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 appropriately call the first-wave of intrepid and visionary investors – The Visionaries. We’ll continue on in the next article with Bob’s next steps and incredible gains on his visionary act.

State of the Market – Midway 2013

I’ve left the day-to-day real estate activities of owning and running an office. I’ve still got a foot in the business, but not to the level of before.

In order to do a State of the Market report, I’ve had a number of conversations with realtors regarding the past season which, by the way, was a good season here for real estate sales.

Should I buy or buy and build a house in Costa Rica?

To buy a house, or to buy land and build one? THAT is the question.

I’d like to preface the current report by referring back to our last report here at Guys In The Zone. In that report I stated that the world of real estate here in Costa Rica’s southern Pacific zone has changed considerably since the time when I first started working in it (2004). In that report,  I said that there is now – for the first time in our history – a good inventory of houses. AND, that the primary area of interest on the part of single family buyers here has ALWAYS been a house.

I don’t know the exact percentage but I’d guess at around 90% of the visitors to our offices here start the conversation stating that they would like to buy a house. They are not interested in building. Until recently, this desire went unfulfilled. After looking at the meager house options, the actual base-line interest of the buyer would be exposed: they wanted to own property in The Zone. A house would be the first pick, but barring that, a raw piece of land that they could then build on would be an acceptable fall-back position to fulfill the fundamental interest that they had in owning something here in The Zone.

Most prospective buyers wanted to buy a house. Most prospective buyers bought raw land.

Now things have changed. The buyers have got a nice selection of houses to choose from. And the houses have been selling – as have hotels interestingly enough. 2 years ago, essentially every hotel in The Zone was for sale. There are still some on the market here, but a good amount of them have now sold. There’s essentially been a run on them.

I spoke with Rod Martin (click here for Rod’s real estate website), of former Guys in the Zone fame about the current state of the market. He says that you can’t give away a lot (raw land). Everybody is interested in a house.

I also spoke at greater length with John Weiland of Coldwell Banker (click here for John’s real estate website), and typical of John’s style, he had some interesting data to report.

24 months ago, there were roughly 21, single family lots for sale in Uvita Costa Rica. Today, there are roughly 21 lots (maybe more) still available in Uvita. For the most part, the prices on these lots have not changed.

Now, from where I sit, these properties in Uvita are NICE and they offer what folks used to stand in line to buy: good ocean views, whale’s tail view (specific to Uvita), reasonable access and distance to town, 2 – 5 acres, all services in place and so on. During the 2004 – 2006 years, we realtors would talk about having enough inventory to show. The inventory was getting wiped out by all of the buying. In the early days, ocean view lots for under $100k were not hard to find. They became totally non-existent as that period progressed.

Well, those days are back. You can get an ocean view lot in Uvita for prices that bracket the $100k mark. But interestingly, they aren’t selling.

My guess – (read: attempted prognostication) – about what is going to happen has been that as the perceived economic recovery takes place, we will see a surge in house sales. Which we have, and are seeing. The next logical step in this progression is that as the house inventory declines, we will see an uptick in the sale of single family lot sales.

So far we have not seen this. There are lots of languishing lots on the market. The logical conclusion then would be that these sellers simply are not lowering their prices to where they need to be in order to sell. Logical, right? Well… I wonder if that is the WHOLE picture.

One agent told me about a couple of prospective buyers that he had worked with recently. They came to Costa Rica with a budget of $400k for buying a house. They went home empty handed…

To which I respond: “How can that be?” If they had $400k and couldn’t find a house to suit their needs, why didn’t they buy one of these lots in Uvita for around $100k? You can build a PDN (Pretty Darn Nice) house for $250k – $300k! They would be right in their budget, AND have exactly what they want.”

The answer to this questions is “I don’t know”.

All of this leads me to a conclusion that might be a bit different than the years that I was in the daily grind. I’m thinking that there is a two pronged explanation for the languishing lots situation here.

  1. The buyers have changed.
  2. The Realtors have changed.

With the finishing of the coastal highway between Dominical and Quepos/Manuel Antonio, we have seen a different type of buyer here. In the early days, I would carry with me in my car, 5 different pairs of rubber boots of varying sizes. Most realtors to this day have at least one machete in their car, but they aren’t so needed these days. Back then they were essential. The boots were necessary and were used regularly by my prospective buyers as we hacked our way into the available properties.

These types of buyers are not so present these days. Extra boots and machetes are not necessary for seeing the available properties in The Zone. The access has been improved to where the former “hardy” status required to even come here is now gone. We are seeing buyers here now who would perhaps normally be seen in posh areas of North America & Europe, looking at condos. I don’t mean to be harsh here, but this is what I see.

As for point #2, I wonder if the real estate agents are doing their prospective buyers a good turn in not urging them to consider buying and building. Why not? In the past this was our main market. Points numbers 1 & 2 are addressed with the ease of buying a completed house and the higher price points (and commission) represented by the sale of such a property… well one has to wonder. Raw land was the default fall-back position of house-hunters here in The Zone for years. Why not now?

Maybe it has to do with questions like: how does one go about building in Costa Rica? What if you can’t move here to supervise the 12 – 18 month building time-frame? And so on. We’ll be discussing these points and others in coming posts to this blog.

If you want to be sure to see these posts, please sign up for the newsletter over on the right. I’ll send out notices as new articles are posted.

My suggestion, dear reader: if you are looking for a deal in Costa Rica real estate, consider buying a piece of raw land. There is a tremendous selection and the prices are compelling. AND, the building process is not nearly as dicey as it was years ago when raw land was the order of the day.