Costa Rica History in knife metaphorI’d say that about 1/10th of my time spent with people looking to buy property in Costa Rica’s Southern Pacific zone is spent in the actual buying/selling of property. The other 9/10ths is a mix of conversations regarding what’s involved with living here, as well as discussing the business of real estate in Costa Rica.

At its core, the lack of an actual MLS (Multiple Listing Service) colors all aspects of the business here, and I’ll go into that later on in this series. To really understand the business of real estate here, I have found it helpful to go back in time and see the progression of events up to the present. This helps to not only understand the current market but also, to project what is to come.

Early days:
I got into real estate in Dominical in 2004. It felt like the day I got into real estate was the day that someone threw the on-off switch on the market. Since then I’ve heard some tales indicating that the market was already simmering and poised to boil.

I made a sale on my first day in the business. A $60,000 gorgeous ocean view property sized at around 2 acres.  The property featured Uvita’s Whales Tail front and center. That property has gone on to have a lovely home, guest house and pool built on it. It has been re-sold and enjoys a stellar vacation rental history (link to rental page on HomeAway)

Quick overview of The Zone:
The Zone is made up of a string of 3 towns with Dominical at its northern end. The northern boundary is not a hard line but is decidedly fuzzy, easily extending up to Hatillo and at times, up to Portalon. (link to Hills of Portalon Development).

From Dominical heading south on the coastal highway you get to Uvita and then further south, to Ojochal. The area between Dominical and Uvita has a nicely laid out mountain range that runs very parallel to the ocean. Hence the handle “coastal mountain range” This means that you can travel inland from the beach just a short way and get to elevation where it is breezy and cool and offers expansive views of the ocean and coastline, attributes which make this area extremely desirable to investors, relocators and migrators (part-of-the-year residents).

More History:
Before the incoming press of foreign interest in The Zone, the Ticos (Costa Ricans) owned all the land, and their land holdings were always in the multi-hectares (1 hectare = 2.48 acres. Think 2.5 to make it easy).

There was a time in the not too distant past when land in Costa Rica was nearly value-less. There were land-grant programs whereby a man simply had to be willing to take responsibility for a property and the government would “grant” him the land, with conditions.

At that time it was not known that “nature” had a lucrative aspect to it. Instead nature was largely viewed as “in the way” and needed to be tamed, subdued or eliminated. So, one of the conditions to receiving a land grant was to cut the trees down and raise cattle.

I suspect that this era may have coincided with the “McDonalds” explosion. This is an arguable point, so let’s just say it coincided with an extreme demand in the U. S. (and world) for beef.

After some time of cutting down enormous canopy trees and attempting to raise cattle in former rain-forest environs, there was a shift in our world’s appetites; nature became an important commodity. Granted, beef has continued to be an active commodity, but it was also learned that former rain forest land doesn’t necessarily make for the best pasture land.

Raising cattle in Costa Rica was a daunting struggle. The farmers found themselves up against nature. Having to maintain former rain forest jungle land in “pasture” condition presented its trials, as well as the fact that the beef business (exporting meat, bureaucratic inefficiencies, and 3rd world infrastructure or lack thereof) made a guy scratch his head and wonder if having all this land was such a good idea.

The Tico culture was/is multi-generational. These large, granted tracts of land, would end up being populated by the man who acquired the land, his now grown sons & daughters and their families, and the grand kids (soon to also have families.)

So despite having lots of land, a condition that in first-world countries equates to being wealthy, these farmers were subsistence. They lived off of what their land produced. As a child would grow to adulthood, Abuelo (abuelo = grandfather) would simply build them a house and apportion off some land (or not) and they would continue on contributing to the sustenance of the family. The land itself was not thought of in lucrative terms.

Abuelo just happened to acquire a land grant on, let’s say, 60 hectares of land that reaches from the inland side of the maritime zone on the coast up to the highest point of the coastal mountain ridge. He’s not thinking “oh boy! I’ve got some ocean view land here.” No, he’s thinking: “man I hope this land is fertile.”

Enter foreigner:
One day Bob, a tourist, is exploring the area and decides that he’d like to buy Abuelo’s property. Bob offers Abuelo $60,000 for the land. Abuelo has never even considered the remote possibility of maybe someday having such a sum. In fact, he’s never even seen that much money. He talks it over with his family and they (very understandably) feel that this would be a wonderful thing for them to do. So, they sell their land.

Bos is a visionary. He sees what is likely coming and so he stakes his early claim. Now, keep in mind that there is no electricity to this property, the access is horseback and the water is from a nearby spring that is bubbling out of the ground. Abuelo has run a pipe from the spring to an elevated storage tank near the family homes. Bob’s a visionary in that – what foreigner in their right mind would possibly want such a remote and forbidding piece of land?

To understand this is to understand the element that is credited with making the world go round. We all have different likes and dislikes. I wonder at the likes of Steve Jobs, Bill Gates and Paul Allen’s level of focus on the personal home computing idea at the time that they had that focus. I’m not of this ilk and so my hat is off to such ones. I view the early investors here in The Zone as being made of the same stuff.

In looking back over the history of the first wave of investors here, I marvel at their foresight. My then wife and I looked at some Whales Tail view property in Uvita around 2002 and, despite its being gorgeous and nicely priced, I felt that it was simply too remote. This was in the same area where 2 years later I sold my first property.

Ok, so I said that to understand the real estate market here in Costa Rica, it helps one to know a bit of the history. Granted, we’ve gone back to what I call the first-wave of intrepid and visionary investors – the Mavericks. We’ll continue on in the next article with Bob’s next steps and incredible gains on his visionary act.

The Man Said – There Is No Real Estate Market Here 1

The effect of the statement on me has been: enlightenment.  Interesting, how a single expression out of an entire conversation can have such an effect.  The rest of the conversation simply served to establish the credibility of the man, and that two people, coming from two very different points of view, can arrive at the same answer to the questions:

  1. What’s going on in Costa Rica real estate?
  2. Where are we headed?

“The man”, (for the purpose of this article I’ll call him Mr. Steenburf ) has a property listed with me – quite a nice one actually.

Mr. Steenburf appeared during last weeks Farmer’s Market in Uvita. He migrates between the US and Costa Rica.  So when we bumped into each other at a booth selling car safety kits, we started to converse.

Steenburf: “How are things going”? This is perhaps the number one question on all peoples mind when they first start talking with one of us real estate people.

How are things going”?

Vaughn: “Slow.  We’re not dead, but we’re slow”.

Steenburf: “There is no real estate market” he said.  ZING! He’s talking about my market, and he’s saying that there’s no market.

OK then.

Vaughn: Thinking hmmm, is this man nuts?  Non-verbal – a blank-ish, inquisitive, tell me more sort of look.

Mr Steenburf’s non-verbal communication lets me know that he wasn’t trying to be rude.

As it turns out, his background was in market analysis on Wall Street.  After a long stream of successful analysis and predicting of market trends, he moved on from that position to psychology.  An interesting mix for discussing market trends.

Steenburf: “You’re probably showing property, but not selling.  The people who are looking are not determined to buy, they would just like to see what there is and open themselves to the possibility of finding the piece that they can’t live without, and if they are going to buy, it would have to be a steal. But barring those events, there is no sale”.

Vaughn: Thinking to himself “I’d say that pretty well sums up our market place over the past year.”

As the conversation progressed, I became enraptured with this man’s point of view, his insight into the underbelly of the economy and the workings of the human mind.  I felt like I was talking with one of those super intelligent guys that writes a book and goes on the talk show tour.

I had a question I’ve been carrying around for some time that I wanted to ask such a person.   I was concerned with all the farmers’ market hub-bub that I’d not be able to get to my question but he seemed as comfortable in the setting as I had hoped he would, and so we continued.

Vaughn: “Mr. Steenburf, does there have to be a recovery? Everyone is talking about ‘when the economy recovers’ as though it is impending and inevitable.  I’m no economist, but what little I do know indicates to me that there essentially isn’t a remedy for what ails the US economy.  Is it possible that there won’t be a recovery?”

Steenburf: smiles and nods.

Vaughn: I feel like the post World War II US economy has been a thing of enduring power and wealth, but it’s taken just a few too many knocks over the years.  Maybe it’s someone else’s turn to have the big powerful position on the world scene.”

He nodded and said that I was spot on.  However, having said that, he said that there is also going to be a recovery.

Vaughn: “so we’ve got this house hovering over the ground, no foundation.  All the laws of physics say that without the foundation the house will fall. For it to continue like that is an illusion”.

Mr. Steenburf says “it is that illusion that is going to very likely make a recovery possible.”

Well, I find that fascinating.

Frankly, the old consumer based system served me well as it did so many of us. Even so, I’m not sure that I’m interested in seeing the economy recover if it means that we all have to consume more today than we did yesterday and more tomorrow than we did today. Or if we need to have life be so convenient that we produce plastics that don’t breakdown for hundreds or thousands of years. And then there is the matter of carbon emissions warming the globe… If that is “recovery”, then we’ve really done nothing more than sharpened the saw.  We are the Seussian character sawing off the branch we’re standing on.

However, if the traumatic fall of the U.S. & World economy results in a healthy economy, that works in concert with the earth, humanity, and it’s flora & fauna, and if we call that a “recovery”, I’m all for it.

The enlightening effect of the “no market” statement comes to me on a daily basis, as I am asked by various sellers if they should lower the price of their land to stimulate a sale, or helping to set up a hard money loan and evaluating the security offered by a given piece of land.  In other words, all that we knew before is being reshaped and configured and we need to be flexible to keep up with the changes.

There is a very obvious value to our properties, or “real” estate here in Costa Rica’s southern Pacific zone.  We enjoy the benefit of living in one of planet Earth’s most desirable zones. The value of that property is now no longer fettered by history, but instead is now established by a very “real” event, that of a buyer valueing a property to the point of paying a given price for it.

There was more to the Steenburf conversation that I’d like to write about.  His insights were wonderfully refreshing to me.  His “guesses” for the future very nearly parallel some guesses that I have made as well.  We agreed that the coming U. S. winter might just put us into an active buying market.

Mr. Steenburf’s optimistic prognostications for Costa Rica’s southern pacific zone are largely shaped by some of the vitality of the Baby Boomer demographic.  He feels this phenomenon can only bode well for Costa Rica.  I have invited him to come to the office for further discussion on the matter.

Stay tuned.

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