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Real estate slowly becoming a great investment here

by Garland M Baker on February 1, 2010

Lots of people came to Costa Rica during the feeding frenzy in the past decade to invest in property. Today, many of those that invested are licking their wounds because they jumped into the shark-infested waters unprepared. Most of them looked at investing here through kaleidoscope eyes.

Projects are not the only thing on hold in Costa Rica. Many expats lives are on hold too. They bit off more than they could chew when they invested in this country. During the days of skyrocketing prices, they did not save their pennies for a rainy day but chased prices up into the stratosphere and paid ridiculous prices for land and buildings. Some expats bought homes, but many others bought one or more parcels to speculate the market would go up even higher.

Today, everyone knows this was not the case. Now, they know the mania was a signal the market was going to implode as markets do to correct themselves. The market in Costa Rica is doing just that, correcting itself. Owners of property today put a price on something for sale hoping for the best. However, few get their asking price and settle for something less than their expectation.

Lucky are the people that made small investments. Some were so intoxicated with the delirium that they coaxed other friends and family to invest with them, and now all those they brought into fold are darn mad. The leaders of the groups do not know what to do. They do not know where to hide. Some even talk about suicide as a way out.

The good news is the Costa Rica market will correct itself. The bad news is it will take some time. The peak of the market was probably 2006 and 2007. The market came to a screeching halt in mid 2008, much in parallel with the United States. The banks in Costa Rica stopped lending money to developers during that time. This was another signal of the downturn.

This means the country is only one and a half years into the downturn. This is no time at all in a real estate down cycle. Real estate analysts believe property markets run in around 15- to 20-year cycles. Four to five of the years are in recession or a downturn and the rest slowly creeping up again. In others words, Costa Rica is probably at the very beginning of its downturn cycle with another three to four years to go before property values start moving up again.

This is not very good news for expats who are trying to sell and worse for those that have invested their entire nest eggs into speculative Costa Rican real estate purchases. However, it is good news for today’s investors. Real estate markets tend to run from undervalued to overvalued. Logic suggests that if the country is only at the beginning of its downturn, property today is probably a good value.

This author believes this to be the case. Property values in Costa Rica are a good value in this market. For anyone thinking of Costa Rica as an investment, buying property for the long-term — emphasis on the word long-term — is probably a good idea.

For those wishing to invest, cash is king. Walking into a negotiation with cash at hand is the best way to buy real estate here. For all the reason cited above, many expats and Ticos alike need cash and are willing to give a buyer a great deal if they have that commodity.

Cash talks, but if an investor has a good amount of currency but not all that is required to buy something, eager sellers will accept a mortgage or a trust to carry back the balance.

There are many reasons to buy property. Land is one of the best investments a person can make. Buying property in Costa Rica in an undervalued market is good for investors for the additional following reasons: Costa Rica is a great place to retire. The country has great weather and it’s close to the United States so retirees are only a quick plane trip away from loved ones. There are also various direct flights to European hubs as well for retirees from that part of the world.

Yes, there is lots of crime here but there are no missiles flying overhead. Security can be generally handled in layers. Gated communities offer the best options in this area.

Medical care is getting better all the time. The country is slowly building an infrastructure for the graying societies of the world. The country wants to position itself in the long-term as a retirement haven for retirees. This is another plus for long-term property values.

Costa Rica is a great place to land bank money. Land banking is what very wealthy people do to preserve wealth. Many people from all over the world land bank money here. This country is an exceptional place to do this because it’s currently politically stable and it probably will stay that way for the foreseeable future.

Keeping assets in currency is not a very good idea. Currency markets are in such a flux these days and there is talk the dollar is going to collapse. Land banking money is probably a much safer place for it than a real bank since most of them are on the verge of bankruptcy.

Costa Rica appears to be a good place to invest in today but how about all those that have lost their shirts investing in the past during the peak of the last boom real estate market. What do they do now? How do they survive? The answer lies in common financial sense. Robbing Peter to pay Paul is not the answer and usually ends in bankruptcy. Looking hard at and accepting a financial predicament is difficult but may provide unexpected solutions.


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{ 2 comments… read them below or add one }

Irony August 18, 2011 at 10:23 am

Hi
You wrote this article almost 18 months ago. Given the what has happened in CR and the world's economy has your opinion changed?

Reply

James May 3, 2012 at 1:22 pm

again, I also have the same question: where is the market today?

Reply

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