Have yourself a great day.

Trevor

Moody rating service
gives nation a boost

By the A.M. Costa Rica staff

Moody's Investor Services has changed its mind about Costa Rica and now rates the country as stable instead of negative.

The company issues ratings that reflect the interest rates foreign investors demand for government and commercial bonds all over the world.

Moody's said that the country's debt ratio had improved. The ratio is the amount of what a country owes compared to its gross domestic product or what it produces.

Costa Rica's internal and external debt continues to grow, but so does its major exports. The Moody rating also probably reflects international investors confidence in Óscar Arias Sánchez, the new president.

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Real estate agents say they do not see market softer
Russ Martin, who works in real estate, wrote the following article as a reply to our report June 19 that said "Costa Rica’s real estate market is slowing. . . . Skyrocketing property values may be a thing of the past. . ." in the Pacific coast real estate market. Mr. Martin incorporated views of local realtors.

By Russ Martin
Special to A.M. Costa Rica

I disagree strongly with Garland Baker's take on the Costa Rica real estate market in the June 19th edition. He argues that the market here is about to collapse because:

- Speculators have whipped up a buying frenzy in order to inflate prices and "flip" properties to unsuspecting newcomers.

- Most people buying real estate here are using cash from 2nd and 3rd mortgages on property in the U.S,. now that the U.S. market is softening they will be unable to pay off the mortgages for some unspecified reason.

- Tourism is on the decline to Costa Rica and the real estate market is closely tied to tourism.

- Nicaragua and Panama have flooded the market with cheap real estate.

Let's look at these premises and we will see why prediction of a crash in Costa Rican real estate doesn't stand up.

Are prices inflated in Costa Rica?

In the first place, it is impossible to generalize about a "Costa Rica" real estate market. Each area is completely different regarding infrastructure, development, kinds of properties on the market and demand. In most areas of Costa Rica prices have risen in direct relation to improvements in the infrastructure. Whether you are talking about a new international airport, a new hospital, a new school for expat children, high speed Internet or a paved road, improvements to an area create an increase in demand and prices. There is no way that you can conclude that price increases related to infrastructure improvements are inflated or speculative.

What about markets that have been extremely active in the last few years, places like Tamarindo, Flamingo and Papagayo? Have speculators succeeded in creating a feeding frenzy and people with property now will be forced to sell in the near future at fire sale prices?

Larry Albright at Pacific Coast Realty in Flamingo says that "90 percent of my sales are not to speculators but to people who want to live in Guanacaste part-time and rent out the property until they retire and move here full time. The baby boomers are here already looking to get a little piece of paradise before the market gets crazy. As far as infrastructure, I have never seen or heard of a place that is so disproportionate for property prices to lack of infrastructure (roads). The roads are in the worst condition that I have seen in the 10 years I have lived in Flamingo, and we are still selling properties at record prices, and we have little inventory. Imagine if you will when the roads are passable and the Flamingo Marina issue gets resolved (if ever)."

It is a fact that some people have flipped homes in a very short time and made money. Luxury homes that are beachfront or ocean view have appreciated tremendously in a relatively short time period. However the prices have more to do with the laws of supply and demand than with speculation. The fact of the matter is that a person comparing beach property in northern Guanacaste to that in the California, Florida or the Caribbean islands a few years ago would have found it ridiculously inexpensive. But they would have also found it remote and undeveloped.

The new International airport in Liberia and a spurt in development has changed that, and prices have come up to more closely reflect that of competing real estate internationally, more developed countries. Since these areas are now easily accessible with a three- or four-hour flight from many points in the U.S. and have a strong selection of services and amenities.

Another factor is that in some of the more popular beach towns, there is a natural limit on beach front and ocean view property. If you want a nice house a few minutes from the beach with a panoramic ocean view somewhere in Costa Rica, then that isn't so hard to find. But if you want that in Tamarindo or Flamingo, then it is almost impossible to find, and those houses that come on the market are snapped up in a hurry. In places like Puerto Viejo near Limon, this same scenario will come to pass. Although demand isn't so strong, yet, there are only a limited number of sites with ocean views and near the beach. These properties are certain to command premium prices, once demand spikes and the beach front properties are no longer available.

Evidently the appreciation in Costa Rica's more developed areas is NOT due to speculation.

Do most buyers use 2nd mortgages on U.S. property to buy here?

The fact is that a large percentage of foreigners buying property here are not even from the U.S. A strong new market is wealthy Colombians and Venezuelans seeking amnesty and a safe place to raise their families. Traditionally, Italians, Germans, French, British, Canadians and the Swiss have made up a huge percentage of foreign buyers in Costa Rica. Just take a walk around Tamarindo or Puerto Viejo
(Limón) and see how much English you hear spoken.

The slowdown in the U.S. doesn't affect these buyers in any way whatsoever, and if the Euro gets stronger that makes Costa Rican real estate even more attractive to them. The Canadian dollar is at a 28-year high right now, based against the U.S. dollar. More and more Canadians are coming to Costa Rica now. According to the Canadian Broadcasting Corp the loonie has gained 40 percent against the U.S. dollar since 2002, and many analysts predict that it will reach par.

Of the U.S.-based investors and individuals, how many of them are buying their property here with a 2nd or 3rd mortgage for speculative purposes? A little investigation shows very few:

Manuel Pinto at Caribe Sur Real Estate in Puerto Viejo states that "in our case, many of our buyers from the U.S. (and some other countries such as France!) are those that are fed up with their ever more restrictive governments — since the ‘war on terrorism’ began. We have a significant number of buyers coming down who are getting out of the U.S. to get away. I cannot imagine that this factor is about to decrease — quite the contrary — we see them coming down in larger numbers and faster!!!!

Betsy Waddington at ABC Real Estate in Samara says "I have a client from Arizona who is a realtor and because the real estate market is slowing down in the U.S., he has recently decided to liquidate about half of his holding properties in the U.S. and bring his investment to Costa Rica. He fell in love with CR on his last visit and bought a house and a lot in the same week. He´s presently looking for more properties to buy. "

Albright in Flamingo: "I do not know of one of my clients that have borrowed money to buy property in Costa Rica. While there are some that I am aware of, they are the ones who may speculate with mortgage money and have to sell because the mortgage is due. Cash buyers are not under this pressure to get rid of their property at a loss."

This shows that a large percentage of foreign buyers here are not even from the U.S., and that even most US buyers are paying cash for property they are investing in for the long term.

Is tourism on the decline in Costa Rica?

According to Instituto Costarricence de Turismo: "The Costa Rican tourism sector generated an income of $1.6 billion in 2005. This amount represents an increase of 17 percent — $300 million more — compared to the figure in 2004, $1.3 billion, as informed by Rodrigo Castro, tourism minister.

". . . It is estimated that at the close of 2005 1,671,000 visitors will have come. That is an increase of 15%, . . . Tourists visiting Costa Rica this year, rated Costa Ricans’ manners, its beaches and other protected areas as excellent, according to a survey conducted by the Costa Rican Tourist Board done to people exiting the country."

According to Organization of American States statistics, the number of tourists arriving in Costa Rica has risen for the past 15 years consecutively: Sample years - 1991 - 504,649; 1993 - 684,005; 1995 - 784,610; 1997 - 811,490.

In 1999 Costa Rica welcomed its 1 millionth tourist for the first time, which means that in the last five years tourism has risen nearly 60 percent.

Apparently tourism is NOT on the decline in Costa Rica.

Is Nicaragua and Panama real estate less expensive or more attractive than Costa Rica?

A quick search on the Internet shows that real estate isn't all that cheap anymore:

Nicaragua
Mountain farm one hour from Managua - $200,000; 170m2 townhouse Apoyo Laguna - $175,000; 400m2 Colonial in historic Granada - $315,000; San Juan del Sur 100m2 in town $199,000; Coco Beach Tourist Development 190m2 home on 130m- 500m2 lot $190,000 to $390,000 on beach with "future" access. .

Panama
700 m2 Mini-estate home in Boquete with panoramic views - $695,000; 220m2 Boquete Charmer on 1/4 acre lot - $159,000; Multifamily apartments (3 units) in Bocas Town - $450,000; New 2 story townhouse in Bocas Town - $195,000;

This isn't to say that there aren't any bargains in those countries, or that no one will move there. Each country has its advantages and disadvantages, but it is impossible to predict that Costa Rica will experience some kind of home buying drought due to exceedingly inexpensive values in these countries. But Nicaragua and Panama have NOT flooded the market with cheap real estate.

Conclusion

Now if you have read this far, you can see that arguments for the coming crash in Costa Rica real estate don't make sense, either in specific locations or in general terms. Apparently we can all invest profitably in Costa Rican real estate for many years to come.

*Martin is the marketing coordinator for the American-European Real Estate Group and has written numerous articles on Costa Rica real estate for both local and international media