This is our mid-year review of real estate in the Southern Pacific Zone of Costa Rica. With tourism numbers up 11% in Central America, Ben and Rod discuss how this trend points to a brighter future for The Zone.
“Innovation distinguishes between a leader and a follower.” – Steve Jobs
I bet your wondering how that idea relates to real estate in Costa Rica? Well, simply put… if there was ever a time for property owners and real estate agents in this marketplace to be “innovative,” it’s now.
LISTING IS ONLY THE FIRST STEP
Here’s how listing a property usually unfolds in The Zone—
- Step One: Call up The Guys and set up an appointment to preview the property.
- Step Two: Determine if an Open Listing or a Modified Exclusive Listing is appropriate for you.
- Step Three: Wait for The Guys to bring you a buyer.
The problem is that Step Three is taking much longer than most Sellers anticipated.
LOOKING BEYOND PRICE
We all know reducing the list price is the easiest way to increase property showings, offers, and sales. However, if your property is in the ballpark of current market value and it is being shown but not selling, there could be other reasons limiting the sale.
Here at the Guys office, we continue to ask ourselves what can we do to speed up the sales process? At the risk of sounding trite, one answer is: “think outside the box.” Here’s an example of how The Guys have applied this idea.
Ben started his Costa Rica blog in 2003 (before many of us knew what a blog was)
Episode 12 features a candid look at community in the Southern Pacific Zone of Costa Rica. If you’re considering relocating, buying a house, raw land, or a commercial business in the greater Dominical or Uvita areas, we encourage you to watch. And, please feel free to share your comments or questions. Gracias.
“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
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.
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.
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—
In the movie “Back to the Future” we saw an example of how beneficial it would be if we could tell the future. The character Biff Tannen gets his hands on printed results from some race track and other sporting events, before they happened, and went on to achieve phenomenal wealth.
In real world economics, the trick seems to be the ability to identify trends and accurately guess what is going to happen prior to it happening. Here in Costa Rica, the real estate market is no different. Discussion and speculation about the future run rampant. Hints & clues are analyzed in a constant effort to make wise buying (and selling) decisions.
It caught my attention this morning when I received the following in an e-mail from an agent in one of the local real estate agencies. He was writing to update us on a client of ours that we had asked him to help with. Without trying, our associate provides a clue as to what the current state of the market is, and perhaps, where it is going.
Thank you for giving me the opportunity to assist you with the property interests of the Schmegerworgs (names changed to protect the innocent).
I feel it is of the utmost importance to give your potential buyers the Tico Times of today, Friday, Sept. 10 newspaper that explains in detail the past and current real estate market place that will back up exactly what I mentioned to them about the market picking up right now and that 2009 was a slower year (article no longer avialble). I feel it is important that the wife understands if we show them a property at a price point that makes sense and feels good in their heart, they need to move forward with a purchase as good deals are selling and we cannot always replace a fire sale or “perfect property” that one lets go by.
I truly feel our BOTTOM market has passed us and current activity with all us of can only prove that.
Whether we sell them something together or if you sell direct, that is all fine with me as I feel there is much business for all of us survivors right now.
Please take care and have a great weekend.
(Its noteworthy that this e-mail is from a “competitor”. One of the really promising aspects of the real estate industry here in Costa Rica’s southern zone is the amount of cooperation between all the agencies.)
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?
One of the more prominent factors are that there are less Fire Sale properties on the market now than there were before. All the reports that we are getting from the other real estate agencies in the area are that they are busy. This is not just under $100,000 ocean view lots. It seems that the $300,000 home is a hot item now that won’t last long on the market. There are also a number of larger, more removed parcels, selling. Some of these have topped the $1,000,000 (USD) mark. There is a growing interest in “off the grid” and “community-style” living.
We had one of our favorite developers approach us some months ago and indicate that the recession was finally affecting him, and that he really needed to sell some property. Long story short, since that time he has sold a house and two lots, making him well.
All of the above activity was stimulated by the market ebb & flow. The market was and is down. The inherent quality of the properties that are available in Costa Rica’s southern pacific zone is compelling. The low prices on these properties has caused enough action here to cause us to wonder what all this talk is about a recession – (well, not really, but almost :0) Savvy buyers are here snapping up the deals.
No one knows what the future holds. Things are changing on the global scale, some of which is unprecedented, causing insecurity. We really have no idea what to expect in the future. There is the unmanageable deficit in the U. S. There is China. There is talk about the “double dip” recession. There is global warming and other environmental concerns.
So have we seen the bottom?
Hard to say. However, if you were a fly on the wall of the Guys In The Zone office (or any other real estate office in the zone), you’d hear conversations that would make it seem so. We’ve had a number of folks come through during the down time that have found what they were looking for, but then felt that they had time to decide, to “think about it”. Or perhaps they think that prices will even come down a bit more. Our feeling is that the time to buy has been here now for some time, and may well be passing.
What we do know is that we haven’t seen prices this low and on such a great selection for some years. So, whether “bottom” is behind us, or lies yet ahead, we’re pretty confident that now is a decent time to buy a piece of property in Costa Rica.
A longtime associate in Costa Rica real estate stopped by our office after being out of the country for an extended period. One of his first questions was, “So, what’s going on with the international airport?” My response was, “What airport?” He found that amusing considering the broker he just spoke to was talking it up like the asphalt trucks were lined up and ready to pour the tarmac. We both had a good laugh.
I’m not saying major infrastructure projects aren’t being completed here in Costa Rica. There have been many projects completed in the past two years—
- San Jose-Caldera Highway
- Quepos-Dominical Highway (affectionately known as, “The Dirt Road”)
- Re-paving of the Dominical-San Isidro Highway
- The Bridge at San Buenaventura
- The Bridge at La Cusinga (almost)
From that list it is easy to see the progress and the progression. What I mean by “progression” is the land routes need to be completed first before an international airport is built in The Zone.
Rumors to Reality
The list of rumors regarding the southern zone Airport is long and varied— operational for international flights by 2010, moving to a new site in Sierpe, moving south closer to the border in a joint venture with the Panamanian Government… to name a few. The reason I am sharing this news story released by La Nacion a few days ago and forwarded by a reputable broker in the area is it actually sounds like the government has a (more) realistic plan.
In summary, Costa Rica’s third international airport will be located in the same exact spot currently occupied by the Palmar Regional Airport. To comply with Aviación Civil (the FAA of Costa Rica) standards, the runway will be extended 400 meters and facilities for immigration, customs, and security will be constructed. The “facilities” will include extra hangers, buildings, and even a terminal that will provide hangers and services for commercial shipments. The price tag on this project is quoted at $25 million dollars, half the proposed cost of the mega-terminal in a new location. They did not release a projected completion date, but I would be shocked if it was ready in two years.
One of the most interesting points in the announcement is the Minister of Tourism’s call for more hotels to be built in the area. It is a similar point echoed by the longtime mayor of the Osa Canton, Alberto Cole. It’s safe to say, major hotel projects are going to get the green light, moving forward. One of the more interesting things to me is exactly how they are going to accomplish this with no Plan Regulador (e.g., zoning plan) for the area? Where are these new hotel-resorts going to be located?
What Does It All Mean?
It means that at some point in the future there will be international flights landing in Palmar. It means there will be more hotels, and the beaches will be alive with activity. It also means there will be many, many more investors buying in the area. People look at me funny when I say this area is poised for another b-o-o-m, but all of the regional signs—improved access from every direction and significantly lower property prices— point that way.
It means property in areas like Tres Rios and San Buenaventura, once thought of as “too far south of Dominical” will be a 15-minute taxi ride from the terminal. Check out Tres Rios Estate and Tres Sandalo 17 as examples. We only have a few listings in Palmar (see photo left), but I guarantee that number will double before the high season.
Most of the expats in The Zone have adopted the “I’ll believe it when I see it” philosophy. We have also been surprised by the recent completion rate of infrastructure projects. Safe to say, the completion of the 3rd International Airport in Palmar will be the crown jewel for the region. If you are interested in buying Costa Rica real estate, this recent news bodes well for smart investors.
Half of my family is from Canada, eh. My mother grew up in Newfoundland until the age of 13 when my grandfather found work in California. The extended family that stayed behind, some later moving to Ottawa, would frequently visit us in the San Francisco Bay Area, especially during the cold, winter months.
A few years ago, when I moved down to Costa Rica full time, I realized there are a lot of Canadians visiting (102,471 in 2009*) and living the area. One of the main reason Canadians (virtually all nationalities for that matter) visit, buy land, and in some cases, relocate to Costa Rica is the weather. As one client put it, “Shoveling snow sucks.” I have only experienced it a couple of times in Lake Tahoe, California, and I’d have to agree.
Shorts, No Shoes
The Southern Pacific Zone (The Zone) is the tropics. Those living near the beach are rarely (if ever) cold here, and most people walk around in shorts 365 days out of the year. For those who “melt in the heat”, The Zone’s unique geography offers many cooler locations up in the mountains, most offering spectacular views, waterfalls, and close proximity to the beaches and/or San Isidro, one of the fastest growing cities in Central America. It rains 6 months out of the year, but even in September most mornings begin with blue skies and sunshine.
Active Adult Communities
The landscape and its wildlife are spectacular. In fact, I’ve seen it written that the Corcovado National Park on the Osa Peninsula is “home to more plant & animal species than all of North America combined.” Add in the many outdoor activities available in the area— world class sport fishing, whale watching, bird watching, hiking, golf, tennis, and surfing to name a few — and retirement in Costa Rica is actually when many expat residents really start living. In fact, I just left two clients who were headed to a waterfall, then to the Whale’s Tail in Uvita for a low-tide beach walk and snorkeling session.
Another reason Canadians love Costa Rica is the cultural adventure. It starts with the ticos. On the whole, the polite locals are family and community-focused, and even the toughest-looking hombre will break into a smile if you smile. Yes, there are a few cultural nuances to adapt to—“yes” doesn’t always mean “yes”, “tico time” means being late, strange driving habits— but ultimately these are all opportunities to take a deep breath and grow a little. The Zone has a safe, laid back feel to it… add a hammock and a good book into the mix, and it is relaxation-defined.
A “Lot” For A Little
Foreign investors continue to visit and invest in The Zone. Add in the fact that annual property tax in Costa Rica is .25% and there is no Capital Gains Tax, and the investment picture is even more appealing. Canadian citizens who claim non-resident status and have residency in Costa Rica are not double taxed by the Canadian government on their Costa Rica income. If you’ve always wanted to make Costa Rica your home, please consult your tax attorney for more details. But, in summary, to be a non-resident Canadian you must—
- live in Canada for less than 183 days in the tax year
- not have any residential ties (e.g., cars, houses, a spouse or dependents) in Canada.
We see a lot of people visiting, buying and relocating to The Zone. There is so much room for growth here, success only requires imagination, a little research, and some good connections.
Beautiful weather, abundant wildlife, friendly people, and good investment opportunities… no wonder so many Canadians are buying real estate in the Southern Pacific Zone of Costa Rica!
If you ask the World Bank or one of the mega-water corporations (e.g., Coke, Nestle, Vivendi), fresh drinking water is a commodity. If you ask virtually everyone else in the world (including the United Nations), fresh drinking water is a basic human right. Whether it is the encroachment of privatization or Nicaragua’s plan to divert the San Juan River, water in Costa Rica is an increasingly lively topic.
One of the most popular questions for potential property owners is, “What is the water situation for this property?” Most of these new investors come from North America and Europe, areas that have hundreds of years of infrastructure development. However, this southern Pacific region of Costa Rica is still early in the cycle of development. We continue to see rapid growth in communications (cell phones and high speed internet), power (high tension power lines), and roads (the newly paved Costanera between Quepos and Dominical). That being said, cell phones are a luxury, but water… is a necessity.
Property In A Development
Most quality developments have a water system that has been installed by the developer. The most common sources for these systems are high flowing springs, and in some cases surface water (e.g., creeks and rivers). Some developments, like Osa Estates in Uvita, even have back-up systems and extensive water storage capabilities. The interesting thing is very few developments actually have a concession (permission to extract water from the ground). The good news is the majority of them are “in process”. Either way, the developer usually provides the property owner a prevista (water right document) which guarantees use of water into the future (assuming the property owner is in compliance with established CC&Rs and other laws). Proof of a water document, like a prevista, is also required by the local Municipality before they will approve any construction project on a property.