Costa Rica: Overview

RENTAL YIELDS

Yields are good in Costa Rica at 6.6% to 9.2%

Alajuela and Heredia, bordering Nicaragua., have good yields with an average of 7.2%. The 100 sq. m. category of houses has the highest yields at around 7.6%. As the size of the house increases, the yields decrease. Per sq. m. prices are relatively cheap at around US$1,203.

Apartments and houses in Escazu and Santa Ana in the province of San Jose have higher yields. In Escaza, average gross rental returns on condominiums are around 8%. This can go as high as 9.23% on 120-sq. m. units. Santa Ana houses have slightly higher yields at around 8.3%

We have no yields figures for properties in Puntarenas and Guanacaste, along the Pacific Coast. Condominium in these areas sell for US$2,625 per sq. m., while houses sell for around US$2,9931 per sq. m.

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TAXES AND COSTS

Progressive income tax rates

Rental Income: The first CRC1,434,000 (US$2,908) of non-employment sourced income, including rental income of residents, is exempt from income tax. Beyond the exempted amount, income tax is levied at progressive rates from 10% - 25%.

Capital Gains: If capital gains are not derived from habitual transactions, they are tax exempt. Otherwise, capital gains are taxed at the standard income tax rate.

Inheritance: Inheritance tax is levied at progressive rates from 1% - 2% of the property value.

Residents: Residents pay tax on their worldwide income.

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BUYING GUIDE

Total transaction costs are moderate in Costa Rica

Total roundtrip transactions costs are around 8.58% to 13.58%, inclusive of the real estate agent's fee that ranges from 5% to 10%. It is customary for the buyer and the seller to share the costs equally. The buyer must be wary of buying a property with liens or squatters.

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LANDLORD AND TENANT

Costa Rica's tenancy law is still pro-tenant

Despite the passage of a new law aiming to strike a balance between landlords and tenants, the rental market is still pro-tenant.

Rent: Rents can initially be freely negotiated between landlord and tenant. If rent for housing purposes is agreed in US dollars or other foreign currency, no yearly increases are allowed. Rent increases are allowed only in the case of agreements in colones, the Costa Rican currency.

Tenant Security: The minimum lease term is three years, but the tenant can cancel it anytime by giving a three-month notice. Unpaid rent can be very difficult to collect.

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ECONOMIC GROWTH

Neutrality, peace and stability are hallmarks of Costa Rica

Costa Rica (pop. 4.3 million, GDP/cap US$4,646) is one of the most peaceful and stable democracies in Latin America, and indeed in the world. A democratic state was constituted in 1821 and continued with insignificant brief interruptions until today. The army was abolished in 1948 and a decree of permanent neutrality in international conflicts was enacted in 1983.

However Costa Rica is not problem-free. GDP growth has slowed recently. There are high local electricity rates, high telephone costs, poor road infrastructure, burdensome government bureaucracy, and chronic public sector deficits and high foreign debt.