that we are at the bottom and that we’ll see prices start to rise on houses. I think that raw land lots have still got some time ahead at the low part of the cycle, and for the bargain hunters, there are some beleaguered seller’s out there that will almost pay you to take their property off their hands.

Summation: Now is a good time to buy a house and a great time to buy a lot. The Zone is a good place to do so and its certainly a great place to visit.

There are some murmurings that we are in, or entering, a rather “hot” time again. I’m slow to apply the term “boom” yet (There. There’s that term. I got it out), but this may be coming. My first years in real estate here were at the start of a rather amazing land grab back in 2004, and we came to call this time The Boom – its hard to imagine that level of activity will happen again – the bar has been set pretty high for that descriptor, but we’ll see. The only thing constant is change.