The Costa Rican housing market had seen steady improvements during the period 2012-13, thanks to the strengthening economy and housing market in the United States.
Due to the absence of official house price statistics, it is hard to assess the movements of house prices. However, local property experts affirm that median condominium and home prices rose during 2012 and the first half of 2013, while prices for low-end properties dropped significantly over the same period.
According to an article by Michael Klein published in the World Property Channel, over the past few years:
Property prices in Costa Rica vary considerably, depending on size and location. The Central Valley, the greater metropolitan area (including San José, Alajuela, Heredia and Escazú) where most of the nation’s businesses are located, and along the Pacific coast are home to some of the most expensive and fastest-selling properties in Costa Rica. On the other hand, the least expensive properties can be found in new developments in the Costa Rica’s southern region, such as the Osa Peninsula.
“You can pay anything from CAD$65,000 (US$60,780) to CAD$250,000 (US$233,769), depending whether it’s a land lot, house or new development,” said David Otanez of Recap Investments.
Land prices have risen tremendously in the past decade. In the country’s Pacific coast, especially in northwestern Guanacaste, land prices have even tripled. "If you look at records…, they show that 10 years ago a quarter-acre beachfront lot on Playa Grande, for example, could have been purchased for US$45,000. Today, the same lots range between $140,000 and $175,000," said Donna Osborne of Coldwell Banker Affiliates of Central America.
Foreign homebuyers from the United States are driving up property demand in Costa Rica. “Higher median prices in the USA are now driving buyer interest in higher priced and luxury real estate properties, particularly for ocean view, beachfront, and near beach properties,” said Chris Simmons, the founder of Re/Max Ocean Surf. “Buyers from hot markets in the USA like California and Florida see Costa Rica as offering great value in comparison to similar beach real estate in the United States. We still have luxury condos for under $200 per square foot, pricing that is rare in the USA,” Simmons added.
There has also been increased interest from Canadian and European buyers. During the end of 2013, there is about 13% increase in the number of European investors compared to the same period last year, according to Costa Rica Real Estate (CRREC), one of the leading real estate firms in the country. While the majority of the total real estate transactions in 2013 still come from the United States, there is a noticeable increase in the number of Canadians buyers.
"We find that with the strong Canadian dollar, more Canadians are looking outside their homeland for investment with the promise of affordable living in paradise and a great escape from winter`s gripe,” said Brett Elliott, CEO of CRREC.
Aside from its scenic beauty and lower cost of living, many Costa Ricans, foreign investors and High Net Worth Individuals (HNWIs) are increasing being attracted to invest in the property market mainly because foreigners are entitled to the same ownership rights as Costa Rican citizens and there are no property taxes and no residency restrictions.
The Costa Rican property market is expected to continue its positive growth in 2014, according to local property experts like CRREC and Re/Max Ocean Surf.
“This is an exciting time for real estate in Costa Rica and for my growing team. Buyer confidence is up, and this definitely is having a positive effect on our market. Moreover, as the overall global housing market improves, our client base grows since Costa Rica attracts buyers from around the world due to its foreigner friendly property laws and high standard of living," said Simmons.
Costa Rica has some of the best housing stock in Latin America. Less than 10% is considered to be in bad condition. 74% the total housing stock is owner-occupied, and 17% is rented.
For years Guanacaste was a wild woolly territory, hard to get to, the domain of backpackers and surfers who appreciated its climate and stunning beaches.
Then Guanacaste took off. The real estate boom in Guanacaste began after the opening of the Daniel Oduber international airport in 2002 (which is located in Liberia) and the opening of the Four Seasons resort, part of the 2,300-acre (9.3 sq. km.) US$400 million Península Papagayo project developed by the Costa Rican developer Alan Kelso, indisputably the most luxurious development on the coast.
The resort was tagged by Travel + Leisure as among the 500 Best Hotels, the top resort in Latin America. According to revealrealestate.com, beachfront and ocean view condominiums in Four Seasons resort are priced from US$1,400,000 to US$2,500,000. Houses sell from US$3,000,000 to US$7,400,000.
Another catalyst was the start of direct flights from Atlanta, Miami and Houston in 2005. Planes fly into the small airport at Liberia, the capital of Guanacaste.
Some of the most luxurious and high-priced properties are available here, though there is a wide range of condominiums in Guanacaste on a price range from $100,000 to $750,000, depending on location. “The most attractive properties are close to the beaches with a very good sea view,” according to Edwin Sanchez, regional director of Century 21.
Aside from the Four Seasons resort, there are three more hotels, including a Barcelo hotel. More than 1,000 luxury homes are expected to rise in Peninsula Papagayo. A private 18-hole Jack Nicklaus designed golf course is also scheduled to open in 2014, one of the three golf course attractions planned in Peninsula Papagayo along with the currently existing 18-hole Arnold Palmer signature golf course.
Also under development is the US$15 million La Marina Papagayo. La Marina Papagayo’s Phase I was opened on January 13, 2009, and includes 180 boat slips accommodating private boats ranging from sport fishing boats to mega yachts. The marina is expected to have 370 slips upon its completion.
Tamarindo, the biggest coastal town in Guanacaste, is a hit among tourists, especially surfers. It has the most developed tourist infrastructure in Guanacaste. Due to its popularity, Tamarindo property prices have risen, and average homes and condominiums sell at prices ranging from $200,000 to $700,000
Located at the southern part of Tamarindo is the Hacienda Pinilla, where hundreds of condominiums and villas are being built around 4,500 acres of nature preserve by the Atlanta-based owner, Hoover Gordon Pattillo, who bought the land as a family vacation homestead 30 years ago. Over two weeks in 2008, Hacienda Pinilla sold 43 Spanish colonial condominiums for US$580,000 and up – without any advertising. Nowadays, ocean view condominiums sell in Hacienda Pinilla at around US$725,000 to US$1,100,000, and houses range from US$840,000 to US$2,000,000.
The US$35 million expansion of the Daniel Oduber Quiros airportis expected to finish in June 2011, allowing it to accommodate around 1,500 passengers, reaffirming Guanacaste as Costa Rica’s second most important airport.
The area’s promoters have taken to calling it the new Gold Coast (see New York Times). Guanacaste is low in humidity and has just two seasons- the Green Season, May to November when there are morning or afternoon showers that clear to provide spectacular sunsets, and the High Season, with beautiful sunny days from November to May.
The Central Valley has a temperate climate suitable for year-round living, and has easy access to San Jose, the country’s capital.
San Jose is admittedly rather ugly, but it is the country’s economic and cultural centre. Its population dropped to 60,000 people from around 70,000 people, 20 years ago. To attract people back, San Jose’s local authorities now plan to a downtown revamp, building parks, improving water and drainage systems, and improving traffic management. A new project aims to create a “Chinatown” covering 8,300 sq. m., and to develop Paseo Colón.
Half-hour away from the capital are the mountains of Heredia to the north, Alajuela to the northwest and Cartago to the east, which offer small-town charm. The warm climate on the hills of Escazú, west of San José, is another favourite with North American expatriates.
According to Brad Butler of Heredia’s Emerald Forest Properties, Heredia attracts a lot of retired people. “They are attracted by the climate, activities, that it is close to hospitals, close to airport, close to beaches, and has a central location”.
Heredia saw 25% price growth annually from 2004 to 2008. The market boom began almost immediately after 2002 shock collapse of a Ponzi scheme called Ofinter SA run by businessman Luis Enrique Villalobos, which owned US$1 billion to 6,300 investors, mainly North American. Three months later another Ponzi scheme called Savings Unlimited went down, trapping another 2,800 investors.
Central Valley has the highest number of developments underway, especially in places such as San José, Alajuela and Heredia, according to The Association of Engineers and Architects. In fact the pre-crisis construction boom has made houses more affordable. Buyers can have a decent house for as low as US$50,000 up to US$250,000 in Tico neighborhoods. Low-end condominiums sell at a minimum amount of US$150,000 in Ezcazú and Santa Ana.
Numerous projects are under construction or being planned in San Jose’s east. One of the most recent is the $100+ million Curridabat “Business Centre of the East”. Office buildings under construction include the Terra Corporate Campus, and the $10 million Oficentro Condal San Pedro.
Costa Rica’s last frontier is the Osa peninsula area, which is very rural, not easily accessible, with a small airport and terrible roads. But it is also much more tropical, an area known for its heat and mosquitoes and snakes.
The Caribbean beaches, especially those near the Panamanian border, are some of the most beautiful and unspoiled in the country and they are seeing enormous price increases.
Rental occupancy rates at Jaco beach were boosted when the new San Jose to Caldera highway became accessible. The highway was completed in early 2010, reducing the travel time from San Jose (and the Central Valley area) to around 1 hour, according to revealrealestate.com.
“Jaco Beach was really a hippie town, but eight months ago some developers came in, and wow that is booming,” says Butler. “Things are just crazy on the beaches. Hermoso has done very very well in the past two years, it was seen the largest [price] increases in the country. ”
Inflation was 4.7% y-o-y to April 2011, having declined from 5.6% the same month last year. Interest rates have followed inflation down. The base rate was reduced in March to 7.25% , from 8% this January, by the Banco Central de Costa Rica (BCCR). In 2010 base rates ranged from 6.75% to 8.50%.
Housing mortgage credits rose by 6.38% y-o-y to Q1 2011. "Housing loans have improved because the banks are more dynamic, offering lower rates and customers are more willing to buy," says Alejandra Baeza, Commercial and Sales Manager of New Era Building Group.
Gross rental yields on residential property in Costa Rica are moderately good, ranging from 5.38% to 8.32% (Global Property Guide survey of November 2010). From 2000 to 2005, average annual rent growth was 6.58%.
Costa Rica’s rental market is covered by Law 7527 (General Law on Urban and Suburban Renting), passed in 1995. According to the law, rents quoted in colon cannot be increased by more than 15% unless inflation is beyond 15% - which it never was since the law passed - while rents quoted in US dollars or any other currency cannot be increased at all.
What is most unusual about this law is that, in practice, it favours quoting rents in US dollars, since the colon generally depreciates, making foreign-currency denominated rents rise faster than rents quoted in colons.
Rental property owners may welcome a new “solidarity tax” which aims to change the tax rules for homeowners and tenants. Under current rules, taxes are paid by anyone who receives a rental income. From that income, the taxpayer is allowed to subtract deductible expenses (e.g. depreciation). The average income tax rate is 30%. Smaller and medium companies pay income taxes ranging from 10% to 20%, and individuals who receive rental income pay 10% to 25% tax. Tenants don’t pay taxes.
The “solidarity tax” makes these changes:
Costa Rica had seen robust economic growth from 2003 to 2007, with an annual average real GDP growth rate of 6.7%, based on figures from the IMF.
The economy was estimated to have expanded by 3.5% in 2013, after registering real GDP growth rates of 5.1% in 2012, 4.4% in 2011, and 5% in 2010, according to the International Monetary Fund (IMF). The economy is projected to expand by 3.8% in 2014.
Costa Rica’s central government deficit stood at 4.5% of GDP in 2012, up from 4.9% in 2011, according to the Economic Commission for Latin America and the Caribbean (ECLAC). Current account deficit remained steady at 5.3% of GDP in 2012 from a year earlier.
During the third quarter of 2013, the overall unemployment rate fell to 8.9%, from 10.4% in the previous quarter and 10% in Q3 2012, according to the Instituto Nacional de Estadística y Censos de Costa Rica (INEC).
In September 2013, the annual headline inflation in Costa Rica inched up to 5.4%, up from 5.3% in the previous month, mainly driven by an increase in transport costs. Despite the upward trend, inflation remains within the central bank’s target of 4% to 6%.
The central bank’s basic interest rate fell to 6.55% in August 2013 from 9.2% at the beginning of the year, in an effort to boost the economy.
The Costa Rican colon (CRC) was revalued during 2010, from US$1=557 colones to US$1=493 colones. The main reason behind the revaluation is:
Due to these factors, the colon has risen against the US dollar. In February 2011, the colon strengthened to US$1=489.98 colones. By December 2013, the average monthly exchange rate stood at US$1=488.44 colones.
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