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Costa Rica Real Estate Pricing Primer

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Costa Rica Real Estate Pricing

Yesterday I wrote a post about time on the market, inspired largely by a conversation I had with a Facebook page fan.

I couldn’t stop thinking about certain aspects of that conversation as they relate to the dynamics of Costa Rica real estate pricing.

So, I decided to write another post…

One thing that my friend said that made me think harder on this issue is that he believed that there was a supply and demand imbalance (supply exceeding demand) that made it likely that Costa Rica real estate prices were too high.

Let’s explore that a bit further…

Of course, you are well aware of how supply and demand for a product, like real estate, affects pricing…

When supply exceeds demand, prices tend to be suppressed. In real estate terminology, we’d refer to that situation as a “buyer’s market”, since good deals can readily be found.

When demand exceeds supply you have the opposite situation and prices for real estate go up, giving rise to a “seller’s market”, or a hot market.

Where are we with respect to Costa Rica real estate pricing right now, you ask?

The answer to that is very location-specific. Since I work the southern zone, I will focus my answer on that area.

I like to divide the southern zone up into two distinct markets, one for mountains and the other for beaches.

The mountain market is the Perez Zeledon/San Isidro de El General market. I have written in the past about this being an up-and-coming market that I believe will grow into one of the strongest in Costa Rica. However, right now I would describe the situation in the mountains as a buyer’s market.

That buyer’s market situation is gradually changing and that change can be more clearly seen in prices for commercial properties, especially in the city-proper of San Isidro de El General, as well as the outskirts adjacent to the Pan American highway. Deals have been happening at very high prices per meter squared, like a recent downtown deal that went for around $1,250 per meter squared, as well as the property Walmart bought for over $200 per meter squared.

I would nevertheless still describe the situation for residential land and homes as being very much a buyer’s market. Good deals can still be had and owners frequently can be seen lowering their prices to attract more buyers.

The beach market is a different story. Down there properties are staying on the market a much shorter time than in the mountains. I have seen properties get flipped for large profits. In fact, this has the beginning shades of what could become a speculative or overheated market. I don’t think we’re quite there yet, however.

For one thing, our southern zone beach market could not be remotely described as “high-density.” There is good product hidden in the hills that hug the coast, but there is a limited supply of it. It is definitely a situation down there where demand exceeds supply, thus giving rise to increasingly higher prices being paid for properties.

One thing that complicates the analysis on Costa Rica real estate pricing is the fact that often there can be two parallel markets to evaluate, especially in a place like our southern zone. There is the tico, or local, market and then there’s the foreign, or expat, market. What’s happening in one market can have spill-over effects in the other.

For instance, the mountain market is already experiencing more growth in the local market than it is in the expat market. I have seen prices going up for small residential lots that locals are buying and building homes on. Whereas, homes that tend to be priced out of the local market and more towards foreigners are staying on the market longer and often owners are having to lower their prices to attract attention. The beach situation has less of this effect. There is really only one viable beach market and that one is definitely priced for foreigners. I would guess that the situation in a major urban area like San Jose is different and that these two markets are predominantly merged into one.

The post I wrote yesterday took the position that time on the market is not a wholly reliable indicator of proper pricing. That is especially true for North Americans who tend to compare time on the market in the U.S. to Costa Rica. The post yesterday explained why that is not a valid comparison.

Supply and demand meet at the point of transaction. There is a time lapse involved here, whether you’re talking about widgets or Costa Rica real estate. And the point of the post yesterday was that the time lapse for Costa Rica properties is much more drawn out than it is for U.S. properties.

This “time lapse” is of course reflected in the relative liquidity one asset or product has versus another. For instance, the time lapse is probably shortest for a financial asset like a share of stock, versus being much longer when it comes to a slower moving asset like real estate. And that is especially true when it comes to Costa Rica real estate.

Nevertheless, the mere fact that a property has been on the market over a year is not a valid indicator of it being over-priced. It is very common for good and properly-priced properties to stay on the market that long. In fact, the average for time on the market in our southern zone area is even a bit longer, at around 1.5 years.

Costa Rica real estate pricing is not an exact science. We do not have a reliable MLS service down here and realtors pricing properties generally go on gut (or experience), as opposed to hard data. Quite often they’ll go with whatever the owner of the property tells them. Thus pricing can and often does have unrealistic expectations, or sentimental value, built in. In those cases, time on the market can really get stretched out. If you see a property that’s been on the market for over 2, or even 3, years, that could very well be the case.

An understanding of the supply and demand situation in a given market is a good way to judge Costa Rica real estate pricing. Does the price of a particular property reflect a buyer’s market or a seller’s market? What is the actual market situation?

Those are all valid considerations. And time on the market is also a valid consideration.

I just wanted to make sure that point didn’t get clouded into obscurity in yesterday’s post.

Costa Rica Real Estate Average Time on Market

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Costa Rica Real Estate Average Time on Market

I recently had an interesting discussion online with a Facebook page fan. He was commenting on a listing that had been on the market for around 770 days, or a bit over 2 years. His comment was basically that the property must surely be overpriced (and, by proxy, the entire market) if it hadn’t sold in 2 years.

Of course, what he said could be true. Perhaps the property is indeed overpriced. But my response to him was that it was incorrect to leap to that conclusion simply due to length of time on the market.

So, what is the Costa Rica real estate average time on market?

The Costa Rica real estate average time on market for a given property in our southern zone is about 18 months. At least, that’s what most “in-the-know” realtors will tell you. Certainly there are exceptions. Hell, I sold a property for $4.3 million last year within a couple months of listing it! But, talking averages, properties tend to stay on the market much longer here than a market like the United States.

And there’s an obvious reason why. Now, granted I’m not talking about the “tico (or local) market” here. I’m talking about properties that were built by foreigners and are being marketed pretty much exclusively to foreigners.

Another “average” that’s relevant for this issue is the time a realtor must generally work with a buyer before actually making a sale. The number you often hear is 2 years! You heard that right and, from my experience, I can tell you it’s absolutely true. A typical sales cycle will go from discussing properties with a buyer lead online for a year, to an actual visit by said buyer, then another round of online discussions, perhaps another trip, and finally an offer that two to three months later will ripen into the coveted done deal.

You have to remember, as a Costa Rica realtor dealing primarily with North Americans, or Europeans, my buyer leads are not contemplating a move from just across town. They are moving from the other side of the planet, so to speak.

It can be very frustrating for us realtors down here (so be nice to us!), but that’s the way it is working in a market where properties are being marketed and sold, almost exclusively, to folks who live in foreign countries very far away from said market.

So, the main reason for the seemingly long (by U.S. standards) Costa Rica real estate average time on market, even for those properties that are well-priced, is the simple fact of the market dynamics described above.

Now, it’s true that this fact makes Costa Rica properties less liquid than, say, properties in the U.S. However, it doesn’t necessarily make them overpriced. Liquidity should always play an important role in any investment decision. In other words, if you know that you may need to turn your piece of Costa Rican paradise into cash very quickly, at a moment’s notice, then perhaps Costa Rica is not the best investment choice for you. In fact, perhaps real estate (anywhere) is not the best choice for you, period, since there are a myriad of far more liquid investment choices.

The hard cold fact of this painfully long Costa Rica real estate average time on market should make it very clear that buying with a keen-eye towards re-sell potential is very important. Many who buy and/or build don’t do that. They buy or build to their sometimes very peculiar tastes without giving a moment’s thought to the fact that almost no one else in the known universe has those same tastes.

It will serve you well to take note of what kind of properties move the best and try to buy or build something similar. That, plus a reasonable and competitive price, will go a long way towards helping you be one of the exceptions that doesn’t wait for up to 2 years to get your place sold.

If you’re a seller, it’s important to list your property with an agency that has a broad “spider-web”, or network, as Daveed Hollander, the broker with Coldwell Banker Vesta Group (where I work) always likes to say. And I probably should also say that our agency has the broadest and stickiest web in the biz! The more potential buyers your property is exposed to, the better chance you have of beating that Costa Rica real estate average time on market.

Foreigners tend to buy in Costa Rica for reasons that are far more complicated than mere investment value. And for that reason, liquidity is often not given its due in the investment decision process. I don’t know how many times I’ve heard buyers say, “oh, we would never ever sell this place.” I usually reply by reminding them to “never say never.”

So, don’t make gross generalizations concerning price when it comes to the Costa Rica real estate average time on market, like my beloved Facebook fan did. A property could very well be overpriced and there’s nothing wrong with letting time on the market give rise to suspicion that you might be looking at a poorly-priced property…

But the reason for this post is to let you know that that fact alone doesn’t necessarily make it so!

Perez Zeledon and Liberia – A Comparable Growth Story

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Perez Zeledon and Liberia - A Comparable Growth Story

There are two international airports in Costa Rica, one in Alajuela and the other in Liberia. The Daniel Oduber Quirós International airport in Liberia was inaugurated from a small domestic airstrip to an international airport in 1995. Further expansions of runway and terminal were completed in 2012 and 2017.

Currently, the Daniel Oduber Quirós International airport is the country’s second and Central America’s sixth busiest airport. From 2000 to 2018 the number of passengers received has increased from 91,206 to 1,116,810, which is a 14% compound annual growth rate.

The city propers of San Isidro de El General and Liberia are both around 50,000, according to most recent census data. Of course, if you take into account the surrounding area, the population of Perez Zeledon is much larger at around 200,000.

Before the Daniel Oduber Quirós International airport became a frequent international flight destination, Liberia was a typical small rural Costa Rican pueblo that had grown up along the Pan American highway. It was the gateway town to the popular Guanacaste beach areas of Tamarindo, Flamingo and others. Nevertheless, it was the sort of “crossroads town” that you could miss if you blinked your eyes.

That has changed and the airport is the major reason why.

The reason I am bringing this up is because there’s a striking parallel to what happened in Liberia and what’s very likely to happen in Perez Zeledon. The difference is that Perez already has a strong head-start over where Liberia was before their airport was inaugurated. And Liberia is no match for Perez Zeledon when it comes to either topographical beauty or pleasantness of climate.

Despite the differences, Perez Zeledon and Liberia make for an interesting comparable growth story.

I have written in the past about definite near-term plans for a major expansion of the existing San Isidro airport. It will certainly become a major domestic hub and there’s every reason to believe that it will pass through phases of growth that will make it Costa Rica’s third international airport, serving the southern zone, which has been steadily growing in popularity with both tourists and the expat-minded.

San Isidro is the undisputed gateway city to the southern zone. The last few years have witnessed a growth spurt in the canton of Perez Zeledon. The opening of a new Walmart superstore this December is definite evidence of what is occurring here.

The value of commercial land has been on the rise as well. Prices for downtown space with frontage on the major thoroughfare through town are $1,000 to $2,000 per meter squared! I have it on good sources that Walmart paid over $200 per meter squared for the acreage they bought for their new store, which is located on the outskirts of town, with frontage on the Pan American highway. I have a listing for an ideal hotel site that I am marketing for around $500 per meter squared.

Even so, it seems the beaches of the Costa Ballena get most of the attention from North Americans interested in investing in the southern zone. I believe that’s a mistake.

While it is true that spectacular homes have been built in the hills above Dominical, Uvita and Ojochal, many in the million-plus price range, there is a definite limit, in my opinion, as to how much potential growth is possible along our southern zone coast. I really don’t believe we will ever see the type of growth that has occurred in Guanacaste or the central Pacific.

For starters, this is still the last pristine area of coastline, what I like to call the Big Sur of Costa Rica. The mountains that hug the coast are covered in primary jungle and much of the area is protected from development. Unlike the Perez Zeledon area, once you leave the Costanera (coastal highway) and drive up into that coast range (the Fila Costeña), there is very little infrastructure, in terms of decent roads and access to water and electricity. Previous North American developers had dug many wells that were never properly legalized. Recently the government has clamped down on that practice and is refusing to issue permits for non-concessioned water systems, or lots that have no access to legal water. I believe that is partially in order to put the brakes on the potential for out-of-control development to break out along the coast.

My point in all this is to say that I believe that the strongest area for future growth in the southern zone will be in the mountainous areas around Perez and the city of San Isidro de El General. So far, the real estate market in the mountains can only be labeled as slow, compared to the impulse buying of North Americans along the coast. I think that will change in the future.

Those mountains are already home to the 5-star AltaGracia resort, which word has it is about to be taken over by the Four Seasons Hotels and Resorts chain. The area is also home to the Synergida Retreat Center, a multi-million dollar property that I marketed and sold to the current owners.

We are still very early in this growth phase and great deals are still fairly easy to come by in the mountains and far less so at the beach. It might be a wise idea to consider that as you contemplate your future investment in Costa Rica.

And remember, you can live in the mountains of Perez, in a near perfect climate, and still be less than an hour from the beach!

Costa Rica Expat Spirituality

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We expats tend to have more time on our hands than regular folk. After all, that’s why we moved here, or at least it’s one of the reasons, right?

The more fortunate expats among us need not worry at this point in their lives about financial well-being. That one is pretty much solved. Even so, there are other aspects of life that could use some work.

I recently wrote a post about Costa Rica expat creativity. That there are many who come here and get very creative in their expat lives.

But what about that overarching idea of well-being that we tend to lump into the singular term, spirituality? How does Costa Rica expat spirituality enter into the mix?

The idea of spirituality has taken on a whole different meaning for me in the course of my almost two decades-long expat experience. Before I arrived, how well I was doing, or not doing, from a spiritual perspective would have been measured in traditional yardsticks like church attendance, tithing, and saying grace before meals. I can’t say that I’ve done any of those things, not even once, over the last 15 years or so.

Nevertheless, Costa Rica expat spirituality has become an integral part of my life here.

How?

Well, let me first delve a little bit into what spirituality means to me now as a Costa Rica expat…

I’ve written quite a bit about spirituality in my other blog, pithily entitled, Revolutionary Misfit. There you can find posts that I’ve written over the years, like the one on being a Non-religious Spiritual Person (or NRSP) and another about Spirituality in the Quest (as opposed to being in definitive answers). Those posts mark a profound paradigm-shift in my thinking about what it means to be spiritual.

These days spirituality means, primarily, being aware of how I am connected with everything else, including all that’s contained in the natural world and indeed the entire physical universe. For those of you more grounded in traditional “religion”, that probably sounds a little too, well, ungrounded. And that’s perfectly OK. I also strongly believe that spirituality is a completely subjective endeavor. It’s whatever it is…to you.

One thing living as an expat will probably do for you (hopefully) is open your mind. You might even let go of certain facets of ancient traditions. That’s not to deny the depth of tradition right here amongst the ticos. My lord, this country is just as religious as what I experienced in the southeastern U.S. Nevertheless, there’s the practical aspect of living in a foreign place that will broaden your horizons. It will force you to see things from a different perspective. In short, it will expand your awareness of how small your traditions are and how big the world (and the universe) is.

An expansion of awareness will usually come with a corresponding awakening of compassion. And with that awakening comes an enhanced feeling of connection. The enlarged ego that you probably brought with you will likely begin to shrink down a little.

Now, none of this is a given. Things could go the other way and for many expats, that’s very much the case. They come here to feel special and to make sure everyone around knows exactly how special they feel that they are! And that’s exactly what they spend their time here doing, i.e., building elaborate monuments to their specialness.

Of course, we are all special. And it’s really not the stuff you bring with you, or accumulate while here, that makes you so. In fact, for me at least, a deeper sense of spirituality began to dawn with the realization that anything I bring into my life, be it possessions or even thoughts, that enhance a feeling of individuality and specialness, or self-worth, tend to diminish a feeling of connection and spirituality. So, I gave up a good while back all lingering ambitions about ever being rich, or famous.

The funny thing about the jungle is that it doesn’t give a rip about all those testaments or monuments to your specialness. Take your eye off them for just a bit and the jungle will claim them. They will disappear into it, never to be found again. I guess that’s nature’s way of telling us that we’re all really one with it.

And when we reach the last of our days, we will indeed become one with it…

So, why wait?

Why wait so long to realize the spiritual reality of awareness, compassion, and connection?

Immersing with life here just might help you with similar Costa Rica expat spirituality realizations.

That is, if you keep an open mind and loosen mental grips (or “impact blinders”) that hold tight to traditions that prevent you from doing so.

For anyone interested, I wrote an eBook some time ago on this topic entitled, Expat Mindfulness.

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