Home Expo, Soaring Values, Acquisition by Foreigners: Costa Rica Real Estate
SAN JOSE – While median home prices in the United States keep adjusting downward to some of their lowest levels in decades, real estate values in some areas in Costa Rica soared in 2011. According to a report in El Financiero this week, the western suburbs of San Jose experienced a 10 to 15 percent gain in value, and the outlook for expansion is very positive. The development of commercial projects such as Plaza Tempo and the Corporate Center in Escazu promise to attract even more home shoppers to the area, thereby increasing the likelihood of a housing bubble.
In the Central Valley and the Greater San Jose Metropolitan Area (known as GAM by its Spanish acronym), strong growth is predicted, even in the outlying counties of the Valley such as Atenas, Grecia, La Garita, and Orotina. Such were the projections indicated by real estate professionals Milena Guevara and Aris Stamatiadis to El Financiero. The construction of the Plaza Lincoln indoor shopping center in the northeastern suburbs of San Jose promises to bring a great interest to Moravia and the nearby neighborhood. The examples cited by El Financiero are certainly indicative of a bubble: a three-bedroom home in Lomas de Ayarco in Curridabat (the neighborhood where our interview with musician Carlos Valerin took place) is valued at $335,000. A four-bedroom home in rural La Garita spread over 612 square meters goes for $245,000. The seller of a two-story mixed-use property ideal for office space in Los Yoses of San Pedro is asking for $615,000.
According to the Costa Rican Chamber of Real Estate Agents (CCCBR in Spanish), the counties that experienced the greatest appreciation in 2011 were Alajuela, El Coyol and La Garita. A staggering 51.69 percent growth in real estate values was registered last year.
Expocasa, a National Real Estate Fair
Over a hundred business enterprises dedicated to construction, real estate and mortgage lending have set up shop in Asuncion de Belen for Expocasa y Decoracion, a commercial celebration of all things real estate in Costa Rica. The organizer of the event is Grupo Nacion, and it is predicted to be one of the most heavily attended in history. The previous Expocasa, held in August of last year, attracted over 30,000 visitors. The expo runs until this Sunday, January 29.
Real Estate Acquisition by Foreigners
In some major United States metropolitan areas like Miami, foreigners from prosperous Latin American nations like Brazil are arriving in droves to snap up real estate bargains created by the burst of the American housing bubble and a troubled economy. A similar situation is being observed in Costa Rica, although foreigners may not consider the current prices deals. Real estate appreciation in Costa Rica has decidedly grown over the years, but it has managed to avoid the boom-bust cycle seen in other parts of the world. The real estate market here is loosely organized and closer in comparison to a roller coaster ride than a housing bubble.
There are no restrictions to foreign acquisition of real estate in Costa Rica. Certain laws ensure the public’s right to enjoy the coastline, namely the 50-meter law that prevents oceanfront real estate hunters from taking away precious beach from the public. After those initial 50 meters inland from the edge of the ocean, there are another 150 meters that belong to the municipal government, which may be subject to restrictions. Lease rights and easements to this highly coveted beachfront land may be obtained by foreigners, but only through a business partnership in which a Costa Rican citizen controls at least half of the commercial interest in the venture.
The national borders with Nicaragua and Panama are also heavily restricted within two kilometers for sovereign use, although citizens can acquire land therein. House and land hunters should keep in mind that Costa Rica is constantly evaluating her land for possible conservation, and thus real estate buyers who venture too close into our national parks and protected forests should triple check the property’s title and land survey for this reason.
Real Estate Professionals
Costa Rica is largely a “For Sale By Owner” (FSBO) country. There is no government authority or financial regulator in place for the licensing and oversight of real estate professionals. The CCCBR is the closest that Costa Rica has to professional regulation insofar as the preparation and ethics of real estate agents. The CCCBR is a self-regulated organization that has been around since the mid-1970s. In recent years, the CCCBR has been working on a computerized Multiple Listing Service (MLS), as well as on the education and advancement of its members.
The lack of government oversight over the real estate profession makes some foreigners uneasy about the real estate acquisition process, but it bears to remember that everyone in Costa Rica is subject to the civil and criminal codes. Some may argue whether the lack of a licensing board makes for a more efficient market, but recent history has shown that such oversight did little to prevent a housing crisis. If anything, the FSBO system is a true free-market concept that empowers both buyers and sellers.
Due Diligence and the Acquisition Process
Just like in any other part of the world, purchasing property in Costa Rica should be approached with a good measure of caution and plenty of due diligence. Land ownership is electronically recorded and kept by the National Registry, and by some estimates, almost 90 percent of land in Costa Rica has been recorded; however, the country’s topography and idiosyncrasy can contribute to recording mistakes in title operations. Home buyers are warned that the title to some fincas and old homes may have been conveyed by the old trust-and-handshake system, and thus may not be properly recorded. This is particularly the case for properties that have been subject to multi-generational conveyances.
Conducting a title search and land survey is of the utmost importance. Property titles can be litigated and claimed against for a period of ten years in most cases, making it desirable to look for home buyers to shop for titles held for longer than a decade. Title insurance is available, typically for about one percent of the transfer price, and it’s issued by insurance companies like Stewart Title (you can seen their big building from the highway in Escazu) and Chicago Title. Securing title insurance is not a bullet-proof and absolute guarantee that no one will ever come from the shadows to lay a claim on a property, but it is the closest a home buyer has to peace of mind. Some title insurance companies (which no longer operate in Costa Rica) have left a notorious track record of trying everything in their power to avoid paying a claim, but at least they always direct local attorneys to perform a diligent search and will defend title when the time comes.
Some real estate shoppers who are accustomed to the acquisition process in common law countries may be disappointed to learn that options to buy and escrow deposits aren’t common practice in Costa Rica. They are lawful mechanisms insofar as civil law is concerned, but they aren’t recorded. Some title insurance companies offer a simplified escrow service that relies upon their prestige and standing in the real estate community to guarantee proper handling, but such concept may escape Tico sellers. The CCCBR advocates such practices, which can be conducted through a reputable third party.
One more thing to consider during the due diligence and vetting process is performing a thorough inspection of the land and structures to be purchased. Issues such as poor construction, infestations, sick trees, erosion, water damage, seismic foundation damage, and others may easily dampen a new owner’s hopes.
Property Transfer Requirements
Once title is conveyed and recorded before a notary, taxes must be collected. The totality of taxes and transfer fees comes up to less than 4 percent of the value of the property. There are ways to soften these taxes and fees, and those include conducting the closing and transfer through a business entity or partnership in good standing. There will be property taxes to consider later, as well as corporate taxes (if the property was transferred to a business entity), and maybe even luxury taxes.
If all the above sounds a bit complicated, it’s because it is. There are other considerations that have an even greater degree of complexity, such as tenant and squatter rights, mortgages and possible environmental and conservation issues. For all those reasons, it is highly recommended to retain a law firm, preferably one that provides notary services, throughout the entire real estate acquisition process.