Basic Real Estate Buyer's Questions

[john1jr]

I am one of the newest babies but an old real estate agent for 30 years and believe ot or not I was very sucessful in resale residential and specializing in marketing new home builders. A few warnings: I can't spell and write with perfect gramer but I don't let that stop me. Please forgive and don't pick on me. I NEED ALL YOUR HEP AND KNOWLEGE VERY BADLY. I have the Costa Rican retiement fever in later stange of taking over but I have huge educated doubts about this real estate boom sure bet I am being promised. I am going to ask questions from my experience as a agent have seeing people bolted (can't use the correct word, must be proper) for years. I want you to all  help me and I might help someone. I think a forum is place to ask the tough question and have a respectful interaction. To many people pick on each other and think the forum is just for them. We will find out if this forum is for respectful exchange of knowledge and opinions or just a place to find real estate leads. Sorry but I cautious and from Missouri.
I just returned from CH's 10 day retirement tour and I am bringing Sharon back the first week of May hoping she will relocate as I want to next year.
Let's start today with the Pacific Ocean market. To obtain a loan for a new development we have to know the absortion rate for the type of homes we plan to sell. Basic requirement. If you are going to sell 2b, 2bath, 1,500 sqf for 250K condo's, how long will it take sell and close, based on the past six month sales for this type of home or unit. First you have to obtain the past six month data. How do you do that in CR. No MLS system, sales prices are not recorded with the new deed, all the culrural books say "assume everyone will lie to you to please you"? Can any one answer this question? (I was a IFA appraiser also)
Next you have to determine how many homes are on the market completed, how many can be built in the next 6-12 months,how many planned availabe homes or home sites are undeveloped in presently open communities and how many more communties will be open when you have all your improvrement completed and are open for buisness in 12-36 months. Remembr we are in the planning
phase. I can't get a straight answer from any agent or onsite sale person. Has anyone else thought about this and obtained a written goverment report? I don't trust the developers, what you need reports. I have seen many of them purchaed here  in Missouri.
Another basic question.  They say "we are 50% sold out", how do you determine how many sales are end users like me. I think many of these sales are to flippers and speculators. Why am worried about this furure problem? Now in Florida, the end user are not buying, the flippers and speculators are droping price, lenders are selling forclosed at huge discounts and the end user who purchased at full value because it was a sure things, have no way of getting their origional purchase price and other cost retuned by the market. The best place to purchase a home or condo is at the court house steps. A natinal news show just showed a forclosure sale and maybe 10-15 bidders showed up. I the auctionier said the use to have up to 100+ bidding. Who know where the bottom will end?
Can this happen in CR?
I hope the sensor gods will allow us good open forum on these questions.

[Russ]

Hi John, these are good questions. 

A good realtor will have the numbers you are asking for, this is why you should look for one who specializes in the area you are considering. They know the local builders, the developments and the market.  If you are wanting to buy in a community, you might want to look into contract a realtor as a buyer's broker, so that you aren't just relying on the sales agents and developers for information.

For doing research on your own, there are several agencies that do have some numbers that could interest you. 
http://www.construccion.co.cr/  Is the association of builders in Costa Rica.  They have on their site statistics related to how many square meters of construction go up each quarter.  [urlhttp://www.construccion.co.cr/servicios/edificaciones.php]http://www.construccion.co.cr/servicios/edificaciones.php[/url]

Another site could be the architects association http://www.cfia.or.cr/  They had a PDF available of statistics for 2005 and 2006.
http://www.cfia.or.cr/estadisticas.htm 

Another option is the INVU - which is where plans are approved.  The web site didn't offer information, but it is possible that by going there you can get statistics on CD.   Ubicación: antiguo edificio de la Aduana, contiguo Iglesia Santa Teresita

Now you are right that true comparative statistics are not readily available.  In some places city government do evaluate regularly the property values and you could get guidelines there by making the right contacts.  You might or might not get cooperation from the city office that approves plans to in order to find out about projects that have been approved. 

Now for your other question, the market in Costa Rica is very localized.  In my opinion, you won't find that the whole market drops out.  You can have slow times in a particular area and a hot market in another.  We saw this 2 years ago when Escazú was slow but Santa Ana was smoking hot.  At the same time Tamarindo and Flamingo were exploding. 

I believe that the US market boom was driven by other factors and you can't say that since there is or will be a bust there that the same thing will happen in Costa Rica.  In my opinion, the factors that have driven the market in Costa Rica are quite often related to improvements in the infrastructure.  This was very clear in Guanacaste, for example you had new schools opening, the international airport opening, broadband Internet coming and also several golf courses.  In the Tamarindo and Flamingo areas you reached a critical mass, where you had enough residents and tourists to sustain a wide variety of restaurants, shops and other services. 

Also, what many investors and developers are preparing for is the retirement of the baby boomers.  Many will be purchasing vacation homes, second homes and retirement places as they begin to retire.  Since Costa Rica is (and should continue to be) an attractive option for those retiring most industry insiders believe that a small (or not so small) will look hard at options outside the US.  If Panama, Nicaragua and Costa Rica continue the positive trends that have put them on the boomer's radar, then the entire area is positioned as a solid option to Florida and California. 

[Ivo]

Hi John
Your doubts are for real and not only yours. I'm sure there are a lot of people around who don't have your experience and are asking themselves the same question. So, thanx for participating on our forum.

Indeed, since we have no MLS, there are no historic data on our market. What sells, at which prices in which areas. This is a Latin American country and things are done a little different to what you are used to back home. That's why so many investors who come here with wrong attitude go on their face when doing business. The smart ones stay ahead of the game. You go with the flow. Years ago, when Costa Rica was an agricultural country, everyone would grow onions when the market was good, since last year nobody was growing onions. Then, when the market was going down, they would start growing something else that had a high price. Those who would grow something different than everybody else would do a better average and would always be in a safe market.

That said and knowing that we don't have a stable market (it's like playing the stock market)in certain areas, you have to study the area you are interested in like Russ said. Every area is different.

You have to know that since developers have no numbers to work with and banks have the same problem, they cannot know how much will sell and if the developer will be successful or not. Therefore a bank will not lend any money for development until 60% of the project is sold. So, developers try to sell pre-construction or they set a starting date of their project and keep moving it over until they get there.

That's why you need to do research on the developer or go through a responsible realtor. I for example, will NOT offer any projects to my clients who cannot show a good track record. I don't want anyone knock on my door in two years claiming the project never got built. Especially since most developers want the buyer to pay 30% during construction and that is money that will NOT stay in escrow like you are used to.

Of course it is impossible to find out who is buying to flip, who is buying to rent it out and who is buying to live there. Many of those who buy, only use their apartment for 1 month a year. So when the building is dark at night, it doesn't mean nothing sold. I had a HOA meeting last week on a couple of buildings in Escape that was totally sold out, in representation of some of my clients and of the 48 units, only 12 were represented. Half were north Americans and the other half Costaricans. Hard to figure out if it is indeed sold out or not. Many apartments are still empty. But 3 of my own clients, who plan to move in the next year or so (into retirement)have their apartment sitting empty. They just bought ahead of time to get affordable prices.

In those same buildings, the developers (4 partners) each kept a 6th floor unit which they put on the market a couple of weeks ago at 25% more than when they started. They have only 1 left. That's how all these developers play around with their 60% sales.....

The market is soft in the US like you said. But first, don't think that only North Americans buy in Costa Rica. There are other countries in the world than the US you know? US citizens tend to think it's only North Americans coming to Costa Rica. Wrong, totally wrong. We get people from all over the planet here. But think about this one. 79 Million US citizens will retire in the future, that's only US !!!! If we receive in Costa Rica 1% of those, we wouldn't know where to stick 'em. So please do not worry about the market in the US being soft.

Over the years, our real estate market had it's up and downs of course, but generally spoken we never really had a boom. We had a pretty stable market. We had a small boom in the beginning of the 80's when Costa Rica came in the news because what was going on in Nicaragua and Panama, so many Europeans started coming here. When 9/11 happened, we went down the drain for 2 years. Then Bush and the hurricanes started doing us the favor of sending so many of your countrymen our way and we're still going strong.

What it really is all about: as long as we have lower property taxes, as long as you can live here cheaper than in your home country and we have beautiful weather most of the time and a hassle free life for those who want to retire, Costa Rican real estate will be going strong, no matter what the location is (beach or city).

As a last issue: US citizens generally tend to spend more than they earn. They take mortgages of 125% of the property value, therefore when the interest goes up, the banks will start to foreclose. Costa Rican banks appraise low, will only give a mortgage of 80% to a citizen and 70% to a non-citizen, so we hardly ever see any foreclosures. That on itself is a security that the market will not crash so easily. Honestly, I think that maybe our grand kids will have to worry about the values of the Costa Rican market, but we won't live to see a crash like what the US is going through right now. In my 26 years in Costa Rica I have never seen the prices go down, only go up.

I hope this answer helps. If you have any doubts, feel free to ask

Ivo Henfling
GoDutch Realty

[Ivo]

I am just going through the forum and hit on my own article written in March 2007:
<quote>Over the years, our real estate market had it's up and downs of course, but generally spoken we never really had a boom. We had a pretty stable market. We had a small boom in the beginning of the 80's when Costa Rica came in the news because what was going on in Nicaragua and Panama, so many Europeans started coming here. When 9/11 happened, we went down the drain for 2 years. Then Bush and the hurricanes started doing us the favor of sending so many of your countrymen our way and we're still going strong.

What it really is all about: as long as we have lower property taxes, as long as you can live here cheaper than in your home country and we have beautiful weather most of the time and a hassle free life for those who want to retire, Costa Rican real estate will be going strong, no matter what the location is (beach or city).

As a last issue: US citizens generally tend to spend more than they earn. They take mortgages of 125% of the property value, therefore when the interest goes up, the banks will start to foreclose. Costa Rican banks appraise low, will only give a mortgage of 80% to a citizen and 70% to a non-citizen, so we hardly ever see any foreclosures. That on itself is a security that the market will not crash so easily. Honestly, I think that maybe our grand kids will have to worry about the values of the Costa Rican market, but we won't live to see a crash like what the US is going through right now. In my 26 years in Costa Rica I have never seen the prices go down, only go up.<unquote>

Its now July 2009 and the Costarican real estate market got hit in September 2008 by the bubble bursting in the US and all over the world. Costarican banks have not gone down (not even one!!!), no foreclosures have happened and sellers are just waiting for better times. Not much is selling now, but we are getting an incredible amount of visitors on our website. People are waiting to see what'll happen. Buyers are starting to come again, wanting out before Obama hits them with more taxes (just like Bush was sending us other buyers wanting out from the Bush regime in 2006). I can see it coming back before the end of the year 2009. By then, we have gotten rid of those real estate agents and offices that were just in for the fast buck. The good realtors are surviving. Real estate prices are not going down and actually, because of unavailable financing for developers, in 2010, prices for new construction in Costa Rica will up up again and real estate buyers will be more aware to buy into the wrong projects and will use more real estate agents to purchase into the projects.