Costa Rica feels heat of investment

Ask any foreigner who has lived in Costa Rica for more than 10 years why they bought property and they will say something like: “The people are friendly, the climate’s perfect, the scenery’s stunning, the wildlife’s incredible, the fishing’s some of the best in the world and the beer’s cheap”. Ask anyone who has bought there in the past year and they’ll tell you it’s cheaper than Hawaii, merely a two-hour flight from the US and Miami property is going downhill. Several homeowners I spoke to had multiple condominium units, a piece of land and – in four cases – their own residential beach development already on the go.

The same qualities that attract tourists also attract buyers. Costa Rica is Latin America’s oldest democracy; it has free health and education; its president, Oscar Arias, won the Nobel Peace Prize; there are two coastlines, a spine of extraordinarily beautiful fertile highlands and conservation areas bursting with toucans and monkeys; and the average temperature is 25°C. Investors also like the low property taxes, lack of capital gains tax, economic stability, English-speaking real estate agents, international schools, private hospitals and returns averaging 300 per cent over the past 10 years. Taken all together this has fuelled rapid development west of the capital, San José, and along the length of the Pacific coast.

Most of the prime ocean-view parcels have been snapped up by developers, fenced off, sub-divided and returned to the market as lots within secure, fully serviced, gated neighbourhoods. Now buying is focused on the home-build sites, fully equipped villas and condos that make up hundreds of exclusive communities of 20 to 1,000 units.

The speed of development is overwhelming for a country of just over 4m people that operates on the mañana principle. Last year, according to the Chamber of Commerce, construction was up 64 per cent, with the most frenzied activity in the former north-eastern backwater of Guanacaste, which now boasts a new international airport.

Foreign direct investment in real estate equalled 1.1 per cent of gross domestic product in 2005 and 70 per cent of that was in Guanacaste, where the biggest developers, and about 90 per cent of buyers, are foreign. From Playa Panamá to Hacienda Pinilla, new roads, bald hills, cranes and tower blocks feature along a string of large projects on a coast that until recently was just small fishing villages, low-key tourist towns and pristine beaches. In this 40-mile stretch alone, more than $1bn has been invested in property and prices have quadrupled since 2004.

Money has poured into local towns. Developers have built or improved schools, clinics and commercial centres to meet the needs of their prospective clientele. Inside the gates, most properties come complete with roads, phone and internet access, water, electricity, guards, maids and restaurants and sometimes golf courses and five-star hotels. The villas and condos are air-conditioned for a micro-climate 15°C below the Guanacastecan heat, the working language is English and the architecture is predominantly Spanish colonial. In short, these are not Costa Rican homes but self-contained worlds, built in compliance with international standards.

The scale of some projects can be difficult to take in. The 4,500-acre Hacienda Pinilla Beach Resort and Residential Community will eventually have 900 single homes or sites and 1,200 multi-family units. But the owner, H.G. Pattillo, is adamant that the old cattle ranch with its 7km of wild coast retains the Costa Rican character that is at the heart of its appeal.

No one would have bought into this remote community concept a decade ago but the first phase, released at the end of 2003, sold out in a year and the latest phase, released last May, sold out in a month. Private and exclusive, this is the perfect retreat for wealthy jetsetters who occupy their properties for just a few weeks each year. But it’s also clear that these properties are hot investments. A detached house with large pool and two-storey atrium is on sale for $1.8m, double the price paid for it two years ago. Townhouses are selling for $840,000-$940,000 and untouched lots have trebled in value in four years. Half-acre ocean-front lots are reselling for $1m, the amount Pattillo paid for the whole ranch 33 years ago.

“We want Pinilla to be a community, not a bank,” says sales executive Oscar Perez. But while this philosophy is admirable, the reality is that many absentee owners are waiting for properties to appreciate.

“With returns of 25-30 per cent per year it’s tempting to flip properties,” says Terry Thompson, a Canadian who owns a home at Reserva Conchal, a gated community. He and his wife made a profit buying and selling their first condo within a year in late 2001, immediately re-investing $300,000 in another that is now valued at $850,000. They are building an additional house within the community and have bought two properties in a nearby town. “Condos with three bedrooms and an office that sold at pre-construction phase for $650,000-$700,000 resold for $1.1m-1.2m in 18 months,” gushes a sales agent. “Plus, while not occupied, they let for $3,500 a week.”

Reserva Conchal has a bustling community feel, seven on-site restaurants, a golf course and a core population of appreciative tourists. The first phase properties – terracotta-painted villas with lush foliage and tiled roofs – were aimed at senior citizens but buyers now tend to be in their mid-30s to mid-40s and the influx of families has strengthened the community. Thompson, who has three children, says the family values the quality of life in Costa Rica, where they live for half the year. “There are nine kids their age at the resort,” he says. “They’re outside from school to bedtime. The 11-year-old is out right now, golfing.”

However, smaller developers and environmentalists have concerns about these residential projects. Richard Turire, long-time resident and owner of Manuel Antonio Estates, says: “Every Joe getting off the plane is a developer or a broker for a developer. The big US developers are coming in and alternative smaller, local developers are getting squeezed out.”

Environmental concerns are frequently voiced. At Las Baulas National Marine Park, an important leatherback turtle nesting site at the heart of the most developed part of the Guanacaste coast, the number of nesting turtles has plummeted from about 1,500 to 57 in 20 years. Further south a new marina has sparked land sales in Golfito and, for the first time, serious interest in the wilderness flanking Corcovado National Park.

Anke Herz of Sotheby’s International Realty says: “I hope developers respect the parks and wildlife, which are valuable in the long term to Costa Rica – the reason people come. But it’s all happening so fast.”

The laissez-faire attitude towards development that served Costa Ricans well in creating a tourism industry is now putting many at a distinct disadvantage. “Costa Ricans sell land that has been in their family for generations and have no way back in and that’s through lack of education,” says Herz. “I’ve known land to change hands for a car – if they had known the real value of the land they’d have never sold at the price they did.”

Herz’s family reflects the push and pull of the property market. Young, smart and bilingual, she has a good job on the back of the property boom. Her American father, a long-term resident, is alarmed by the pace of development. “He thinks the country is being destroyed. But my mother, who’s Costa Rican, is excited by the new stores, services and infrastructure. She says: ‘People want us to remain the indians – but why should we?’”

Local agents

Sotheby’s International Realty, tel: +506 653-9032; www.sothebysrealtycr.com

Hacienda Pinilla, tel: +506 680-3000; www.haciendapinilla.com

Reserva Conchal, tel: +506 654 4000; www.reservaconchal.com