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Boom in Beach Condos Could Cause Oversupply

by Garland M Baker on May 9, 2005

Water, sewers, environment are factors to consider

The condo explosion

Get ready for Costa Rica’s condominium explosion. It is happening right now all over the country.

Beehive condos are popping up everywhere. The San José area, Escazú and Santa Ana are perfect examples. New condos are growing out of the ground fast.

First, the hot trend was malls. The last five years brought three new malls and complete renovations to two older ones. There is even one more in the development stage. The “biggest and baddest” mall is yet to come south of The Forum in Santa Ana. The ground is prepared and ready to go. However, construction recently was suspended.

The new trend is condos and expensive ones at that, especially the ones that overlook the ocean.

What is it about water that will entice a buyer to pay exorbitant amounts of money to look at it from a picture window?

Whatever it is, it works. Tico as well as North American developers believe they have found a gold mine in Costa Rica. The idea is simple: build as many condominiums as possible, and buyers will flock to the country to buy them. This economic premise probably originates from the hypothesis “Build a better mousetrap and the world will beat a path to your door.” One project envisions 5,000 condos.

Some say real estate demand is far greater than the current supply, especially the demand for condominium projects. This may be true today. However, Costa Rica is a copycat society. Historically, this copycat mentality has killed even the best ideas, driven them into the ground with overkill.

This country suffers from a serious problem. It does not know how to plan. Controlled development is a science, one that is not practiced here. Overly rapid, inadequately controlled development poses a serious threat to Costa Rica’s unique quality of life.

Costa Rica does not have enough water, sewage disposal systems, or road infrastructure to support all the condominium projects in the works or planned over the next five years.

Buyers need to be careful, very careful. Investing in a vacation home in Costa Rica may be a risky venture. Consider just a few of the concerns that may turn the country’s current “skyrocketing” real estate economy into a catastrophe.

Here is a short list to consider when thinking about buying property in Costa Rica:

  1. The country’s lack of an adequate water supply.
  2. Adequate sewage systems are lacking.
  3. Good roads are in short supply. Most roads in Costa Rica, especially in the outlying regions, are horrible.
  4. Increased tensions in Nicaragua. The revolution in Nicaragua in the 1980s stifled Costa Rica’s growth for more than 10 years.
  5. Costa Rica’s immigration policies are getting stricter every year.
  6. Costa Rica’s new tax law is currently in the legislature and contains a new “world tax” that could mean any money brought into the country (like pensions) could be taxed as the money arrives.
  7. The worldwide increasing interest rates.
  8. The weakening U.S. dollar.

And the list goes on …

Now the most important, the one that should be on top of the list: Overbuilding. What good is having a condo in Costa Rica if the market is so oversaturated with condominiums in five years the market collapses due to oversupply.

Financial systems that cater heavily to speculative “hot money” flows are accidents waiting to happen. This is exactly the case with Costa Rica. “Hot money” is flowing into the country fueling property speculation. In every case when speculative flows reverse, markets immediately falter with lack of liquidity and collapse.

North American buyers frequently approach Costa Rica’s real estate market uncritically with little knowledge of the intricacies. They value properties by First World standards.

Optimistic salesmen encourage the belief that quick profits are certain.

Those who invest intelligently will ask the right questions and look for projects that have considered the impact on the environment. In the long run such investments will be worth more.

{ 1 comment… read it below or add one }

Roger Pilon July 19, 2005 at 6:21 pm

” What good is having a condo in Costa Rica if the market is so oversaturated with condominiums in five years the market collapses due to oversupply. “

If it is too nice to be true, it is not! I am wondering: why not go and invest in condominium in Nicaragua or Panama!??

Just asking!!

Roger

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