Properties are hot. Real estate is booming. But there is little regulation. The United States, home to a big chunk of Costa Rica’s real estate investors, is entering an economic downturn and perhaps a recession. Is this a recipe for disaster? Mauricio Castro, head of the Costa Rican Chamber of Real Estate Agents, recently sat down with The Tico Times to share his thoughts on these and other issues.
Castro, 54, has been a real estate broker for decades and has headed various construction and development companies. Now he teaches seminars at the chamber and at private firms. He lives in the western San José neighborhood of Rohrmoser with his wife, Alexandra Céspedes, and four children.
TT: What happened to the real estate market last year?
MC: In 2007 the real estate market surprised us with continued growth.We expected it to slow because in 2006 it also grew at a clip. But in 2007 the market saw spectacular growth, especially in the coastal areas where there is an enormous demand for property by foreign investors. Some semi-rural areas became urban, with restaurants, hospitals, schools, all the services necessary for a community to survive.
How did we get here?
The development and construction boom all started in Guanacaste (the northwestern province). It was a result of the creation of the Liberia International Airport (Daniel Oduber International Airport in Liberia, Guanacaste’s capital). This allows people to go directly to Guanacaste without going to the Central Valley. People visiting the country decided to buy retirement homes or second homes (there).
Is there a downside to real estate’s rapid growth?
The country wasn’t prepared for such rapid growth. We didn’t expect to see such high demand in so little time. There weren’t zoning plans. There wasn’t adequate infrastructure. The little infrastructure that exists is collapsing. People aren’t guaranteed basic services. All for lack of planning.
How will these problems affect the real estate market?
Undoubtedly the market will diminish if there is no solution. I think the government and the localities are already reacting to the situation.
Is there risk of a real estate bubble?
We have to be prudent so as not to reach a real estate bubble. That’s where people keep investing and paying more and more until the market adjusts and apartments begin to be abandoned. The real estate bubble pops and the market contracts. Another thing that could happen, if we aren’t careful, is something similar to what is happening in the United States, in Florida and California, where property prices have dropped sharply.
Who is buying and developing property here?
The vast majority of recent purchases were made with foreign investment, mostly U.S. money. The great developers are North American companies or people who buy and develop properties and then sell them at international market prices. The prices of property in Tamarindo (on the northern Pacific coast) are no longer for Costa Ricans (because they are too high).
What would be the effect here of a recession in the United States?
A recession would be fatal. But if the United States does not reach a true recession, Costa Rica would not be that affected. Fewer North American investors would come, but we have other markets. Like who? Europeans will benefit from the exchange rate. For them, land here will be very cheap. There are other segments of the United States and Canada that would not be so hurt (by the economic downturn).
In Costa Rica, many people are buying luxury houses. I’m talking about really successful people – businessmen, film stars. This sector could continue to buy here in Costa Rica. But certainly a big group of North Americans would no longer invest here.
What do you think will happen in 2008?
We in the chamber are building a lot of alliances with different organizations in order to pressure the government to regulate real estate activity. There is little regulation in Costa Rica. A lot of (real estate agents) here are doing things wrong, or even working illegally. That is, they don’t have residency. They don’t have preparation. They don’t know Costa Rica. They don’t speak the language. We cannot continue with the law of the jungle.
What, more specifically, are real estate agents doing?
Overcharging. They sell property valued at X for 10 times X, with and without the owner’s consent. It’s bad practice.
How will the real estate market fare under the Central American Free-Trade Agreement with the United States (CAFTA)?
If (real estate) is chaotic now, without all the benefits of CAFTA, what will happen when a bunch of companies come in and we aren’t prepared legally to respond to their needs? If there is no regulation, if there are no zoning plans, they could put factories in residential areas.