• Share
  • RSS
  • Print
  • Comments

The Costa Rica real estate market is thriving, and Costa Rica’s popularity as a tourist destination in recent years has more people looking to invest in this Central American country than ever. Although the prices have been steadily rising, investors still have the chance to cash in on Costa Rica’s cultural and economic prosperity.

Situated between Nicaragua and Panama, Costa Rica is home to 4.1 million people. The country boasts a literacy rate of 96 percent, has an unemployment rate of 4.6 percent and is known for its political stability. The official language of Costa Rica is Spanish.

The Costa Rican government is a democratic republic. The current president, Óscar Arias Sánchez, is in his second four-year term. There are seven provinces in Costa Rica: Alajuela, Cartago, Guanacaste, Heredia, Limon, Puntarenas and San Jose. The city of San Jose is the country’s capital.

Guanacaste Gold Coast beach in Costa Rica
Guanacaste Gold Coast beach in Costa Rica
The majority of Costa Rica’s economy is based on commerce, tourism and services, which make up 62.4 percent of its $21.4 billion GDP. Industries such as the manufacturing of electronic components make up 28.9 percent of GDP and agriculture accounts for 8.7 percent. The Costa Rica Colon, Costa Rica’s currency, had an estimated inflation rate of 11.5 percent in 2007.

Why invest in Costa Rica real estate?

Unlike many other countries in the region, Costa Rica has no standing army and is known for its Switzerland-like neutrality. “Citizens happily boast that they are so peaceful a nation they have no need for an army, that school children are able to preside over crowd control at election time and that the country has more teachers than it does policemen,” according to ShelterOffshore.com.

Its status as a safe country is a definite boon to holidaymakers. 1.7 million international visitors came to Costa Rica in 2006, garnering a total of $1.6 billion in tourism receipts, according to the World Tourism Organization. When the World Economic Forum released its 2008 Travel & Tourism Competitiveness Report, Costa Rica ranked 44th worldwide. It ranked first in Central America and second in the entire Latin American and Caribbean region, after Barbados. Short direct flights are available to Costa Rica from several U.S. cities, making travel plans simple.

The Costa Rica real estate market is based on the U.S. dollar, which means U.S. investors won’t feel the pinch and European investors may be more likely to buy. Foreigners enjoy equal property rights with Costa Rican citizens in most circumstances.

An oceanside pool at a hotel in Costa Rica
A hotel pool overlooking the Caribbean
Costa Rica’s economy and real estate market.

Since Costa Rica recently agreed to the Central American Free Trade Agreement (CAFTA), investments in the business sector are likely to increase. “Days after the vote a giant European car parts manufacturer announced plans for a new plant employing up to 550 persons.  Exports from the country are expected to double in the next few years, with the U.S. being the number one buyer and China ramping up as a close second,” Chris Simmons—a Canadian C.A., a former builder and the RE/MAX broker/owner of the year for the Caribbean and Central American region in 2006—said in an e-mail interview. Costa Rica has until Oct. 1, 2008 to finish implementing the laws required as part of the CAFTA.

The real estate hot spot is the Guanacaste Gold Coast, Costa Rica’s northern Pacific coastline, especially the 38 miles between the city of Pinilla and the Peninsula Papagayo. “Nearly 3,500 deluxe and luxury hotel rooms are expected [on the Gold Coast] within the next three years, [because of] at least nine major hotel and resort projects either under way or in the planning stages,” Simmons said. The Gold Coast area is easily accessible to tourists because of its proximity to the international airport in Liberia.

The government and developers know that Costa Rica’s ecology and natural beauty are its main draws and are committed to preserving them and promoting sustainable development. “One luxury developer in the center of Tamarindo has dedicated over 90 [percent] of the project as a nature preserve that will be protected by a government-managed nature conservancy,” Simmons said.

Costa Rica bordered by Nicaragua to the North and Panama to the Southeast
Buying Costa Rican real estate

Most Costa Rican real estate is registered with the Public Registry through a computer system known as the Folio Real. Investors should perform a title search in the Folio Real before considering any property purchase. The title search can also be done at the Public Registry office in San Jose. And for those who are uncertain about the trustworthiness of an unfamiliar title registry, there is an excellent alternative.

“Now we have two or three different American companies here in Costa Rica that provide title guarantees, like Chicago Title and Stewart Title from Houston....Those corporations, they do provide foreigners with a title land guarantee, so in case there is a problem with fraud or problems in the title then they can be identified and [the buyer] can be paid back,” Carlos Ayon L., an attorney with Alfred Fournier & Asociados in San Jose, said.

Most real estate in Costa Rica is fee simple. Property taxes are 0.25 percent of the property’s registered value, and closing costs are approximately 3.5 percent of the purchase price, according to Simmons. Foreigners’ property rights are equal to those of Costa Rican citizens when purchasing fee-simple property, but there are restrictions for those interested in purchasing beachfront property.

“In Costa Rica almost 95 [percent] of beachfront property is concession property and is governed by the Maritime Zone Law as well as other special regulations,” Simmons said. The Maritime Zone is the first 200 meters from the high tide line, measured horizontally. The Public Area consists of the first 50 meters from the high tide line and cannot be purchased or owned by anyone. There are no truly private beaches in Costa Rica.

A fishing boat in a canal at sunset in Costa Rica
A fishing boat in a canal at sunset in Costa Rica
The next 150 meters is the Restricted Area. Many properties in the restricted area are concession properties. “The beachfront properties are areas that are owned by the local government. They provide a lease to anyone interested in having one, but only for Costa Rican nationals or a Costa Rican company,” Ayon said.

Foreigners are unable to purchase a majority ownership of any property in the Maritime Zone unless they have been a resident of Costa Rica for five years or longer, according to Simmons. Restricted properties are leased for a specific period of time, during which the owner can build or otherwise develop the property according to the terms of the lease.

Potential issues and problems

Costa Rica is widely regarded as a safe and well-governed country. Even so, investors should be sure to complete a thorough due diligence process on any foreign property they consider buying. When dealing with long-distance negotiations and unknown policies, it is especially important to get full legal reports and title checks. And, though it may sound obvious, do not make any property purchase without visiting in person first.

Sunset at Playa Tamarindo in Guanacaste
Sunset at Playa Tamrarindo in Guanacaste
“There have been increasing numbers of people buying through the internet or through magazines without coming down to Costa Rica and actually seeing the property with their eyes,” Ayon said. He cited a client who purchased what was advertised as a beachfront property via the Internet, only to discover upon arrival that it was actually atop a hill in an undesirable location. Although the client in question got the purchase price back, it is best to avoid the need for litigation through rational planning. It is highly recommended that buyers consult with unbiased legal counsel familiar with the area before and throughout the purchase process.

Ayon said he estimates the cost of an independent legal report on a property to be around $1,000 or slightly more. But the headaches such a report could potentially avoid are priceless.

“Even if the property were the last unit in the best place in the world, don’t wire funds until you have a legal report on the property,” Ayon said. “It’s an exception when problems arise, but it happens. Sometimes the report shows something that is not pleasant to the potential buyer.”

Investors should note that in many parts of the country there are regulatory plans that limit the height of structures, setbacks from property lines and other development factors. “A nicely forested lot may become a nightmare if it is location in an area of protection, or if it houses many protected trees which are illegal to cut down,” Simmons said. Also, some areas in Costa Rica are protected and cannot be legally purchased or built upon, but corrupt sellers may trick unknowing buyers into “purchasing” lots in these areas.

Before considering making any property purchase, it is important to thoroughly research the real estate agent in question. And it may not be Costa Rican real estate agents that are most likely to get investors into trouble.

“We have seen Italians committing frauds with Italians, Canadians committing frauds with Canadians and Americans committing frauds with Americans. They have the advantage. They are here, and when new people come here they seek their own nationals. They find the first person here who’s very good with the locals and has contacts, so they believe they’re some sort of expert on the country,” Ayon said.

Although U.S. investors should always be on guard when investing in a foreign country, it is worth remembering that Costa Rica is considered a safe country for visitors and investment. The vast majority of Costa Rica’s real estate transactions complete without any significant hitches. Even so, Americans should be sure not to leave their brains at the border. Legal representation and thorough due diligence are required in order to get through the purchase process as painlessly as possible.