A New Kind of Seller Part I

The big question of the day seems to be, is Costa Rica real estate being affected by the topsy turvy current global economy? In a word: yes.

In a previous article dated December of 2007, (click here to read) I had simplified the possible affect of the economic downturn in the States. I wrote that the affect can be negative, neutral, or positive. My conclusion at that time was that the affect had been positive. I’m modifying (please note my choice of word there) my position now that we’ve been in “the change” for some time. Please note that I’m not changing from my position, but as you will see, I am detailing out the affect of the global changes. I am still of the mind that, overall, the change is in the “positive” column.

The Change: The economy was amazing for a long time in the States. There were some bad lending practices that came out of that economic climate that have resulted in some pretty devastating events there, not the least of which has been some huge, multi-billion dollar aid packages to salvage long standing, pillar financial institutions there. Money, once so readily available to all, is now hard to come by in the U.S.

The dollar is weak. All one of us Gringos has to do is travel to Europe to really grasp the impact of this. Conversely, the Euro, Sterling, and the Canadian dollar are strong. Oddly enough, even the Costa Rican colon is gaining ground against the dollar.

Our real estate market here in Costa Rica’s southern zone has been, for the most part, cash on the barrel head. Our single family lot buyers over the last years have been made up of buyers that have the money on hand that they need to acquire their land. Oftentimes this money came to them by way of an equity line. The equity buyers are pretty much gone. So, there is a negative affect in that we have lost what was once a rather large stream of ready buyers.

The compensation of this change, effectively offsetting the negative affect of the absent equity buyer is: more Canadians, Europeans, and yes, even Costa Rican’s inquiring into available land here in the zone. We are busy here, but things have definitely changed, and there are opportunities to be had, and this is largely due to a new kind of seller.

I get asked if prices in Costa Rica are coming down. The short answer is no. The long answer is this article.

The changes that we are talking about here are resulting in some of these properties coming available. So one of the changes that we are feeling here in real estate is that the quality of our inventory is improving. I can’t say yet that prices are any lower than where they have been in recent history, but the selection is the best I’ve seen since the land-grab of 2004 and 2005. The reason is that distressed sellers are selling what they have here in Costa Rica, to preserve what they have in the States. These are sellers that never intended to sell their property, or they wanted to wait until the felt the prices had topped out, but now are willing to do so to keep what they have up in the States, and to hopefully be able to ride out the storm there.

There is a glut of lots in Costa Rica’s southern zone. Not so much in the Dominical to Uvita zone. This is where the mountains come down to the sea, and the ocean views are spectacular. We have some lots in this zone that feature views that touch the soul. These are available for a price, and I don’t think that we’ll be seeing those prices coming down any time soon. They are rare and desirable.

In my office in Uvita, we are approached on a daily basis by people that want to list their property for sale with us. Due to the lack of an MLS here, this can be a formidable task for these sellers. (Click here for an article on how to sell a property in Costa Rica) . We are getting a lot more “selective” in taking these listings on.

Over the last 5 years, there has been some pretty amazing price increases on land here. Realistically we can talk about 20-30% annual increases. Many of the sellers have this in mind when they decide to sell. I think that we are early enough in this new phase of the cycle that we are still seeing sellers that project what their property may be worth in a year, and ask that for it so as to optimize their take on the sale. So we aren’t seeing that many “deals”. But I think that understanding the market and what's going on can yield some decent results now.

We are now able to work more with our sellers in establishing a realistic price so that the property will sell, and the sellers are listening.

Click here for Part II

A New Kind of Seller Part II

Evaluating a property here in Costa Rica is a dicey prospect, and “comps” as often as not, are based on what someone else is “asking” for their property, and not so much in what something comparable has actually sold for. The problem is, there may have been a gap of time since a nearby property has sold, and what the seller calculates his property to be worth now. This is based on the word-on-the-street about land value appreciation here. Or there may be an anomalous sale somewhere in the zone that can be referred to. So there is often a huge disparity between what the last nearby property sold for, and what the seller thinks his property is worth.

To sell a piece of property here, a seller needs to appeal to the needs of the real estate agent. Those of us who have offices are busily working our leads, and updating our websites (hopefully) and meeting with clients that have questions about how to build and so on. We spend a lot of our time, perhaps the lion’s share of it, working with listings. When we have a ready-to-buy client, and hopefully have his/her best interest in mind, we have a number of properties that come to mind in response to what they tell us they are looking for. We are in this business to make money, plain and simple. So we want to show the prospect something that fits what they are looking for, as well as is a good value.

The Type of Sellers We are Seeing:

Developers that got into the game here, just a little bit late. The accounts of big money being made on buying up a large tract of land and subdividing it to make enormous returns percolated out into the global community of developers.

The value of the large parcels was going up at a higher rate than the value of the individual lots, so that the margin for profit was shrinking for these developers. There was still enough in it for it to be irresistibly alluring so the big tracts kept selling. This is not to say that the single family lot prices weren’t going up, they were, but just not as fast, proportionately, as the large parcels. By the time these late developers got their single family lots to market, the big land grab slowed down some due to higher prices.

The most common request I used to get for land was for an ocean view lot for under $100k, and we had them. I remember tracking the number of such lots and watching them dwindle down to nothing. Almost to the day the sale of the last under $100k ocean view lot can be established. Sure, there are a couple out there still, but they likely have a price mitigating feature of some kind. I’m here referring to general market, ready to build, ocean view lots.

Our bread basket moved into the Ocean View Lots for $125k, then up to $150k and so on to where we are now. I don’t think that you can start looking for a decent ocean view lot in Uvita for under $200k now (although, I do know of one :o)

So the easy sale moved into normal-type real estate business. Obviously the higher prices knocked a good sector of our buyers out, or moved them into the still a great value category of non-ocean view lots.

The result of this has been a number of developers who have had to wait too long to recoup their initial capital, and many of them have investor groups back home that are waiting for the big returns that the front runner had talked about with them 2 and 3 years ago.

These developers are ready to deal. Have cash in hand and you can negotiate a pretty attractive price on an ocean view property. Package a couple of their lots together and you can further enhance the potential for getting a deal. Of course, you need to know that the “asking” price was fair to begin with. This is a function of your real estate agent to help you to know.

I know about such scenarios right now in specific properties in Hatillo, Lagunas, none in Escaleras at present, Uvita, and several in the Ojochal and south zone.

The area south of Ojochal is being impacted right now by the construction of a golf course. (I am personally involved in this.) The affect on land desirability there is being affected and there is a quite a bit of speculation going on around this project. The project itself is offering some pretty low buy in prices right now since it is in a pre-development phase. I think that we’ll see this area do some macro-cosmic growth in the coming years.

There are still a lot of buyers around. We have lost a big chunk of our equity buyers. They have been replaced by Europeans, Canadians, and Ticos (Costa Ricans). Selection is good, and there are deals to be had.

So things are good in our little neck of the Costa Rica real estate marketplace. I am building a list of buyers that would like to be notified of the “Good Deals”. I’m calling this list “VIP Deal Seekers”. The requirements to be on the list are that you have ready cash available, and can arrange your affairs to make a quick decision. This usually involves a trip to Costa Rica to view the property. A distressed seller will accept below market offers for the promise of a quick closing. If you would like to be on this list, please let me know. I’ve structured my contact page to accommodate the request.