Tico Times Lead Story

[frettless]

A long time ago i had posted that the market in Jaco looked very similar to what we have and still are experiencing on the Gulf Coast of Florida and in Miami but evidently I was just a little ahead of the real estate timeline in Costa Rica. The outlook for the future here is pretty brutal.

When I was in San Jose last December I had heard that the bubble was starting to burst in places like Escazu. How are things looking around the Central Valley?

[Ivo]

Hi frettless
We don't have a real estate bubble in Escazu. You won't find any real estate here that is not selling or empty, unless it's from a developer who went broke for financing or other reasons. First, local banks will at the most lend money on a real estate purchase on 90% (1st home) of the appraised value (which they always appraise low to protect themselves) and 60% when it's a second home. So, those who buy to speculate are 40% (or higher when appraisal is low) into their own pockets and will NOT walk away from that. In the Central Valley, we have the advantage that most people buy to live.
Now, I agree that prices are going up too fast in Escazu and Santa Ana, especially with the dollar doing so badly. What will eventually happen is that a lot of people cannot afford to move to Costa Rica anymore and move to poorer places like Nicaragua where real estate is still cheap. Then, real estate will just not sell anymore, but for those who are well priced. That will oblige those who own land just to sit on it or sell for a lower price and developers to stop developing or cutting their profits. Once that happens, we might have some foreclosures here and their, but Escazu is not large enough to have thousands of homes sitting on the market. Another advantage that we have is that the largest developers build like 50 homes and not 1,000 like they do in the US. All projects are small in relation to US developments. Now, what might happen is that some projects sell apartments like Avalon Country to lots of people who take out a mortgage of 60% and want to rent their unit as soon as it gets delivered. Apparently, Avalon Country has sold like 90 units to investors so the moment they start to deliver those units, we'll have 90 rentals on the market...... some will do the smart thing: rent cheap and cover at least part of the mortgage and others will hang in there until they have the water up to the chin. Yes, we might see a couple of foreclosures there, but never the incredible amount places like South Florida are suffering.
I hope this explains the mistake of talk about a real estate bubble in the Central Valley. The beach areas of Costa Rica are a totally diferent issue and I'll leave that to our partners over there.

[frettless]

Thanks for the update, Ivo. They are without a doubt two different markets and the scale of building going on is also much smaller as you mentioned. I'm in the group that would buy to live in when I'm finally ready to make the move. Because I sell tile I need to keep abreast of the market in Florida, especially new construction. I don't look for the pain to be over until 2010. Price wise Nicaragua is attractive but Ortega concerns me and then the matter of Eric Volz really scared me. Not just the original judge's ruling and the way law enforcement was involved but how the locals of San Juan del Sur really showed their true feelings toward Gringos. I think that the high value of the Euro will also help the real estate market in Costa Rica. My prediction is that it will top out at a value of $1.60.   

[Ivo]

You're welcome frettless. And you're right about the Euro. We don't just depend on the US market, we get people from all over the globe. Escazu is an international community and like you say yourself, the difference between Nicaragua, Panama and Costa Ricans is that
1. Costaricans are of very friendly nature and the others are not
2. Costaricans don't have a problem with the North Americans or any foreigner because they never were invaded by the US
3. Costa Rica is a real democracy and by now a second world country
4. We have the best weather of all three