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Construction Decelerates
Businessmen, construction and commerce chambers, and mayors agree that there is a deceleration in the construction sector, mainly in the coastal areas, even though the employment figures do not mirror such trend.
They reckon that the arrival of new investment has decreased.
There are paralyzed developments and the demand for labor is lower, signs that make evident that the sector is not doing well. According to experts, this is a consequence of the mortgage crisis in the United States, the increased prices of building materials, and lower access to credit, both locally and internationally.
This has been a subject of discussion and I believe may be limied to the coastal tourist areas. Are the stats down for the central valley also?
It may be down in some of the coastal areas but as you can see from my article at [ https://www.welovecostarica.com/members/1870.cfm ]
For the first half of 2008 versus the first half of 2007
Construction in San Jose is UP by 42.3%
It’s UP by 31.1% in Alajuela
It’s UP by 30.1% in Cartago
Scott Oliver – Founder
WeLoveCostaRica.comAny statistics on how much of the increase is public vs. private projects in all of the central valley cities you mention? Any stats for Liberia, San Isidro and Limon, which are not towns where tourism totally dominates the economy? It is becoming quite clear that the locally driven economy is in good shape, but the US/Europen tourism driven economies are in a period of market adjustment. I do not believe the coastal markets are recessive, just experiencing a reality adjustment from over inflated, speculative pricing. I believe, as does one of the more prominent experts on your site, that if the coastal areas experience another slow real estate high season there will be some coastal bargains (relatively speaking) next spring.
I will agree with you grb; It’s called a Market Correction. Prices went up because of “Speculation” and not real value. Public and Private projects are not identified separate, it’s bundled. The Central Valley keeps building at a healthy pace according to “El Financiero” newspaper. This is normal and should keep on going. What slowed down this area in the Pacific Coast was a combination of over building, pure speculation combined with Oil prices that spiked, inflation, which in turn raised all construction costs and living cost too. Panama has slowed down also, projects are on hold until the current inventory are balanced with the proper demand, which is down at the moment compared with 2005-2006.
Warren
At some stage in the not so distant future, we may well see ‘across-the-board’ discounts on real estate for sale in Costa Rica but for the time being, prices seem to be holding steady.
I don’t see construction costs coming down and we should note that it’s not just financing that has dried up to a certain extent, there are also many projects now on hold on the coast because of permitting delays and problems with access to water so I believe the demand for quality real estate both on the coast and in the Central Valley will remain strong in the near future.
Scott Oliver – Founder
WeLoveCostaRica.comSince when does construction rates growth equal growth in value? The same could be said in Miami. There were still cranes everywhere in the first half of 2008 while prices were plummeting.
I am a long time follower and submit occasional comment to this forum. Although there may be still growth based on some dated reports that I would consent to the validity of as you are regarded as a provider of quality information, the fact is that the emerging markets are the last to feel the ripple of the financial meltdown. Giving you the benefit of the doubt, the deflationary effect on RE in the US may have yet to translate to Costa Rica but it will. As you said this will be a dream come true for those wanting the dismissal of the spurious “development”activity that has occurred and the unfortunate byproduct is there will be a lot of people getting stuck. And the same will be true of construction costs. You can buy a cy of concrete for $60 in FL now.
Merrill is going to BOA, Lehman is done (160 year company survived the great depression and two WWs but not the current admnistration.) and the year ends we will finally see the truth from the banks. In a monetary system that is debt based, deleveraging equals deflation. Also in a capitalist economy the profits are privatized and the losses socialized so for all the Yanks out there(like me) grab your ankles and spread your money.
There is lots to love about Costa Rica and if that is one’s reason to buy then great. If you are speculating you better get one heckuva deal and more now than ever know who are doing business with.
Joseph
And Washington Mutual was one of the primary lenders for all those Miami condominiums. The country’s largest “thrift” bank is also staring into the abyss of bankruptcy. I for one terminated all my accounts with US banks and have gone to one of the largest non-profit credit unions where the depositers are owners, where I can get a home equity line of credit for 4.49% AND A VISA card for 6.99%. It was the proverbial “no-brainer”.
Good move – grb. I too have my primary accounts in a deposit heavy CU. Fact is it is going to get worse now that Lehman has to sell their assets in a force majeure environment. This is going to drive down ALL asset classes as the market influences the economy rather than the economy influencing the market. The latter wont happen until housing prices in the US stabilize. Worldwide we have 3 Trillion less liquidity than a year ago. Right now Citi and Wachovia are under 25% peak to trough devaluations which is WAY off reality. Not a good time to be owning them in any form. Wamu is toast.
Funny thing is, I received an email today from a “developer” who is mentioned in this forum using the meltdown to tout 32% appreciation in Costa Rica and their property. Does stupidity trump fraudulence or vice versa? Watch out for the falling pianos.
Joseph
It makes perfect sense to own financial stocks right now…for about 20 seconds. I have been shorting the dickens out of Lehman, Citi and Merril Lynch for days now.
There have been some rather dire predictions today after the market close. Some have been comparing today’s event as similar to the beginning of the Great Depression. Then of course there is global climate change, the pandemic infectious diseases, over population and the ever present, ever threatening terrorism of Muslim extremists. Plenty to worry about if you are the worrying type.
Yeah its tough…although you must be pretty connected to be able to short those stocks these days. Costa Rica is a very beautiful place and I would hope that it retains its pristine nature. Perhaps an expunging of the opportunists will contribute to that. For the record, I think extremists of any type are dangerous (Hugo Chavez, Sarah Palin)
Anyway getting to the thread…expect construction costs and real estate values in CR to correspondingly decrease until after (maybe well after)the housing market in the US stabilizes (read: Median income buys median house). Obviously some property will be more impervious than others but that will be driven by real ECONOMIC growth, not past performance. Construction industry growth is a time delayed byproduct of Planning and development. It does not reflect current and especially future trends.
Of course if Helicopter Ben Bernanke Panky decides to gut FFR then expect hyperinflation eventually equaling high prices, low value.
“I tip my hat to the new revolution…”
Per Joseph’s comments:
1 Govt has F. May equals low mortgage rates (choice- at the expense of shareholders (20 cents on the dollar) they will help the credit crisis and the economy)
2 Govt will provide forbearance on homes in foreclosure and individuals that are upside down on their mortgage, as well as no income tax on the amount forgiven through 09. (At the expense of investors and tax payers we will bail out California, Arizona, and Florida – over 50% of the foreclosures are in these states)
3. People can refinance the lower amount at a low rate- more write downs – in 09 lower mortgage payments more cash into the economy.By the end of 09 issues solved – a huge transfer of wealth from the savers to the borrowers.
In 09 I wouldnt be concerned about inflation – If oil stays under 100- it will be how to get the economy going.
The head of China was asked a few years ago why they peg their currency to the US economy. He said Europe was too erratic – The people of the U.S. will consume at all costs and if they can’t consume their government will make it so they can.
A comparison to the great depression is a bit off-base. See http://www.forbes.com/home/2008/09/18/no-great-depression-oped-cx_db_0918boudreaux.html
However, note the similarities between the “socailistic” ideas being promoted by some of our politicans.Jeff I do agree with your remarks on inflation and although I hope that you are correct on the end of 2009, there are too many mitigating circumstances yet to arise that will postpone that in my opinion.
There is real data out there that shows that CA alone is responsible for 40% of the nation’s foreclosures and almost 50% of the volume. The Alt-A, Pay Option Arms and Prime markets are just starting to become part of the dilemma. There have and will continue to be numerous feats of legerdemain (sp?) on the part of the banks, the Fed and Congress to show the public a more rosy picture.
One of the most egregious of these is the delay in implementing FAS 140 which would require banks QSPEs (Qualified Special Purpose Entities) to move the 3 Trillion in off balance sheet assets on the their books. This is Enron on Steroids.
Without getting into the fine points FNMA is not a market maker for rates, the Fed is on the basis of supply and demand. One real thing that could happen to help is that they could lift the restrictions on investors for the number of properties held in mortgage. If the guidelines for borrowing are real there is plenty of money on the sidelines. Also Private equity should be allowed to participate easier.
Loan Mods are big business now although the banks still have an unrealistic valuation and some who buy in for a quick fix are going to find themselves in the same pickle in five years.
I really believe what Meredith Whitney has to say on these matters. She’s been right on this from the beginning and ever since. Considering that we are getting off topic I would wrap it up here and defer to her.
Best to all,
Joseph
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