“The Zone” is made up of a stretch of coastline starting from Hatillo in the north, and stretching south to Palmar Sur. Included in that zone are the following towns, noted from north to south:
- Palmar Sur
The inland portion of The Zone is a leg that runs from Dominical to San Isidro de el General, also known as Perez Zeledon. In between Dominical and San Isidro is the town of Platanillo.
A word about pricing:
When dealing with ocean view properties in Costa Rica’s southern zone, the usual criteria of looking for a “per square meter” pricing fails us. This becomes evident quickly as one familiarizes themselves with the market place.
Evaluating an ocean view property in this area is a combination of attributes, or virtues that come together to give the property its value. Based on observing land buyers over the years, I rank these virtues in roughly the following order:
- amount of usable land
- proximity to the beach or a river
- air motion
As an example of this, I once had a 10 acre property that had a window view of the ocean. Of the 10 acres, perhaps 1 ½ were usable, the rest falling away in jungle covered hillsides. Price: $115,000
Across the way from this property, perhaps within 500 meters, I had another property of 2 acres with a sweeping ocean view, absolute privacy, 1 acre usable land, and a position on a promontory that gave it a consistently airy and open feel. Price $225,000
5 Years Ago – A Property in Uvita
4 acres – ocean views
– 15 minutes from highway – 4 wheel drive access – $60,000. Today this property would sell for $180,000. This area that I am referring to has the price-reducing quality of being 15 minutes away from the highway. Prices on a similar property that is closer to the main road would be higher. However, the quietness that resulted from the drive made it appealing to some and the properties in this area have sold briskly.
The above example is representative of the last 5 years.
The early investors here were able to purchase large tracts of land for VERY low prices. Some of these investors realized a 60 to 1 return on their investment.
By the time word of these gains had reached out to the world community of investors, they began arriving in droves with money in hand.
At this point it was too late.
As brokers for the desired properties, we would shoot for a 3x or 4x on their money.
In today’s world we are working with margins that would be much like they are in other parts of the world. The opportunity of finding that yet unknown, desirable land in a third world country, that then goes on to be “the place to be”, is past. However, opportunities abound in Costa Rica at the moment based on the low economic conditions of the world, and the fact that these properties remain highly desirable to the end buyer.
The value of property in Costa Rica is going through its first downturn in the last 5 years. There has not been an across the board lowering of prices caused by the recent global economic crunch, but there are enough cases of lowering prices, and motivated sellers, that I’d say we’re getting close.
Investors can come in to the area now and find a motivated seller who, perhaps because of an obligation that they have in another part of the world, are selling what they have here in Costa Rica. The world economy is pushing some to sell property that they had never intended on selling. The current quantity and quality of properties in our inventory is at an all time high.
The history of house sales here in The Zone is evidence of the fact that we are yet early in the cycle of real estate development. There simply has not been a large selection of finished houses on the market.
Many of our single-family property clients begin their search for an existing house. After having looked at the houses that are available, they decide to go with a raw land purchase and build on it.
When a buyer considers the price of an existing house, and then looks at a similar quality piece of land, and calculates the cost of building, the analysis would lead them to buy land and build.
Let’s say that a house is sitting on 3 acres of land and has a big ocean view. The house has 3 bedrooms and 2 baths and is 2,400 square feet. Price: $650,000
Consider the value of a similar piece of property that sits under the above house, at $250,000. To build a 2,400 square foot house at roughly $85.00 per foot, the construction cost would be $204,000.
$454,000 land and construction cost, versus $650,000 for an existing house of someone else’s design. Granted, a buyer is always willing to pay something for the time and effort of the original owner say, something in the neighborhood of $100,000, which would put the real market value of the house at $554,000. The overage of $200,000 that we see now, is dissuading to most buyers, and so they build.
The above scenario makes the prospect of building and selling speculative homes in The Zone a viable strategy in our market.
We are early in the real estate cycle here in The Zone. The majority of land business has been for raw land. Developed land deals are occurring with more regularity and will continue along the curve into the years ahead.
The strategy of purchasing a distressed property and putting a speculative house on it, or a larger piece that will accommodate several homes is a solid business model in our current market. An existing house is what most of our prospective buyers are looking for. The key is in buying the property well with the above criteria in mind.
Once property is owned:
The maintenance costs of owning a property in Costa Rica are negligible when compared to other areas of the globe. Standard pay for a qualified maintenance person here is $1.50 per hour. The annual taxes on property are currently at .25 of 1% and there are no capital gains taxes – yet. There is talk of an increase in the land tax soon, as well as implementing a capital gains tax.