A personal trip to the Parrita-Quepos area to look at property and meet with real estate agents turned out to be an invaluable experience. The real estate slowdown is quite evident, but there is good news for well- informed investors. Today’s deep discounts are tomorrow’s profits.

For sale signs are everywhere. Property prices have dropped on some real estate 50 percent or more. Some people have walked away from the houses they were building before completion and assigned them to real estate agents with instructions to sell them for whatever they can get. Some condominium developers are selling their projects out using fractional ownership so they can make some sales and bring in badly needed cash flow.

A.M. Costa Rica published articles cautioning about the coming weaknesses in the real estate market starting in January 2005 when property values were spiraling out-of-control. Later articles predicted that too many condominiums were under construction and this would cause an over supply.

In retrospect, 2005 surely was the topping out of the real estate market in Costa Rica and the beginning of the slowdown of real estate sales. This is true in most market situations. When prices are crazy and people are willing to spend almost anything on the upswing, the market is ready to burst and turn around.

The slowdown started to show its nasty head in 2006 when real estate agents complained of fewer sales and prices leveling off or declining. The events in the United States surrounding the subprime mess where consumers over borrowed on the equity in their home, perhaps to buy a vacation or retirement property in Costa Rica set the foundation for a turn around in real estate here.

This is not the first time this has happened in Costa Rica. Old timers remember Costa Rica went though a similar time in the 1970s. Property values were on the upswing and relative to those times, real estate was expensive and increasing in value rapidly. However, with the onset of the Nicaraguan conflict and the United States embargo against the country, real estate sales abruptly entered stagnation.

Values did not start to rise again until after the end of the United States embargo against Nicaragua in 1990. Costa Rica’s real estate values started to increase slowly at first but gained momentum rapidly in the late 1990s. This culminated into explosive growth and skyrocketing prices from 2000 to 2005.

Today, Costa Rica real estate prices are on the fast decline for several reasons. Here are a few:

North America is in serious financial distress. In the past, when the United States caught a cold, Costa Rica suffered financial pneumonia. This is not as true as it was in the past because Costa Rica is a destination and retirement option for many other types of foreigners not just North Americans. However, even today, when the United States is having troubles so does Costa Rica. Usually, there is a lag time of around a year before Costa Rica suffers from the happenings in the United States. This is also true during the recovery process. Costa Rica needs the same amount of time to begin recovery after the United States markets improve. This means the bottom of this slowdown is just beginning not ending.

As stated in the article “How high can skyrocketing land values go?” New found paradises go through a defined cycle: The phases to the cycle are exploration, involvement, development, consolidation, stagnation and, decline and/or rejuvenation. Given all the development over the past several years, Costa Rica is now ready for its consolidation and stagnation phase. The slow down in the United States has not helped and is probably nudging the country into these phases prematurely.

Today, Costa Rica is at war. It is at war with crime. Crime is everywhere. It runs the gambit from the highest echelons of government down to petty street crime. The problem is the street crime is not so petty any more. Many robberies are at gunpoint or worse, someone is killed. The Costa Rican press is full of stories of students being murdered over a cell phone
while waiting for the bus. The problem is Costa Rica has not declared war on crime. The country is just too complacent letting the criminals run the show.

The country had better wake up sooner rather than later. In the past, Costa Rica’s proximity to Nicaragua made North Americans uneasy about traveling here during the Nicaraguan war. The United States’ embargo put the nail in the proverbial coffin. Most foreigners like to feel safe when they travel — especially North Americans — and when they do not feel safe they tend to avoid a destination in conflict. The increase in crime in Costa Rica and the increasing world’s perception that Costa Rica is not a safe place to visit will stagnate Costa Rica’s growth even if the United States recovers from its financial problems.

For these and other reasons, the bottom of this slowdown is in its beginning stages not at the bottom, as some real estate agents believe.

Now for the good news for savvy investors. Baron Rothschild, an 18th century British financier, is attributed with saying “The time to buy is when there’s blood in the streets — even if the blood is your own.”

This author is bullish on Costa Rica and feels the country will eventually get its act together — of course — in its own Tico time, but it will happen eventually.

There are some great real estate deals these days for investors and for those people looking to retire here in the future. There are even better deals for those with cash. Knowledgeable investors recognize bad times make for good buys. Even though Costa Rica has probably not hit bottom, it is the time to start looking for property. Real estate values have a positive trend over time and real estate values will sky-rocket again sometime in the future as it has done in the past. Markets always do.

Complimentary Article in PDF Fomat

Expats in Costa Rica who rent to others need to know the law and the important exceptions. Property owners also need to know that the law is not the same for all kinds of property. Many expats prefer not to rent to Costa Ricans because they fear the local rental law due to their lack of knowledge or language ability.

On the coast, expats rent very short term — daily, weekly, and occasionally monthly — to vacationers coming to the country. Usually, they collect their rental fees in their home country or online over the Internet. Some do not declare the money they collect here nor elsewhere. This scenario is a nice source of income for many and for those who do not report the income, tax-free money — at least tax-free until they are caught.

Some expats who live here temporarily rent their homes to others when they travel for extended periods. Usually, they use a rental agent who takes care of the monthly bills and finds short-term renters for a commission. Today, that commission averages about 20 percent off the gross rental revenue. Many of the expats who fall in this group do not report the income they receive either.

Usually, the people who fall in these two categories do not mess around with contracts. Article 7 of the rental law excludes the short-term vacation rentals from the usual rules. Rental laws do apply to the second scenario, even though people rent short-term — less than three years — to other foreigners all the time and just trust the renters will honor agreements. However, it is important to note, a renter in this case can call foul and stay the legally mandated three years with the full support of the law.

Many foreigners build rental units for the exclusive purpose of renting to other foreigners and in rare cases to local people. They are concerned someone will get into their property and not leave. Here are the facts:

The “Banco Hipotecario de la Vivienda, the “housing mortgage bank,” each year determines the threshold for de interés social, so-called “social interest” property. This year the amount is 24,610,000 colons. At today’s ever decreasing exchange rate of 492 colons to a U.S. dollar this translates to a little over $50,000. Yes, any dwelling worth $50,000 or less is social interest property, and the law treats this kind of property differently than homes worth more than $50,000. Land value is included.

Here is a list of tenant rights for a house declared of social interest: 1.) A renter cannot be forced to pay any more than one month’s deposit and the deposit cannot be higher than one month’s rent. 2.) A tenant can always stop an eviction process by depositing the amount owed in court. 3.) When a rental contract ends, a property owner cannot force out a tenant unless the property owner or the property owner’s immediate family is going to move into the dwelling or the property owner intends to demolish the construction to build a new home worth at least five times more than the exisiting construction.

In the case where a tenant is evicted unjustly — for example a property owner lies about who moved into the home or does not build another one — a tenant can get the property back and get one year of rent as damages.

In the case of an eviction and the renter cannot pay, the person can always play sick or come up with other flakey excuses to postpone eviction. One older woman, some years back, delayed her eviction for several years.

Property of social interest only applies to houses, condominiums or apartments. The term does not apply to businesses or offices.

Renting property considered of social interest to anyone is full of pitfalls. And that is why many expats decline to rent to Costa Ricans. Article 74 of the rental law is another interesting exception, and one that really works for expats looking for an additional income. The article exempts up to two apartments or office units built on a property owner’s lot that share a common entrance or a common area from the normal three-year rental contract term. A property owner only needs to give a 30-day notice to a renter to leave. Social interest property does not apply in this case.

There are other exceptions to the rental law, all covered by Article 7 where the mandatory three-year rental term does not apply: short term rentals in tourist areas, temporary spaces rented for events, parking and vehicle storage areas, areas rented for outdoor advertising, dwellings rented to guards or people watching a property, and houses lent to someone where there is no remuneration.

There are two types of eviction processes in Costa Rica: a judicial process, meaning a case in court, and an administrative process.

In every judicial process, there are certain documents required to continue the case. The most important of which is an appraisal of the property by an engineer or architect to determine if the property is social interest property. If it is not, an eviction can move along quickly. In Costa Rica, this means it may take less than a year.

Sometimes a tenant can use the owner’s own estimate of value that has been filed with the municipality to have the property considered of social interest. Owners frequently low-ball values in order to reduce their municipal taxes. A fake statement of value filed when property is purchased also can come back and bite the owner.

Administrative processes apply to renters covered by one of the exceptions. For example, a tenant does not want to move out of an apartment considered Article 74 exception as explained above or even a hotel room. In this case, one must file a complaint at the security ministry in San José, and a department of this ministry decides if the police should toss out the renters.

When renting, it is important to know to whom one is renting. Despite the fears of renting to Costa Ricans, many times foreigners can be the worst renters because some of them are crooks elsewhere. Expats should check references and credit before renting to anyone.

Complimentary Article in PDF Fomat

Remember the days of skyrocketing real estate prices in Costa Rica? People thought then there was no end in sight — no limit on how high a piece of dirt could go. Real estate in the United States was crazy, too. Doomsayers here and there were friendless. No one would listen to their tales of a looming crises.

Everyone knows now that the doomsayers were correct. The bubble burst. Some of those who bought properties in Costa Rica are now hurting back home. As predicted, they cannot pay their obligations there or here. Adjustable rate mortgages were the devil’s work fueling the subprime mess.

Many sellers carried back mortgages on real estate here so they could get the highest price possible from buyers. Smarter sellers made all cash deals. The smart ones knew many buyers were shopping overly hungry in a vast supermarket and ready to over spend.

Some of those sellers with mortgages now have to face foreclosing on the buyers just as some of the financial institutions in the United States have to foreclose on their subprime loans.

There is a relationship. People in the United States were borrowing too much money because borrowing money was too easy. Easy come, easy go. In other words, buyers who borrowed easy money came here and paid big bucks for overpriced real estate.

Many real estate agents are in denial and jump to say that real estate is still selling like gangbusters because Costa Rica’s market is the world and not the United States. This is correct. Costa Rica’s market is the world, and there is a huge market of wealthy buyers in the world. However, real estate is no longer skyrocketing uncontrollably. Buyers are fewer and more cautious. Many of them are smarter than the frenzied buyers of only a few years ago looking for a good deal.
Financial institutions calculate risk and have legal teams to go after deadbeats. A poor seller who carried back a mortgage for an over zealous buyer does not have a legal team. They’re lucky if they have a decent lawyer. Some of the sellers took their loot and mortgage back to the United States thinking there would never be a problem collecting the debt.

Sellers who have buyers defaulting on a mortgage now have to decide what to do and how to go about collecting.

For those sellers, there is a little silver lining in the crisis. Debt collection has become its own law in Costa Rica instead of being parts of other laws like the civil code, the civil procedures code and the law of the judicial power. The new law No. 8624, called “Ley de Cobro Judicial” is a replacement for many antiquated procedures that bogged down the process allowing debtors to prolong debt collection and sometimes avoiding it all together.

The new law, published in La Gaceta Nov. 20, will take effect this May 20. A new specialized court will handle all collections eliminating different courts for amounts less than $1,200 and others for amounts over $1,200. Only a fax number or an e-mail address will be valid for notifications.

Under the new law, once a debtor answers a demand on him or her to pay, a hearing is set. At the hearing, the judge will analyze the paperwork and listen to witnesses. With the information at hand, the judge will make a verbal decision. This is in deep contrast to what happens today where a judge can take months — even longer — to make a decision. Many roadblocks a debtor could throw into the collection action will be a thing of the past.

The spirit of the law is to turn the current long procedural process requiring loads of paperwork into a verbal and fast judicial action.

This new law is also an opportunity for investors. There is profit in buying foreclosure real estate at auction.

Some of the rules have changed too. Deposits to participate in an auction are going to increase to 50 percent under the new law from the current 30 percent. When an auction is ready for the docket, three dates are set instead of just one. Under the old law, only one date was set. If the auction failed, it took months to get a new date.

The new law is more efficient. Three auction dates are set to deal with auctions when there is no winner. The first starts at 100 percent of the asset value. The second starts at 75 percent, and the third starts at 25 percent. If it happens there is no successful auction after three tries, the creditor will be forced to take the asset as payment of the debt.

Sellers who sold and gave buyers mortgages when Costa Rica boomed are not doomed. The new “Ley de Cobro Judicial” can help collect those mortgages and maybe even get the property back if the debtor does not pay. The new law is also a serious new resource for savvy investors.

Complimentary Article in PDF Fomat

Restrictions that can run with the deed

People move to Costa Rica for a variety of reasons. Some come to join communities, others to build them.

Some expats are leaving the United States or planning to leave because laws, politics and Big Brother have them crazy. Others leave because they are wanted by the law or unwanted by society.

Whatever the reasons, Costa Rica is filling up with foreigners. Some of these outlanders are making small communities or sustainable developments — little utopias.

However, these groups have a problem. How do they restrict their utopia to similar type people? Most lawyers and other professionals state the only way to do it is through the condominium law.

Anyone who has ever owned a condo or belonged to a homeowners’ association is familiar with covenants, conditions and restrictions.

These restrictions are in the governing paperwork that dictates how a homeowners’ association operates and what rules the owners — and their tenants and guests — must obey. These legal documents become the bylaws, the master deed, and the houses rules of a group. They are legally enforceable by the group through the homeowners’ association.

Is there a way to put restrictions over a property without using Costa Rica’s condominium laws?

Yes there is — a very creative way. Here’s a secret tip.

Article 292 of Costa Rica’s civil code can limit or restrict property with any covenant, condition or restriction that is not contrary to law as long as it was put on the property without cost. The property will carry the limitations and restrictions for 10 years.

This means that a group that moves to Costa Rica that wants to subdivide a piece of land into lots and build an environmentally friendly, sustainable community with a certain architectural style, and no purple dogs or cats, among other restrictions, can do it freely by using Article 292.

Wait a minute. What does without cost mean? Does it mean restricted property is free?

No, restricted property is not free. Restricted property just needs to carry the restrictions when it is sold. Any restrictions need to be registered on the property deed at the Registro Nacional via a special process that incudes a previous no-cost transfer between owners.

This process is worth the effort for community builders and easy to accomplish — much easier than going though the condominium law in many circumstances.

Article 292 does not get around the normal requirements of subdividing a property or lot sizes. It is not a fast track around municipal or other governmental requirements or regulations. It is not for condominium towers — vertical condominiums. It is for segregated lots that are next to each other in a development.

This article of the civil code is a great community builder for those who share similar beliefs and a way of life, as long as the restrictions do not intrude on human rights specified in the Costa Rican Constitution.

Complimentary Article in PDF Fomat

Condo easement situation is example

When laws collide, the fallout can hurt the little guy — or in this case, keep the little guy from getting full title to his new condo.

A simple pyramid can explain the legal system in Costa Rica. Sources are the Constitution, legislated laws, presidential and executive decrees along with the rules and regulations that give instructions on how to apply law.

The order of importance of law is from top to bottom. The Constitution is the supreme law, specific laws carry more weight than presidential decrees, and rules are just regulations on applying a law in different situations.

Costa Rican law is always under the watchful eye of the world. Treaties with other nations can change law in the country but only after an evolutionary process where individuals have to fight for specific rights in an international court.

Some laws and rules are confusing, and others clash. One example important to coastal developers is the Reglamento a la Ley Reguladora de la Propiedad en Condominio, or the Regulation to the Law of Condominium Property.

Article 43 of the reglamento states that a condominium built with access via an easement to public roads is legal. However, the people who approve the paperwork at the Instituto Nacional de Vivienda y Urbanismo or the National Institute of Housing and Urbanism will not sign plans for condominium projects that do not sit right next to a public road.

Developers rushed to develop master plans for incredible condo projects up and down the Pacific coast when the regulation to the condo law was published in La Gaceta at the beginning of last year, only to find their plans quashed by the institute.

The Instituto Nacional de Vivienda says the regulation to the condominium law is illegal and bureaucrats there want no part of it. Their position is that the rule conflicts with Article 40 of the Ley De Planificacion Urbana, Law of Urban Planning. This article states the following:

“Subdividing lots outside the city limits and all urban development will donate all roads corresponding to communal facilities to the municipality making them public.”

This Costa Rican battle between regulatory agencies in an election period has caught developers with their proverbial pants at their knees. Many of them have taken significant deposits from buyers promising them a beautiful condo on a hilltop with access via an easement as part of the condominium plan. Buyers may get something less than full title to their property when it is finished because the project will not qualify under the condominium law.

The dilemma is that the Urban Planning Law contemplated mostly houses on lots in urban developments. Written 30 years ago, it did not envision condo towers overlooking the beautiful oceans of Costa Rica. The law of Property in Condominium is a modern law for the Costa Rica of today.

The old cronies that make the decisions at the Instituto Nacional de Vivienda do not know who the next President will be. Their jobs are on the line. They do not want to take a position one way or the other.

The members of the current political administration will surely not solve this predicament. They are on their way out the door. Each of the new parties have their own philosophies for the country, ranging from “Let’s kick all the foreigners out of Costa Rica” to “Let’s sell all our beaches to the foreigners and make ourselves rich.”

What will really happen is something in between. What does this mean for the condo tower developers? Probably something in between, too. It is the way of the country. Never really white or black, always in the “gray area.”

Some lawyers say the whole discourse is unconstitutional. The constitutional court interprets Article 28 of the Constitution to mean everything not expressly forbidden as permitted. There is no law forbidding private access to condominiums. Article 28 also states private matters that do not affect moral or public order are out of the action of law. These both are interesting constitutional points.

Developers are scurrying to find solutions to this legal problem as they are with the freezing of beach concessions.

One thing for sure, nothing will happen on either front until after the election and even then, there is always a “honeymoon” period that needs to wear off before any new President gets down to solving the modern day problems of the country.

Complimentary Article in PDF Fomat

Watch out for this guy

A whole lot of money is being made by those selling condos up and down the coast of Costa Rica.

There are as many weird deals. Some condominium projects are skirting the law. This explosion is due to the “Ley Reguladora de Propiedad en Condominio” or condominium law, published in La Gaceta on Nov. 25, 1999. Apartment buildings, commercial places like malls, office buildings, and — unbelievably — even cemeteries use the condo law to divide up property.

Here is how it works:

When a property is divided up under the condominium law, the mother property becomes the “finca matriz.” Finca means farm in Spanish. Most properties, even small lots and houses are referred to as a farm in Costa Rica. The word matriz is a feminine noun in Spanish meaning, womb, original, or master. It is used to refer to the finca as the mother.

Each individual property inside the mother becomes a “finca filial.” Filial means the same thing in Spanish as it does in English: of or relating to a son or daughter, or bearing or assuming the relation of a child or offspring to a parent.

When a property goes condo, each “finca filial” gets registered at the National Registry separately, with a unique number. In other words, you get a real piece of property with real property ownership rights.

The basic requirements to use the law are as follows:

A.) A legal document needs to be prepared with the general description of each floor, apartment, or condo with its intended use, along with the same kind of explanation for common areas. This document is submitted to the Registro Nacional or national registry for approval.

B.) The document needs to outline the total value of the condominium, including the proportional value of each property component (condo).

C.) The project developer needs to adhere to all the generally accepted licensing requirements and obtain all the required building permits.

D.) Plat plans referred to as “catastros” need to be prepared and submitted for approval by the catrastro department of the national registry.

E.) General guidelines, referred to as the Reglamento de Administración y Condominio or condominium and administration rules for the owners, need to be drawn up and submitted with all the above items.

F.) The request to divide up the land is made in a deed, signed in front of a notary public.

The general guidelines are very important. This document is where the framework of how each person or family who buys a unit needs to act in order to offer everyone a quiet, peaceful place to live.

When buying into a development, it is important to know the rules because they may include restrictions on having children, pets, and parties, along with maintenance and up-keep mandates.

When someone does not follow the rules, they can get a written warning letter initially, but can end up being downright evicted. Yes, even an owner can get thrown out of his own place.

The rules or guidelines are managed by a general assembly. This body is the ultimate authority in the condo. Every owner is a member of the general assembly.

This group works like a mini-democracy, and through voting, original rules and regulations can be amended or changed. Costa Rican law requires three legal books. They are called “Actas de Asamblea” or Assembly Minutes, “Actas de Junta Directiva” or Board of Director Minutes, and “Caja” or Cash, used for organization accounting.

Now, here is where it gets tricky or interesting, depending on one’s point of view. Beach property inside the maritime zone in Costa Rica can not be owned.

However, developers are building condos on the land called concession land. The holder of a legal concession over the maritime zone can build a project and go condo under the condominium law.

It is a relatively safe investment if the project has all the correct permits from the local municipality, the tourism ministry (ICT), the National Housing Institute (INVU), and the Health Ministry.

Even though the land is leased or “in-concession,” owners of each condo share in the licensing agreement obtained by the developer, with the Costa Rican government as a sub-leasee.

However, this is a complex issue. All concessions are required to be held 50 percent by Costa Ricans, and the rule of thumb is 51 percent. This means majority ownership, or controlling interest must be held by one or more Costa Rican citizens. Having this ownership or control in the hands of one person or a small group could be dangerous to the whole because it could contribute to a takeover or unwanted sellout. Something like what happens on Wall Street everyday.

This particular scenario has created a new real estate type in Costa Rica, called a condo hotel where the venture operates most of the time as a hotel and part of the time as a condo. It is somewhat similar to time-share rentals. The law requires this kind of an operation to work 70 percent of the time as a hotel and 30 percent of the time as a condo.

Now, the best for last.

What happens when a project just does not qualify as condominiums. Well, some developers are still physically dividing properties into lots and selling a 99-year rental contract over the space. One can build on this area. Or the same developer offers to build to suit buyers’ needs. This scheme does not exist here legally, but real estate people sell property based on it everyday.

More importantly, local law and jurisprudence holds any contract over 10 years as abusive. In this kind of scenario, one never holds title to anything, just a trumped-up rental contract. Let us say the real owner of the property goes bankrupt or dies and the property ends up in probate. What happens?

Good question. No legal case to date has tested this case in court.

A mortgage or title insurance cannot be obtained because the land is never owned.

Another flaky deal is where one just gets stock or shares representing a piece of a property, again, with no legal ownership of property.

Purchasers need to be careful when buying a condo. They need to know the structure used which created the project. They need to read the rules and regulations before moving in with their 10 dogs. And they need to be sure they are buying true legal title to property and not someone’s way of circumventing the law.

Complimentary Article in PDF Fomat

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.

Complimentary Article in PDF Fomat

But there does not seem to be an overall plan

Just a sampling of potholes and the real estate offices beside them

Everyone up and down the coast of Guanacaste is getting ready for the real estate boom, all except maybe the Costa Rican government.

With few exceptions, most of the important thoroughfares are in very bad condition. As one traveler put it, “car-sized potholes” are everywhere.

After one gets used to the “bumpy bump” of the roads and seeing car parts falling from their vehicle like in an old Charlie Chaplin movie, one notices all the new real estate offices, which are everywhere. This is especially true in Nosara and Sámara.

The new Puente de Amistad built by Taiwan and the Daniel Oduber Airport in Liberia are the major reasons for this land explosion. Now tourists can hop on a plane in the United States and land in Liberia, Costa Rica. In a matter of hours they are surfing on one of the great Guanacaste Pacific surfing spots. One such surfer was overheard last week talking to a buddy on Wall Street, via a local phone, saying he left New York in the morning and was surfing in Nosara before sunset.

In addition to real estate offices, beautiful houses are growing out of the jungle like trees. Land is being subdivided and condominiums are being built for those who gravitate to Costa Rica. They range from the plain old naturalists to the yoga meditation set.

Guanacaste is becoming like Aspen, Colorado, but for the summer set. Those who love to grab a plane to go skiing in one of the world’s most popular spots, also are coming to Costa Rica for its natural beauty. Many speculative investors can see the writing on the wall, and that is why there are so many of them in Guanacaste building houses for those yet to arrive.

The Costa Rican government seems to have left Guanacaste without a development plan, except for the Papagayo Project in the far northwest.

One of the major problems seems to be that there is no realistic property tax base. Taxes are hated by all, but they are a necessary evil in development. Taxes are currently 2,500 colons (about $5.90) for every million in tax value. There are properties worth $200,000 whose owners pay $50 a year or less because of the way such values are calculated.

Slowly this is changing. The municipalities are trying to update their records, but many factors stand in the way: Lack of personnel, lack of computers, lack of correct information from the Registro Nacional, Costa Rica’s countrywide public records center. But most importantly the municipalities lack money. This results in a vicious circle because the money comes from the tax value, and this value is under reported, on purpose, by everyone who prepares a property sales contract in Costa Rica.

All the progress in Guanacaste is really sweet sorrow. This area of Costa Rica, 30 years ago, was really the paradise everyone talks about, untouched and undeveloped. The boom happening on the Pacific coast today will be great for the economy of the country as well as very beneficial for the little communities in that area. But progress without a development plan could be a disaster waiting to happen.

Complimentary Article in PDF Fomat