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The Costa Rica Real Estate Market – Past, Present, & Future

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The Costa Rica Real Estate Market

The Costa Rica real estate market has witnessed significant changes over the years, driven by foreign investments and evolving market dynamics. In this post, we will explore the historical background, current state, and future prospects of the Costa Rica real estate market.

The Past

One word I would use to describe the Costa Rica real estate market of the past is “inefficient.” Inefficiency in any market is a double-edged sword, giving rise to both risks, as well as opportunities.

While the current Costa Rica real estate market can hardly be described as wholly efficient, in terms of readily available information to help guide your investment decisions. It’s not the “wild west” that it used to be.

Long gone are the days when gringos could take advantage of “poor” Costa Rican farmers who were more in need of cash than dirt. Buying properties at pennies on the dollar might still be possible in today’s market, but those opportunities are rare to find. These days the really cheap stuff is usually that way for legitimate reasons.

The Costa Rica government has in large part wised up to the shady shenanigans of unscrupulous foreign real estate investors and developers. These days the laws related to property ownership and development are for the most part enforced in areas where foreign real estate investment is rampant.

That’s not to say that attempts to cut corners and build or develop in ways that don’t fully comply with the rules isn’t still going on. But it’s not common practice like it once was. And foreign buyers these days are expecting you to have followed those rules when they consider your property for investment. Skirting the rules and not dotting your i’s and crossing your t’s can come back to haunt you upon resale.

A lot of folks who bought in the past have seen substantial appreciation, with values doubling, tripling, quadrupling, and so on. Do those opportunities simply not exist anymore? Probably not. As the market becomes more efficient, highly speculative opportunities generally tend to dwindle.

The Present

The word I’d use to describe the present Costa Rica real estate market is “semi-efficient.” As the market has matured over the years, better information has become available. I wouldn’t say it is now “readily” available in the sense of a highly efficient market like in the U.S. However, there is information out there, often hidden from plain view. That’s where experienced professionals can really help. 

I believe that my job as a real estate agent in Costa Rica will not be taken over by AI anytime soon. I can’t say the same about my fellow realtors in countries where the market is much more efficient in terms of easily accessible online information. In Costa Rica human interaction with a live real estate agent is a valuable asset for any would-be investor navigating the lingering market inefficiencies that still exist.

Around June of 2020 the short-lived COVID-19 real estate downturn (largely due to the country closing its borders to the outside world) turned on a dime. What had been a buyer’s market since the crazy days before the 2007 world-wide crash, suddenly became a seller’s one. That phenomenon has lingered basically up to the date of this blog post. However, there are signs that it is starting to turn back. 

The COVID inspired buying craze is somewhat subsiding as market pressures are making it harder to find the cash to buy in Costa Rica, which is largely an all-cash market for foreign investors. Listing inventories are on the rise and demand is not keeping up. I predict that while the market will remain a vibrant one, since many of the reasons that drove the COVID craze still exist, a better equilibrium between supply and demand will take hold as we move into the future.

The Future

The future is where things get more interesting. The Costa Rica real estate market will become increasingly efficient as time moves on. The licensing of real estate brokers and agents will likely be mandated, ensuring a higher level of professionalism. The national registry may become more accessible to foreigners, potentially available in multiple languages. The ability to demand that realtors provide a reliable “CMA” (comparative market analysis) will likely become a reality for both sellers and buyers. 

Costa Rica will likely have an actual nation-wide multiple listing service, accessible to foreigners and their out of country agents. This has actually already been developed, but the bugs are still being worked out. It will be a few years before this new MLS achieves the widespread use necessary to make it an essential tool for the Costa Rica real estate investor.

There’s also the question mark of the U.S. dollar retaining its position as the world’s reserve currency. The strength of the dollar against the Costa Rican colon has been another driver of the incredibly strong market we’ve been experiencing. However, this year has seen a downward slide by the dollar. Some smart investors are warning that slide may continue and even gain momentum as large holders of the mountainous U.S. debt seek safer havens. While the U.S. dollar is not likely to collapse anytime soon, a continued slide would make buying with cash in Costa Rica an even more challenging proposition than it already is.

Costa Rica has always been an all-cash market for foreign investors. There just aren’t any legitimate opportunities to obtain conventional-type mortgage financing in the country and U.S. banks won’t lend on foreign properties. Could this change in the future? Probably, as Costa Rican banks seek to exploit the opportunities stemming from ongoing strong foreign investment interest. There’ve already been a couple banks launching expat lending programs, but not in any aggressive sense that makes them viable for most investors.

Conclusion

The Costa Rica real estate market has experienced a significant transformation from its early days of exploitative practices. As the market becomes more efficient and information becomes readily available, investors will be drawn to the safety and transparency it offers. Costa Rica continues to provide affordable options compared to other countries with similar amenities. Moreover, the appealing factors that attract visitors and residents to Costa Rica are likely to remain unchanged in the foreseeable future.

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!

Diversify Your Portfolio with Costa Rica

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Diversify Your Portfolio with Costa Rica

Investment gurus will tell you it takes about 30 different stocks to fully diversify a portfolio.

But what does that mean?

Well, it means that the inherent risk in any one stock is completely wiped away when that stock is combined in a portfolio of 29 other stocks. That is, all you’re left with at that level of diversification is “market” risk, or the risk inherent in the overall market, as opposed to any individual stock.

Investment gurus will also tell you, however, that you should go a step further. You should also diversify in terms of types of stocks, such as large and small cap, domestic and foreign, and so on. They will also tell you to go a step further and diversify in terms of the types of investments. That you should include other investments in addition to stocks and bonds, such as real estate. And the principles of diversification with respect to real assets apply with equal measure. Meaning you should diversify in terms of types of real estate, residential and commercial, domestic and foreign, and so on.

The point is that it can make very good sense, in terms of eliminating risk, to consider foreign real estate as part of a fully diversified investment portfolio. And we believe that to diversify your portfolio with Costa Rica real estate is a wise decision. Here’s why…

There are many types of risk to be concerned about with any investment, such as country risk, political risk, monetary (or inflation) risk, etc., etc. Having all your eggs in one basket, even a basket as seemingly “risk free” as the U.S., can be a dangerous proposition. We all learned that in 2008!

Consider the political situation going on in the U.S. right now. It’s fraught with risk. Wouldn’t you agree?

And these days another type of risk has entered into the lexicon…climate change risk. It could indeed be possible one day soon to own, as the song says, “ocean front property in Arizona.” But all kidding aside, the penchant in the U.S. to develop as close to the high tide mark as possible could mean that many coastal investments will soon be “under water.”

So, how does Costa Rica stack up with regard to all these types of risk. Well, it’s certainly not insulated from them. Costa Rica has its own political and fiscal problems, that’s to be sure. The country is not immune from climate change risks, although perhaps less susceptible than the U.S. Costa Rica’s shores generally do not have the proverbial target painted on them each year when hurricane season comes around. In Costa Rica, building on the shoreline is usually not permitted. Most properties are located far enough and high enough away from the high tide mark to be insulated from rising ocean levels.

Costa Rica is a relatively stable and growing economy. The government has long placed a priority on social spending as opposed to military. In fact, Costa Rica doesn’t even have a military. Now, you might be thinking, well that certainly imposes a risk. Perhaps, but it’s doubtful any of Costa Rica’s neighbors would try anything too aggressive with Costa Rica being perhaps the strongest ally of the U.S. in Latin America.

Costa Rica is a shining example of democracy in a region where that form of government has had its detractors. Peaceful transitions of power are always the norm. Costa Rica’s laws are very friendly toward foreign investment. In fact, with only a couple very limited exceptions, foreigners can hold fee-simple title to real estate with all the rights of a Costa Rican citizen.

Costa Rica has grown into a world-wide tourism juggernaut. This has given rise to strong interest among the foreign investing community in Costa Rica real estate and for good reason. Costa Rica real estate is perhaps some of the most beautiful on planet earth. Costa Rica’s continued growth in tourism and in attracting foreign investment should lead to solid ongoing appreciation potential.

And one thing’s for sure, the effort to diversify your portfolio with Costa Rica real estate will certainly be an enjoyable experience.

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