This entry is part 2 of 2 in the series Understanding Costa Rica Real Estate

Early arrivers to Costa Rica buying land.In Part 1 we considered the early foreign investors in real estate here in Costa Rica’s southern Pacific zone.  The idea being that in so doing, we’ll have have a better understanding of the real estate market here. We continue now with Bob (early visionary investor) as he proceeds to segregate and sell his large parcel (finca).

Bob’s vision for what is to come is so clear (to him) that he recognizes that he essentially stole the gorgeous ocean view property that he now possesses. The plan is to sub-divide the large property (finca) into smaller parcels and sell them at a considerable profit.

He takes his 60 hectare (150 acre) finca and segregates off 5 hectares and puts this on the market at $60,000, the price that he paid originally for the entire finca, leaving 55 hectares as a pure profit proposal.

Now granted, I’m fabricating the name and the transaction. But this I do as a composite of various such transactions that I was aware of at that time. What I experienced when I got into the real estate business here in 2004 were the ripple effects of not just one deal like Bob’s, but the after-effects of many such deals.

There is some historical precedent to the investor phenomenon that transpired at that time. Well known examples are: the dissension regarding Alexander Graham Bell being the actual originator of the telephone. Elisha Gray applied for the patent on similar voice technology, essentially on the same day as Bell. Alfred Wallace and Charles Darwin both – independent from each other – came up with the theory of evolution at the same time. It was essentially the luck of the draw that Darwin is credited as the author. And to look at the advent of American Contemporary art in the New York art scene with Jasper Johns, Andy Warhol, Rauschenberg, Roy Lichtenstein and on, is to see one of the strangest examples of unrelated, converging visionaries.

I wonder at this “phenomenon”. It is recurring in human history. Unrelated individuals and groups, all at roughly the same time, turn their attention to something. It’s almost like some cosmic force directing select ones to go and do a thing. Ok, not to belabor this point, but I find it fascinating. I mean, I could understand one guy. And then maybe that guy talks to someone else about what he’s doing and they think it sounds good and so they do it also. But unrelated, concurrent action??  Por favor! 

Well, barring an un-quantifiable cosmic event from our understanding, I can only suggest that this is simply the way of the world. “Progress” of civilizations. The time had come for this gorgeous country to be discovered and exploited for what it had to offer – its riches. And, as it turns out, there were plenty of buyers.

There were several Bob-like visionary investors who converged at roughly the same time in the early days of real estate here in Costa Rica’s southern Pacific zone. These all went on to see enormous returns (turning $1.00 USD into $120.00+-) on their relatively paltry investments. A couple of the best known Dominical-centric examples of these investments are the areas of Lagunas and Escaleras and to a lesser degree, Hatillo. 

We are now getting to the time when I began work in Costa Rica real estate. These were the conditions of the market at that time. The majority of real estate sales at that time were of raw land, and this was despite the majority of buyer’s initial request was for an existing home. There simply weren’t many to pick from. The inventory was primarily raw land. After looking at the available options for existing houses they would go to the default position of buying land and either building, or holding the land for a future purpose. 

The houses at that time were difficult to sell, despite the common preference of the buyers to purchase a house. Those early arrivers to the area were somewhat unique. I like to say that we were all a bit “out of round”. We had decided to move from our homeland to an area of the earth that was certainly not the most accommodating of environs. What houses there were, were frequently expressions of that individuality that brought them here in the first place. These were not homes for the general market. Some were lovely in their uniqueness while other were, quite frankly, atrocious. 

What I came to call the “Costa Rica Formula” for buying land had a couple of iterations. The visionaries were the big winners of the formula, but those that bought from them were also beneficiaries of having been early arrivers on the scene. The formula was to buy one of the available segregations from a Visionary. Despite having been segregated from the mother farm, these properties were generally still quite large by today’s standards, commonly consisting of multiple hectares (1 ha = 2.48 acres). To then cut off a marketable piece of that parcel and sell it, effectively reducing or eliminating the initial investment principle. Buyers at that time could almost all count on this being an option.

In 2004, some of the Visionary’s pieces  were available, as well as the lots being made available from those that they had sold to.  And there was quite a lot of work being done to bring more to market. These were the days prior to the big crash of 2007/8. The reason for the crash fed the formula, and the market spiked. We were in a boom.  The sub-prime market made for an unreal and absolutely illogical availability of money to homeowners in the U.S. This was the market I started working in at that time.

My thought is that the spike in demand, and the subsequent prices, is one of the many ripple effects from the sub-prime lending mortgages thing that resulted in the demise of the global economy in 2007.  Not to belabor the point, but I think that it’s important to understand this as, here we are some 10 years later, and the effects of the “spike / crash” on the market are still very present. I’ll get to this more in a following article on present day conditions.

 


A New Type of Property Buying Option in Costa Rica 1


Video done by Chuck Chastain of Aerial Media

Typically the type of property that I have sold over my years in Costa Rica real estate have been multi-acre, ocean view properties. These have been sold to hardy individuals that have deemed themselves up to the task of taming these jungle laden acres to their will – and then keep them that way.

There is a new trend popping up in various areas around The Zone that the term “urbanization” aptly describes. These are boulevards & lanes lined with single family home lots. The developer provides the services: water, electric and the road. The lots are 200 to 1,000 meters in size (1 acre = 4,000 mtrs). These bring to mind a common suburban residential area in other areas of the world.

These new developments to the area have made the thought of, and the ability to, buy a property in Costa Rica and in particular The Zone, a reality for a new breed of property buyer, not to mention the investors whose left eyebrow goes up when the concept is presented.

I was approached a couple of years ago by an investor who had a question. He was looking to pick my all-knowing Costa Rica realtor brain (OK, he was going around talking with various realtors.) He had purchased a large property just south of Uvita. Uvita was growing faster than any other growth that I have seen in my one-half-century-plus life. At that time we had 3 banks, 3 pharmacies, 2 Internet cafes, doctors, a dentist and numerous auto mechanics in Uvita. This was all just a few short years from a time when just getting to Uvita was a dubious bet. The growth was truly explosive.

When he bought, it seemed that there was no end in site. Uvita was a robust real estate market and the concept was blue-chip through and through. There would be a residential community behind a commercial center that fronted the coastal highway and – here’s the biggie – you can walk to the beach. It is located on the ocean side of the highway which made the blue of the blue-chip concept quite royal.

Then, 2008 happened. Someone turned off the lights on the world economy. The recession shut down the market so completely here that sellers who had repeatedly lowered their pricing were told: “you can lower your price to $5.00. It won’t matter. There simply are no buyers”.

This resourceful developer asked me what I thought about an urbanization idea. A walk to the beach neighborhood, complete with sidewalks and nice landscaping. The utilities are all underground and the lots themselves will be in the 500ish meter size range.

My response to him was “Michael, this has never been done here before, so we have to guess. My guess is that it will work, but it is just a guess.” To me the concept was akin to the early investors that bought land here in the area – I like to refer to them as The Mavericks – they bought land here in Costa Rica’s southern Pacific zone at a time when there was no rational reason to do so. It was so rustic and jungly that it required genuine “visionary” status to make a buying decision.

The Mavericks saw some insane returns on their decision. Turn a dollar into $120 and you’ll get an idea of the early days in the Costa Rica real estate market around these parts.

The spread for this 2nd tier investor is nothing like that. He is setting out to get his initial investment back and so with the bar set low, he has set out with an untried concept and voila! We have a neighborhood project just on the south side of Uvita where you can buy a lot for $40,000 and by the time all is said and done, you’ve got $200,000 into a beautiful home in a nice area with that oh-so-desirable walk to the beach component that so many are looking for.

Villa del Sol: 5 have sold so far. There is a lovely model home done and 1 house broke ground yesterday. I understand that one of the other sold lots is going to start construction soon.

Funny thing about this concept – others have had it as well. I am currently aware of at least 3 other such projects in the Uvita area. Two of which are being developed by Ticos (Costa Ricans) and one other by a US developer who has previously had some success with luxury homes. It appears that it is an idea whose time has come.

I can’t speak much about the other projects yet. I ran into one of the Tico developers the other day and asked him how his project is going. He has sold 15 lots in the $12,500 range. They are half the size of Villa Del Sol lots and the electrical wires are above ground, which is an important point. The net result, to my way of thinking, is that these won’t appeal to foreign tastes and will mostly sell to locals but… we’ll see. I assume that the US developer will go underground with his. I’ll post more as I get the data.

 


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