Rising construction costs in Costa Rica

[sprite]

Does anybody have a handle on what the projected cost increases might be for construction materials year to year in Costa Rica? 5%, 15%…20%?
A good educated guess might be all that is available but that would still help in determining whether money is better off invested in the markets for 4 years or put into home construction immediately.

[disser420]

Sprite,

Unfortunately, I have noticed construction costs going up faster than land costs. In the year that I have been here working in real estate I have seen prices jump in my area from $55/SF to about $65/SF. With new construction permits up 61% in 2006, prices will tend to rise.

With that said, it is better to lock in today’s prices. I think you will do alot better investing your capital into the CR RE market than anything in the NY stock market. It seems the only thing rising safely in the States is oil and food. ConAgra is a safe investment and some alternative energy companies.

You can also loan your capital to professional spec home builders here and it will be secured by a mortgage on the asset (property). This private mortgage lending vehicle typically pays between 10%-15% simple interest.

Just my thoughts. I hope it helps more than it confuses you.

Jeff Hickcox

[sprite]

Thanks much, Jeff. An associate of mine in CR who sells real estate tells me money grows faster in CR real estate than in the NY stock exchange. I have no reason to doubt him but I know nothing about real estate in Costa Rica other than basic procedures for purchasing my property. I do have a smidgen of knowledge about stocks, though, and so I keep my money there.

However, like most people, I am expecting a turn down in the stock market. It will very likely go flat for a while. Money should not sit still ever and among some of the choices as to where to park some of it is in the construction of my home in CR. I have also noted quoted increases in estimates per square footage for construction in the Central Valley. It seems like it is about just under 20% since last year. If the trend were to continue, and I don;t see why it wouldn’t, the same house I contemplate building today will cost twice as much to build in 5 years.

Even if I believed the stock market were to remain on an upward trend, I could hedge the bet by getting a loan to build now and leave all money in stocks. Interest on a loan in CR is around 8%, far below the probable construction material cost increases. The only hesitation I have is that my investments would be a little on the heavy side in Costa Rica. Never good to put all, or even too many eggs in one basket. Much to think about and where Costa Rica is concerned, it is hard for me to keep emotion out of the equation.

[disser420]

Your friend is correct, the right investment property here will outpace anything in the stock market, but you must be very selective. Every developer touts incredible investment potential. It has taken me a full year to grasp values here in CR and I’m still learning new things everyday. I was an investor/developer in the States and I approach every property from the standpoint of values and opportunity and I have to say, finding a homerun investment property (buy & hold) is not as easy as many of the glossy brochures say.

One thing I can say for sure is that I would much prefer to own a physical asset than a stock certificate. I went to school for finance/economics and used to be in the market, until the Enron, Tyco and WorldCom debacles. You see, I can read a balance sheet, but it doesn’t help when large Blue chips are lying to you on their balance sheet. The large majority of investors don’t realize these lies until it is too late. After those scandals, I lost my faith in the market and have been buying property ever since.

[sprite]

Timing is everything. This is as true in real estate as it is in the market. If you get your valuations correct and buy and sell in a timely fashion, it shouldn’t matter whether your assets are physical or paper. You make a valid point, though, about the market. I think it is heavily rigged. I suspect there are equally large hurdles to overcome in the Costa Rican real estate market as well, though. I guess it just depend which arena is in a good cycle.

[disser420]

In real estate, cycles are very EASY to read. That is why I stopped buying property in the US 2 years ago. A real estate cycle is all about CAPITAL. When capital leaves the market, you will see the beginning of a down-cycle when capital is added you will see an up-cycle begin.

Two years ago in the US my mortgage guy told me banks were starting to tighten their lending requirements. Combined with all-time-high inventories and the eminent subprime shakedown, the down-cycle was prime to hit. Simply put, the supply of homes was is super high and demand (capital) is gone. Currently the US has still not bottomed out. You will know when it does, when capital is being added. Right now banks are being bailed out by Wall Street…that scares me as much as the ugly fundamentals of most companies.

The RE market in CR has seen and explosion of capital and IT is just starting. Up-cycle is well under way. Other factors will come into play in order to find good investment property, but the main factor (up-cycle) is here, and demand has not even really begun.

Regards

[poppell]

question on this “up-cycle”: the demand you mention, what is the root of this demand? Do you think it is the baby-boomers from the USA? and also: is overbuilding going to be a factor (I own in the Estorillos area)? I would like to hear your thoughts.

[sprite]

Cycles are pretty easy to read in the stock market as well. I think most would agree we are about to slip into a steep downturn soon. CR real estate may well still be in the ramp up mode right now…but for how long? The market for CR real estate is world wide and is subject to all the macro economic pressures that the market reacts to as well.

Money migrates, following these cycles. If you are not quick enough to be at the head of the pack, you will miss out and even lose out. Being at the lead of the pack requires courage to be able to withstand the inherent risk, vision enough to see where the money WILL be going and knowledge enough to manipulate the mechanisms of whichever arena in which you will participate. That last bit is the tricky one for me. I wish I knew more about Costa Rican real estate but I believe that take years to acquire. Money form the stock market is going to be looking for a place to park very soon. That may help in CR. I am just not sure that real estate still has a long run up down there.

Edited on Nov 19, 2007 08:37

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