DO NOT Buy Real Estate in Costa Rica Now, Wait for the Dip?
Since Costa Rica real estate is a cash market often we have prospective buyers come to us with a false sense of confidence. Thinking that since they have cash they are in a much stronger position to negotiate. In addition, they often tend to think that if they just wait they will find the right deal, despite that our market, (important to note I’m really referencing and focusing on the Central Pacific region of Costa Rica), has a significant inventory shortage, strong sales, and continued demand.
So here we are, I am telling you there is limited inventory, strong sales, and lots of demand, yet NOT to buy, to wait for a dip? Actually, that is what I’ve had some prospective buyers tell me and not what I’m advising to do. Some of these people on the sidelines have quite a lot of thoughts and predictions as to why if they wait that they think they will get a better deal in the future. I wanted to go over some of those thoughts and explain why I feel their thinking is wrong and NOW IS THE TIME to pull the trigger on Costa Rica real estate.
1. Covid is Still A Factor
One argument made is that Covid is still a factor. Covid more than anything has had a strong impact on travel and tourism, and those on the sidelines feel in a market that relies on vacation rentals and tourism that this could have an effect on prospective sellers.
But…
Covid is definitely still a factor and clearly is not going away. But I think it is safe to say the worst has passed, and at our worst in 2020 when we saw the borders completely closed for nearly 6 months, most owners in this area still did just fine. Properties that I personally manage were only down 20-30% that year, and since then have almost climbed close back to previous levels. If anything, I think the fact that rentals were that strong despite overcoming border shutdowns and many travel restrictions, it only points to the upside of what you can see once things really start to open back up, which is just a matter of time.
2. The Property Has Been on the Market for Some Time
I get this one a lot. Certainly, a property that has been on the market for over a year the seller is going to drop his/her price if it hasn’t moved in a year right? Doesn’t want to accept my low offer, just wait, he/she will call me back in a couple of months if it hasn’t sold right?
But…
The reason that sellers might not have sold for a year is they simply might not be motivated to sell. Because sellers here have little to no expenses (covered at least by rentals), no mortgages, and are typically in a good overall financial position, we just don’t see sellers anxious or in a hurry to sell. If nobody has been willing to pay the seller’s price that often does not reflect a change in the seller’s position. In fact, shifting more to a seller’s market only strengthens their position and in many cases we have seen sellers recently just take their property off the market entirely, deciding they would rather just hold on to the asset.
Note: Cash vs. Asset This leads to another important side note. Throughout the Americas, there has and continues to be a scramble for acquiring assets. With banks essentially paying nothing and fears of rapid inflation, savvy investors are looking to trade cash for hard assets, especially ones that have potential rental yields. Since our market is a cash market this presents an issue for many sellers. Many owners of properties in Costa Rica are thinking twice about selling because they simply don’t know what they would do with cash. Those are the same people not wanting to hold cash and looking to buy assets, makes more sense to just hold on to their existing property.
3. The U.S. and Canadian Housing Markets are Insane and Can’t Continue
The North American markets are insane, no doubt about that. I would be willing to bet that no matter where you might live in the U.S. or Canada, if you were to go purchase a home you would be competing with multiple offers and would need to pay anywhere 10-20% ABOVE list price to even make a purchase.
But…
While I agree it may not continue at that pace forever, do you really see signs of this changing in the near future? With governments borrowing trillions of dollars there is no way that mortgage interest rates will be rising any time in the foreseeable future. And regardless we don’t see this affecting our market. If anything rising prices on a second home or vacation home in the U.S. only highlight the values in Costa Rica and push more people to this market where they can stretch their dollar.
4. It’s a House of Cards, the Economy is Due to Collapse
Those who think a dip in Costa Rica is coming typically feel the economy is due to collapse. If the North American economies are about to collapse I sure don’t see signs of it. I personally do feel there are some hardships coming for perhaps the poor and the elderly, but that’s not going to affect Costa Rica real estate. In fact, if there is anyone that I see continuing to strive, it is the affluent and the wealthy. Most agree the rich are getting richer and few argue that changing any time soon. If anything that just fuels our market, providing affluent buyers with more cash, more spending power, and more desire to grab more assets.
The Jaco market continues to see most properties sell under $200 square foot. In some cases that even includes direct beachfront properties. Talk to any professional in the area and they will tell you inventory is already an issue and only expected to be more challenging moving forward. So you can analyze and speculate as to what is the best decision for you, but if you are looking to buy real estate in Costa Rica, my opinion is that if you are looking for prime properties like oceanview, beachfront and/or properties under $300,000 you should show urgency in purchasing now and don’t to see any dip in price in that sector.
$158 per square foot for new construction? Yeah I don’t see that going backwards.
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David Karr
Costa Rica Sales, Rentals & Consulting
CP Properties Costa Rica
