Costa Rican Real Estate: Stable Long Term Prospects

The property news coming out of Costa Rica is by no means a cause for celebration but it is not all gloomy either. Costa Rica still remains among …

The property news coming out of Costa Rica is by no means a cause for celebration but it is not all gloomy either. Costa Rica still remains among the most popular second home destinations for U.S. citizens. The country has successfully branded itself as a premiere eco-tourism destination and the tourism sector is expected to continue growing.  Low cost of living and property taxes still attract adventurous retirees who are looking for cheaper options without too many compromises. 

However, the Central American country has not been immune to the global economic crisis and it has been particularly sensitive to the U.S. slowdown. After all, some 60 percent of tourists arriving into the country come from the United States according to ERA-Costa Rica, a global franchiser of residential real estate brokerages. The U.S. also purchases the majority of Costa Rican exports.  This makes the country overly sensitive to U.S. economic winds.

The residential real estate market has reacted badly to the financial crisis. Sales fell by 30 percent in 2008 as home values plummeted, according to ERA-Costa Rica. Out of the 1,730 acres of development land purchased, work has only begun on a little over half of it. Worse, approximately 20 percent of developers are expected to halt their activities due to a lack of financing as previously available credit dries up. Surprisingly, while the housing sector continues to tumble, the commercial real estate sector seems to be holding up quiet well.

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Although the fundamentals of the tourist industry still remain strong, the industry is feeling the effects of the economic downturn. As financially worried travelers curb their vacation plans, hotel occupancy levels have fallen by 5 to 50 percent, according to Costa Rica Pages. The Costa Rican Chamber of Hotels reported that 52 percent of hotels experienced lower occupancy rates in 2008 when compared to 2007. Well known vacation destinations have also seen a drop in reservations and higher than usual cancellations.

The construction industry has also fallen victim to the financial crisis but continues to grow, albeit at a much slower rate. In 2007, the industry experienced an incredible 18% growth but that went down to 5 percent for 2008.

The U.S.-Central America trade deal, known as the Central American Free Trade Agreement, took effect at the beginning of 2009. As the CAFTA floodgates open, Costa Rican monopolies and dominant companies will face fierce competition from multinational companies entering their markets. The ensuing price wars should benefit consumers. The country’s export industry should reap a bulk of the benefits as opportunities for Costa Rican products expand in the CAFTA region.

It is hard to predict the effect of the financial crisis on international real estate buyers according to Reveal Real Estate, a website that aims to provide comparative property data for Central America. In general, it is expected that big bank financed developments will experience hard times as their fates are tied to the big financial institutions. 

However, individual investors, some of whom are looking to escape the unpredictable stock markets, may continue to buy real estate. Also, those who have seen their savings dwindle and are close to retirement age may consider international relocation in order to afford the lifestyle they hoped to have in their later years.  

Long term prospects for Costa Rica remain attractive.  The government is stable and has instituted good health care and educational systems. The country is has a wealth of natural resources, from beautiful beaches to pristine jungles and volcanic mountains, that attract a wide range of travelers.  More importantly, it knows how to take care of its environment.  Costa Rica was ranked 5th in the world by the Environmental Performance Index developed by Yale University and Columbia University.  No doubt tourism and related developments will continue to boom.  To avoid being a victim of its own success, Costa Rica will need to perfect the fine art of balancing development against preservation in order to protect its eco-friendly brand.   
 

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