There are two main things I want to point out here, and the first is attempting to better define what many people perceive as a down market. The second is simply to point out why Costa Rica is still one of the best bets for your money in terms of investment and retirement.

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A thread in the WeLoveCostaRica.com Discussion Forum prompted me to respond on this issue.




I think it needs to be stressed, so that people have a better understanding and realize there is a different point of view or understanding of how one can or should define the current market. There are of course those that many of us describe as “doom and gloomers”. They will find the black in any clouds silver lining.




I can speak from experience having come from living in one of the areas in the U.S. that was the highest when it comes to cost of living and price of real estate. I dealt with friends, relatives, and associates who for years kept saying, “it can’t keep going up”, or when there was a temporary slow down in the market the same ones cried that the market was going down. They cried the market was going down simply because it wasn’t going up as fast as it had previously

When I first moved to San Jose, California, years ago the owner of the first house I rented wanted to sell it and told us that the asking price was $60,000. I had just moved from an area in the Midwest where a similar home would have been selling for $25,000 or less. I recall telling my housemates, “Who would be crazy enough to pay $60K for a house like this”? I was 19 years old and definitely did not have the understanding yet that a real estate market might be completely different from not only different regions of the country, but even different parts of the same area or city.

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This was never more apparent than during a visit this past summer to San Jose, California, the place we moved from nearly four years ago now. The market for the most part, in California and the United States in general is still a down market in the true sense of the words. What surprised me though was while visiting my in-laws this past summer, we looked at sales in the neighborhood over the past month and were amazed that about 70% of the selling prices were above the asking price.




This was a phenomenon that was taking place all over the state almost 4 years ago when we sold our own condominium in California. The surprising thing was at the very same time last summer our close friends who lived only 15 miles away from the in-laws had been trying to sell their home for more than a year and had dropped their price about 10% two different times and still had no serious offers.




They finally sold their home this past March for almost 25% less than they were originally asking 14 months earlier. It only served to remind me that there is more to what defines a market than simply the amount that a property is selling for at the time, or what someone originally paid for it.




That brings us to the here and now. It would be hard for many of us to find a part of the world that is more diverse than this small little country Costa Rica that many of us call home and many more look upon as a potential home or an investment for their retirement.




What prompted this article was when someone mentioned a remark that the market in the southern zone of Costa Rica was down by as much as 30% over the last two years. The Southern zone of Costa Rica is one of those unique areas of the country that can be very deceiving for many people. Costa Rica in general is deceiving when it comes to distance because even though it is small in comparison to many countries, it is not a country that can be traversed quickly for the most part.

So what exactly defines a down market? I feel that many people perceive a down market simply as being when a property does not sell for what the person originally paid for it or more often than not, when it does not sell for what someone was previously trying to sell it for. Many factors need to be taken into account when deciding if a market is truly down or simply slowing down, and those are two very different things.




There are parts of this country, including the southern zone during the past several years where people bought property sometimes even sight unseen or during a time when there was what I describe as a feeding frenzy when it came to buying real estate almost anywhere in Costa Rica.




Many people bought property in areas of the country that were not easily accessible and have very little in the way of modern conveniences and infrastructure. Many bought into the sales pitch by developers touting new marinas and International airports that were supposedly approved and ready to break ground.

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In only some cases was either of these things even remotely accurate. These people for the most part over paid for property that in many cases might have only been worth 50% or less of what they actually paid for it.




People mistakenly thought they could resell this property in a short period of time pricing it at 100% or more mark up above what they paid for it. I’m sorry, but when these people have to continue dropping their price far below the price they paid originally, that does not define a “down” market. What it defines is an uneducated buyer who made a bad investment.




A downward market is not defined simply as properties not selling for more than you bought them for six months earlier. To me, you have to separate out areas that were not a good or smart investment to begin with before you can make the argument of if or how much the market may be down.




So many people recently have thrown out the phrase “down market” when talking about the real estate market in Costa Rica in general and I would argue that in general that simply is not true. Scott has shared his own experience with property in the Central Valley areas that are considered popular and desirable. The same is true in some other areas of the country as well.

In the highly popular Central Pacific area, all of the previously mentioned aspects apply, especially when referring to the wide variety of developments people bought into over the last few years. There are numerous developments in the area that are, as we say in the States, “robbing Peter to pay Paul”. An example is developers who have sold all of the lots in their development and put none of the profit into infrastructure, having gone ahead and used at least a portion of that money to buy their next big piece of land to divide up.




They start using the money from sales of the second projects lots to finally start on infrastructure of the first project. It doesn’t take a masters degree in economics to realize that eventually there are going to be a lot of people at the end left holding expensive camp sites because there is no infrastructure in place to ever allow them to build on a piece of property they paid in some cases $100K or more for.




One way that Costa Rica could eliminate this from ever happening again is if they required developers, before even selling their first lot, to deposit in an escrow account a large percentage of the cost of installing the infrastructure for their development. This would eliminate the inexperienced and underfunded developers from ever even getting started.




There are many people currently in this exact situation and because they can’t sell their property for even what they paid for it they are screaming that the market is going down. Simply put, not being able to sell a bad investment for a profit does not equate to a down market.

There are several very professional, very experienced, and very well funded developments in the area that are still good investments and options for people. What people need to do is separate the good from the bad and understand why there is a difference, and by doing so they can make an educated buying decision. Unexpected outside factors can always pop up that can affect the market, but by making a rational, educated investment people can at least hedge their bets more in their favor.




There is no doubt that the market in the Central Pacific has definitely slowed down in the last two years. However, in the well funded, well managed, and honest developments even though the market has been slower, the market itself has still increased at a rate of 10% to 15% per year over these last two years. Again let me stress, just because three years ago the same property might have gone up 30% in one year does not equate to the market being down because it’s only going up at a rate of 10% now.




The slow, and in some cases actual downward market in the States affects prices and the rate of sales in Costa Rica, there is no doubt about that. Another thing that can affect the market is the amount of available inventory. There is no better example of that than in the town of Jaco. Always considered a tourist town, Jaco is rapidly growing into a modern resort town with a dozen or more high rise condo type developments finished or under construction.

Whether you think this is good or not is another argument for a different time. The amount of available inventory will definitely affect the rate of increase in value, but even so, prices are not going down in these projects and most are virtually sold out. The available inventory affects the rental income on these properties that investors are expecting to have but even with that in mind, many of these projects that are already completed are seeing a very successful occupancy rate.




One thing affecting this is the growing middle class among Ticos, which isn’t even included in what most people consider the yearly tourist numbers. In a recent walk through of a completed beach front condominium project in Jaco, all of the rooms were rented out for the weekend and nearly 100% of them by Tico couples and families. This particular development rents for a minimum of approximately $145 per night and goes up to around $200 per night for some rooms.




These projects have very well run marketing for their rental programs and are seeing a constant increase in reservations. While it might sound like a lot of excessive inventory when you hear numbers like 2,000 to 3,000 available units in the Central Pacific area within the next couple of years, remember two things, Costa Rica continues to see an increase in tourism despite a sluggish U.S. economy.

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When you are talking numbers around 1.5 million tourist visiting Costa Rica per year you have to accept the fact that many are looking for more luxury type accommodations. This bothers many that feel these people are not experiencing the true Costa Rica. That also is another argument for a different time. One of the great things about Costa Rica is it literally does have something for everyone.




The other major point to keep in mind is that it is estimated there are in excess of 60 million baby-boomers retiring over the next ten years and many of them are choosing alternative places such as Costa Rica for retirement. This will only continue to fuel the interest and steady increase in the market for some areas of the country.




I feel the over all market in Costa Rica is good and if you utilize all of the available resources of information available, you can make an educated buying decision that will reap benefits for years to come.

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