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Costa Rica Real Estate Forecast: Is Now the Right Time to Buy?

If you’re considering buying property overseas, then Costa Rica should be one of the countries at the top of your list. It’s also one of the best times to buy property in Costa Rica, so you should learn about the opportunities and factors affecting the market.

Costa Rica Remains a Buyer’s Market

 Costa Rica has proven a popular destination for expats for decades. The local real estate market suffered a major meltdown after the United States financial industry collapsed, but it’s showing a significant turnaround as the economy in the United States continues to improve. Many expats had difficulty securing financing after their incomes declined, so as a result, demand for properties plummeted. But the market is finally showing signs of life and could rise more than ever over the next few years.

However, the market is isn’t expected to peak for several years. This presents an excellent opportunity for prospective investors.

Opportunities Will Vary by Property Type

While 2016 is a great time to purchase property in Costa Rica, some properties can be much more profitable than others. It's important to understand the trends affecting different types of property before jumping in.

Luxury Properties Are Not As Undervalued

World Property Journal (WPJ) reports that prices of luxury homes have risen significantly over the past decade:

“From 2000 to 2012, property was found to be 50 to 70 percent less expensive than comparable properties in the United States. There have been plenty of cases, throughout the last decade, where Costa Rica real estate values have doubled or even tripled. But those frenzied, super-boom days of buying a property this month and flipping it for a $30,000 profit next month are gone.” Some of these properties may still be underpriced, so you could still generate a handsome profit by investing in them. However, prices aren't likely to surge anytime soon, because the market may already be reaching peak growth. If you’re looking for a solid investment opportunity, then you’re probably better off looking for a more humble abode. 

The Market for More Modest Homes May be Stronger

The prices of middle and lower class homes have been suppressed for a long time. They should rise as demand continues to pick up again, but it’s taking longer than in the luxury housing market. If you have the financial means to acquire one of these properties today, you could realize a nice profit after property values appreciate. Is it the right time to purchase a lower-priced property? That may depend on how modest of a property you are looking to purchase. WPJ reports that the market for median priced condos and houses has been rising in recent years. However, the market for lower income properties has actually continued to fall. The market for less expensive properties will eventually rebound, but it may not have bottomed out yet. This means that you’re better off either purchasing a median priced property today, or waiting for the market of other homes to fall further before making your move.

Factors Affecting Demand

While the Costa Rican real estate market is expected to rise strongly in the future, investors should still set reasonable expectations. There are a number of factors that will affect the market in both positive and negative ways. Here are some of the core variables that investors need to take into consideration.

More U.S. Expats Will Drive the Market

According to Kevin Brass of The New York Times, the market has always been very dependent on American buyers. Brass states that the market fell 20-30% in Manuel Antonio, but is starting to rebound as more Americans feel financially stable enough to invest. If current trends hold, you’ll want to purchase property in Costa Rica before other American expats recognize the opportunities available to them. Prices could rise further over the next few years as they drive demand.

New Dodd-Frank Regulations Are Unlikely To Hamper Demand

You may be wondering what role new lending regulations will have on the Costa Rican housing market. According to a survey from the American Banker’s Association last year, 80% of respondents expected less credit to be available to new home buyers.

New banking regulations can make it more difficult for buyers to receive financing from U.S. lenders. Dodd-Frank created stricter lending standards, which makes it more difficult for homeowners to finance their properties. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was rolled out in 2010. The provisions of this act require prospective homeowners to submit much more documentation before banks are allowed to approve loans. The new regulations banned stated income loans and required buyers to have lower debt-to-income ratios, which has adversely affected local housing demand. Some Americans rely on United States banks to finance their homes in Costa Rica. If other expats have difficulty receiving loans in the future, it could hamper prices.

Without financing from American banks, there is a possibility that some retirees may have a difficult time finding properties in Costa Rica. Costa Rican banks don't generally offer loans to anyone who would be 75 by the time they are paid off. If United States banks suppress housing demand for seniors moving to Costa Rica, market growth may be a little more sluggish.

Therefore, Dodd-Frank regulations could negatively affect the Costa Rican market. However, the impact will probably be minimal, because few American banks allow overseas mortgages in any case. There is even a possibility that Dodd-Frank rules could spur demand for Costa Rican properties. If Americans have a difficult time financing a property domestically, they may be more likely to look for a lower-priced home in Costa Rica. As long as their age doesn’t prevent them from being approved, they may have an easier time.

Domestic Buyers Are Also Driving Demand

A couple of years ago, Daniel Yepez, a real estate analyst, predicted that Costa Rica buyers would be driving the nation’s real estate market. His claims appear to be coming to fruition, because Costa Rica buyers have been purchasing properties at record paces since 2013. Yepez told The Costa Rica News that certain domestic buyers are driving the market more strongly than others. Since locals tend to have lower incomes than expats, they are looking towards properties that allow them to produce their own food. 

Yepez said this is what he foresees for the (2015) 2016 market:  “Investment/Leisure property buyers combined with niche property hunters like ‘Preppers’ who have particular interest in larger tracts of farmland. Properties that have fresh water through natural springs will increase in demand, and properties that can be used in more than one way to generate both short and long-term income will also be preferred.” Since Yepez’s previous predictions have proven to be highly accurate so far, it’s a good idea to take these statements into consideration when choosing a property. Demand for properties with access to fresh water and farmable land is likely to rise in the future. You should consider purchasing one of these properties before local buyers drive the market higher.

New Infrastructure Could Cause a Housing Boom

The housing market is also heavily reliant on new infrastructure in the surrounding community. Improvements can spur the local economy and draw more residents to different regions. The Globe and Mail reports that infrastructural improvements in San Jose and underdeveloped areas along the coast will have the most profound effect on the housing market.

New highways that are being built through underdeveloped parts of the country will boost economic growth, thereby driving the housing market.

Technology Drives More Expats

In years past, few Costa Rican real estate agents anticipated the impact technology would have on the country’s housing market. However, it has become abundantly clear that technology is creating new demand by making it easier for foreigners to relocate while telecommuting to make a living.

Are You Ready to Make the Move?

This is a great time to purchase a property in Costa Rica. Many expats are expected take the plunge over the next few years. Make sure you get in ahead of them while prices are still low.

What do you think of the Costa Rican housing market? Is now the time to buy? Please share your comments in the form below: