Buyers Returning to Costa Rican Beaches

The Costa Rican housing market trended along with the U.S. market following the recession, falling into an extended slump. Now, sales and development are picking up, indicating a …

The Costa Rican housing market trended along with the U.S. market following the recession, falling into an extended slump. Now, sales and development are picking up, indicating a marked turnaround for Costa Rican real estate in several different areas along the coastline and inland. Interest rates have followed inflation down, and the value of the Costa Rican colon has risen, making home prices appear cheaper from a Costa Rican point of view. New areas once the territory of backpackers and surfers are now opening up to new development, which is attracting fresh buyers. For more on this continue reading the following article from Global Property Guide.

Costa Rica has long been a popular tourist destination. Beautiful beaches and valleys, tropical greenery, wide biodiversity and a comfortable climate attract a growing number of tourists. There’s lots to do, including surfing, deep sea fishing, scuba diving, snorkeling, bird watching and rainforest exploring, and even just outdoor sightseeing. Costa Rica offers excellent security, good infrastructure, accessible healthcare and affordable real estate, all of which appeals to tourists, buyers and retirees.

Aside from the country’s natural attractions, Costa Rica’s stable economy and uninterrupted democracy encourage real estate investors.

Costa Rica was one of the countries whose real estate market plunged when the recession hit. But now Costa Rica’s housing market is reviving, though it is nowhere near what it was during the 2006 to 2007 boom.

“There has been a timid awakening in selling homes and condos on Pacific beaches, while the GAM [greater San José metropolitan area] residential sector has been growing at a steady pace, with an excellent range of properties,” according to Aleyda Bonilla, president of the Costa Rican Chamber of Real Estate Brokers.

Adds Playa Hermosa First Realty’s Les Nunez: “Middle- and lower-priced homes….are really starting to move now, as opposed to the top end. So, anything between US$300,000 and under, you’re getting good inquires and even purchases now.”

Real estate transactions in Costa Rica are typically quoted in US dollars. The Costa Rican colon (CRC) increased in value during 2010, from US$1=557 colones to US$1=493 colones, so real estate has become cheaper from the Costa Rican point of view.

San Jose, parts of Central Valley, the Central Pacific region and Guanacaste are picking up. Atenas in western Central Valley is becoming popular. “Gringo-style” homes are selling in Atenas, especially modestly priced ones which do not exceed US$200,000.

The improvement in housing demand has boosted construction and the mortgage market. Private construction rose 0.7% y-o-y to February 2011 – the first private construction index rise in 25 months. Housing loan volumes also increased 6.38% y-o-y to February 2011.

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.

Positive outlook for Guanacaste

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, 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.

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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.

Affordable new houses in Central Valley

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.

Beautiful, unspoiled Caribbean beaches

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

“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. ”

Lower interest rates

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.

Moderate yields; new rental tax plan

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.

New solidarity tax may help owners

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:

  • Taxpayers can choose between two taxing options: a) pay 15% tax on rental income (income from rent only), with the taxpayer entitled to 15% deductible expenses without documentation; b) Pay taxes the traditional way, with all deductible expenses subtracted and corresponding rates applied.

Economy picking up only slowly

Costa Rica’s economy is improving, but slowly. Costa Rica’s GDP rose 3.54% during the year to February 2011 (BCCR Monthly Economic Activity Index). The modest growth of the national economy has enabled lower interest rates, and thus a recovery in private sector credit.

At the heart of the economy’s relatively weak growth are stagnant manufacturing and agricultural sectors. Exports account for 60% of GDP, and last year there were losses across 300 companies (mostly in the agricultural and industrial sectors), strongly impacting the economy. Sectors related to domestic demand have performed better than exporters.

According to Monica Araya, the president of the Chamber of Exporters, the 23% revaluation of colon is killing exporters’ business, making industry unsustainable. Costa Rica’s production costs are up to 40% higher than the rest of Central America, adds Araya.

No further devaluation in the colon is expected; instead a rise is more likely to occur. The dollar is expected to remain near the bottom of the band for the rest of 2011, but should close at between ¢530 and ¢555 by the end of the year, according to Grupo Aldera. The main reason behind the revaluation is:

  • low interest rates for foreign currencies (2% per year) as compared to high profits in colones (8%) and,
  • constant intervention by the Central Bank in the forex market

Due to these factors, the colon has risen against the US Dollar, but some analysts believe that the revaluation is just temporary and expect the currency to close at ¢520 per US Dollar by the end of 2011.

This article was republished with permission from Global Property Guide.


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