Year: 2010

Looking Back Over 2010

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Real estate brokers in Costa Rica

I’ve never had a year quite like 2010. Amazing, life altering, wonderful, scary and perplexing would be just a few of the descriptors that would sum this year up for me. The Weather At the start of the new year, we here in Costa Rica are still drying out from what has proved to be … Read more

Million Dollar Homes in Costa Rica, Part 2

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“Few people actually stumble into wealth.”
– Smith Barney (although I couldn’t determine if it was Mr. Smith or Mr. Barney?)

I outlined how million dollar houses fit into the Costa Rica real estate landscape, specifically in the southern Pacific zone (The Zone). There are a few obvious reasons to buy a luxury home in Costa Rica—

* It’s A Buyer’s Market (Prices are down approx. 50% from the peak in 2008.)
* Desirable Area (International Living Magazine rated The Zone as, “one of the top three real estate destinations in 2010.”)
* Stable Prices For Construction Materials And Labor

In Part One of this article,

The three-year Costa Rica real estate trend has reflected a significant drop in value, including property in the luxury home category.  Although there are some very nice million dollar homes in the area, this young market enables another popular strategy— Buy-And-Build.

 

Buy and Build

The majority of buyers who come down to the greater Dominical area with a plan to purchase a house, often end up purchasing raw land instead.  The reason is the area has a relatively small inventory of quality homes with floor plans and finishes that appeal to most North American and European home buyers.  So, they end up buy raw land or a lot in an established development, design their home with the help of a Costa Rican architect, select a builder, and then start the building process.

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Million Dollar Homes in Costa Rica, Part 1

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In Northern California’s Bay Area, million dollar homes are very common.  They typically combine elements like— a desirable location, a large floorplan, upscale finishes, and/or estate-sized acreage.  My first position in real estate was in a beach area near Santa Cruz, and the power agent I worked for had no less than five million dollar listings when I joined her.  I just checked that broker’s website, and they currently have 307 houses listed between $1 million to $10 million.  Conversely, the Southern Pacific Zone of Costa Rica has a young real estate market and million dollar houses are less common.

Luxury Estate in Escaleras, Costa Rica.

As recent as 2006, this area was considered the new frontier in Costa Rica.  Access was difficult and more exhaustive than it is now.  Developments were few and far between.  Then, the real estate boom hit.  This boom affected all aspects of real estate—raw land, developing, construction, rentals and associated services.  All of the key elements for million dollar homes—desirable location, sweeping ocean views, large building sites, and affordable construction—were easily realized for a relatively affordable price.

Let’s start with the land…

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Price Vs. Worth

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Costa Rica Real Estate Price Vss Worth

“I need to sell my property. What should I price it at?” is the common question heard in our real estate office in Uvita, Costa Rica.

“Whatever someone is willing to pay” is the universal response that drives the free market evaluation system the world over. However, is a price that is determined by this method a clear indicator of a property’s worth in Costa Rica?

Costa Rica Real Estate Price Vss Worth
Is the price commiserate with the worth?

The obvious answer is “of course”. However, in this uncertain world we live in, even this un-arguable standard of evaluation is sometimes brought into question and results in what can be described as quirky or illogical scenarios.

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“El Diquis” Hydroelectric Dam in Costa Rica

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The Costanera Highway, The Caldera-San Jose Highway, The Cortez Hospital, The International Airport and The Diquis Hydroelectric Dam… it is easy to see that Costa Rica is serious about improving its infrastructure and securing a bright future.

Over the past decade, the dramatic increase in tourism and investment has sparked a bit of a power-struggle between proponents of economic growth and socio-environmental protection groups. In this case, the “power” is the proposed billion dollar hydroelectric project called “El Diquis” near Palmar in the Osa Peninsula. This isn’t recent news, but I believe it is worth mentioning as it will affect life in various ways in the southern Pacific zone of Costa Rica.

Hydroelectric power is BIG in Costa Rica.

The Zone Is HOT

This large-scale project, facilitated by I.C.E. (Instituto Costarricense de Electricidad), is calling for the construction of a dam on the Térraba River in the greater Boruca Canyon. The dam will create a lake equaling approximately 25,000 surface hectares (over 6 million acres), the largest of its kind in Central America.  By comparison, Lake Arenal is roughly 8,500 hectares.

This station will generate up to 630 megawatt units capable of providing over one million families with electricity!  This project is about Power, both electric and economic.  According to a Continuum report commissioned by the Costa Rican government,

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Costa Rica, A Hurricane-Free Zone

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While browsing the storefronts of Quepos the other day, I saw this Hurricane History Map in an office window.  What caught my attention was how Costa Rica was completely free of any direct hurricane/tropical storm trajectories.  People ask us if we get hit by hurricanes, and now it’s nice to have a chart showing just how ideally located Costa Rica is, especially on the Pacific side.  Clearly, the vast majority of tropical storms and hurricanes are born in the oceans to the west and especially the east of Costa Rica, and then almost always track north.  In recent years, only Hurricane Cesar and Hurricane Mitch (1996 and 1998, respectively) traveled all the way across the Central America landmass.


Even though Costa Rica is Hurricane-free Zone, it still feels the effects of heavy rainfall from time to time.

During the hurricane season, June 1st – Nov. 30th, Costa Rica will occasionally feel the effects of these major hydro-meteorological events.  Tropical storms are more common than hurricanes in Costa Rica, and it is important to note that heavy rain isn’t the same as heavy rain AND 100+ mph winds!

According to this NASA webpage, “Tropical cyclones are like giant engines that use warm, moist air as fuel. That is why they form only over warm ocean waters near the equator.” The small towns in our area (e.g., Dominical, Uvita and Ojochal) are located at approximately nine degrees north of the equator.  The benefit of being at this latitude, and on the Pacific side of Costa Rica, is the wind is significantly lighter than along the Caribbean storm corridor where hurricane winds can rip off your roof.  I suppose that’s why the famous Portuguese explorer Ferdinand Magellan called the Pacific Ocean, Tepre Pacificum or “Peaceful Sea”.

What Does This Mean For Pacific Zone Residents and Investors?

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Seller Financing Opens Door for Home Buyers in Costa Rica

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The Downturn… (cue ominous music)

It would be easy to label the decline of the Costa Rica real estate market (since the peak in 2007) in a negative light. In truth, there is no such thing as “negative light” only the opportunity for change, and if our market has seen anything over the past three years, it is change. The shift from bank loans to seller financing is one of the primary changes that has (pardon the pun) opened the door to prospective home buyers, as well as, land and commercial buyers.

Seller Financing Open The Door in Costa Rica

Before defining the effects, basic models, and legal structure of seller financing, let me back up just a bit to clarify why we now find it present in about half of the Costa Rica real estate deals we facilitate.  Like most lending institutions around the world, Costa Rican banks are better described as “institutional holders”.  Banks are not lending for a few reasons— falling real property values, the recession, and they are not lending to each other (e.g., no credit to leverage).  In Costa Rica, the debt-to-income ratio required to obtain a loan is as ridiculous as the double-digit interest rates being charged (often twice the rates in the United States).  The banks’ parsimonious response has opened the door to seller financing, and Costa Rican property owners have embraced the new paradigm.

Sellers Get Creative

“What do I need to do to sell my property?”  We received this common question too many times to count over the past few years.  Our answer typically included these answers—

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Costa Rica Real Estate – Have We Hit Bottom?

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Hitting the Costa Rica real estate market bottom

The ability to identify “bottom” is the hallmark of a successful investor. It is extremely difficult to do, which explains why so many of us speak in terms of “would’a, should’a ,could’a” when talking about our investment history.

So how can we identify the bottom in the market now?