Why the best time to invest in Costa Rica real estate may be now

Article by Jeff Album - Real Estate Investment Research & Costa Rica Market Analyst:

1) Short-term Contraction of the Real Estate Sector

In the last couple of years residential property prices have declined throughout most of Costa Rica, largely due to oversupply in the marketplace. While on the surface that may sound troublesome, the market is beginning to show signs of absorbing some of the excess supply – especially as foreign investors continue to drive up property demand.

Founder of Costa Rica MLS, Johannes Mayr, notes that rising real estate prices in the United States have started to lift demand for higher-end and luxury segments in Costa Rica. In an interview conducted in April 2019, Mayr references the “tremendously positive effect the US economy has had on real estate prices in the last two years in areas popular among foreign buyers.” He adds further that “the trend seems to be increasing dramatically in areas with good schools such as Dominical in the South, and Tamarindo, Conchal, Flamingo, and Potrero in the North.” According to Mayr, “those areas are starting to experience a seller market for the first time again in over a decade.” In addition, he notes: “The upward trend is especially pronounced in areas close to the beach, on the beach, or for properties with an ocean view located within 30 minutes of clinics, airports, white sand beaches, surf breaks, and/or schools.”

Furthermore, according to the highly distinguished research group globalpropertyguide.com, an increasing number of buyers are now emanating from countries like Canada, France, Germany, and Belgium. In fact, despite the downward move in real estate prices that may have occurred in select areas of the country over the last few years, the group’s research estimates gross rental yields in Costa Rica between 5.6% and 8.6%, which is considered quite good, even when taxes and other costs are subtracted from the gross figures.

The conclusion: with rental yields healthy, foreign investor interest on the rise and beneficial current market conditions in Costa Rica appear to signal a unique buying opportunity.

2) Robust Growth Among Foreign Visitors and Expatriates

While this second point (which was touched upon in my previous article from the context of long-term value) may seem redundant, given recent undercurrents in the marketplace, it is a very important factor that deserves further elaboration. According to figures from the Costa Rican Tourism Board’s Institutional Site, tourist arrivals in the country totaled just over 3 million in 2018, which is up 1.9% on a y-o-y basis, but up 13.4%, as compared to 2015. Also, in its in-depth market analysis, globalpropertyguide.com estimates that more than one million tourists from the US visit Costa Rica each year, while about 100,000 US citizens live in the country. As visitor growth continues it is only more likely to drive up property values long-term. Consequently, for the overseas investor Costa Rica presently offers a rather inexpensive opportunity to buy lasting value.

3) Anticipation Related to Development of New Marinas and Port

After great anticipation development is well underway of a new marina in the Flamingo Beach area of Guanacaste. According to Overseas Pacific Realty, who recently re-opened their brokerage directly across the street from the Marina, the new quay is projected to provide over 200 boat slips, a hotel with 130+ rooms, a convention center holding up to 800 people, and an area for shopping and restaurants. Once construction on the marina advances, local real estate market experts note that property values in the area are expected to skyrocket, especially as a shortage of available inventory already exists. Other marinas that have recently undergone expansion include the Marina Pez Vela in Quepos, the Golfito super yacht marina, and the marina in Peninsula Papagayo, where the Four Seasons – the only Forbes five-star resort in Central and South America - can be found.

Meanwhile, on the other coast a project for a new, high volume cargo terminal is near completion in the Caribbean port of Moin (in the province of Limon). The new port facility is expected to drive significantly more traffic to Costa Rica as commercial container ships use the massive point of entry for importing and exporting goods. In fact, in an article found in The Costa Rica Star entitled, “Costa Rica Prepares to Lead the Region with Best Port Services,” Laura Alvarado notes that once operations resume in the new terminal, Costa Rica is projected to become Latin America’s port leader.

4) Economic Expansion Led by Investment in the Export Sector

As noted above, the new container port in Moin is likely to drive more traffic to the country, but it is also likely to contribute to the country’s economic development over the medium to long-term. Add to that other recent announcements such as Coca-Cola’s multi-million-dollar construction of a new and modern plant in Liberia, Guanacaste, and it becomes more apparent that the country is on course for financial growth. Coca-Cola, in fact, is already the leading exporter in the food sector of Costa Rica and the country’s third largest exporter of all goods, according to a separate news article written by Laura Alvarado entitled “The Coca Cola Company Announced Establishment of One of its Largest Plants in Guanacaste, Costa Rica.” The new operation is expected to propel the country’s exports even further. Thus, with the export sector positioned to expand the overall economy, now, just may be the best time to invest in Costa Rica real estate, before higher prices begin to transition into the housing sector.

5) Impact of the Upcoming Capital Gains Tax

Historically, Costa Rica has not taxed capital gains on real estate, which is why it has been a very popular destination among Latin American countries for foreign direct investment. So, you may ask why the imposition of this tax is a reason to invest now in Costa Rica. The reasoning is as follows: current buyers in the marketplace now have excellent leverage to negotiate better deals, while sellers must contend with adjusting down their asking price. For current sellers in the marketplace, however, the effect may not be so discouraging, since the law provides a one-time 2.25% tax exception for those property owners, who own real estate before the new rule comes into effect.

Consequently, if Costa Rica is on your radar, then it presents a brief window of opportunity to negotiate more favorable terms until the capital gains tax becomes widely embedded in the cost of sale. Furthermore, expatriates should be encouraged, since primary residences are exempt from paying any capital gains tax. Finally, at 15% the capital gains tax remains globally competitive; thus, on a long-term basis it is not likely to inhibit growth of the real estate sector, assuming the country is able to apply the tax effectively.

source: http://jeffalbum.com