San José, Costa Rica, since 1956

Guanacaste Boom Driving Up Building Costs

Development and construction in Costa Rica seem to be an unstoppable juggernaut, as not even increasing land costs, lengthy and aggravating waits for building permits and rising construction costs have slowed things down in recent years.

But costs are rising, as factors such as a scarcity of labor – both skilled and unskilled – and the tyrannical cost of petroleum on the international market have their effect.

Without a doubt, the northwestern province of Guanacaste is the region that is seeing the most growth, especially during the past two years.

“This year has practically been a record year,” said Jaime Alberto Molina, an engineer with the construction company Proyectos ICC. “It has risen almost 80%. In square meters of construction, Guanacaste is second only to San José.”

The Costa Rican Construction Chamber announced in August that Guanacaste saw more than 650,000 square meters built in the first six months of this year, more than the 569,791 square meters registered in all of 2005, the daily La Nación reported.

According to Molina, this boom is driving up building costs in the region and the rest of the country.

“The biggest problem, more than anything is the lack of materials,”Molina said.

As the market is booming and more and more projects go up, the demand on materials makes the supply tighter, driving up costs. In addition, he added, the waiting period to get materials delivered is growing longer.

Specifically, Molina mentioned copper as one material whose cost has recently risen to “an extreme,” as a result of prices on the world market.However, the engineer continued, some have said that the price is being forced even higher by speculation, and quoted an estimate that by the end of the year, prices should drop by 15%.

Meanwhile, the price of copper is rising so quickly that suppliers give price quotes that are good for only a matter of days, he said.

This translates into difficulties for construction companies that give estimates of the cost of a project at the beginning, but see the costs of their materials rise rapidly by the time the project gets under way.

One of the reasons the price of copper on the world market is rising is a high demand worldwide, especially in China, Molina explained. In fact, construction in China of the world’s largest dam, the Three Gorges, has also had an effect on the price of steel.

“What China was exporting in steel, it is now consuming internally,”Molina said.

According to Norman Chang, of Chang Díaz y Asociados construction company, the price of oil on the international market is also affecting construction costs in Costa Rica.

“Inevitably, the increase in the international price of petroleum produces a domino effect on the rest of the consumer products and construction,” he said in an e-mail to The Tico Times. “In recent months, the price of steel in general, construction rods, floor laminates, electric cables and PVC tubing have had a particularly high increase (in price).”

Chang also commented on the boom in Guanacaste, saying, “even though at the moment one feels a relative decrease in the ability to meet the demand (for services and construction materials), this effect will be clearly leveled in the coming years because of the same market effect.”

The construction expert qualified this, saying that it assumed “political and social conditions” continue to encourage new sources of supply.

One common complaint in the construction sector, besides the costs of materials, is the difficulty of finding labor. Molina said that both skilled and unskilled laborers are difficult to come by in areas outside San José and the Central Valley, especially in Guanacaste.

“In the areas of Jacó (on the central Pacific coast) and Guanacaste, labor is more expensive.

And skilled laborers are almost all in San José. It is difficult to find people who are specialized outside of San José, and so you bring them from the Central Valley,”Molina said.

One of the reasons for the scarcity of laborers, as with materials, is the boom in demand, he said. Another reason, he continued, is a growth in construction in Nicaragua.

Molina estimated that approximately 60% of all laborers are immigrants, which, with the exception of a very small percentage of Salvadorians, are from Nicaragua. He added that increasingly stiff immigration controls are also affecting the size of the labor pool.

Outside of the Central Valley and Guanacaste, development and construction has not reached the same frantic levels. While the central Pacific region is seeing a marked increase in projects, other regions seem to be just getting off the ground,Molina said.

“In the Southern Zone, tourism development is beginning around Dominical (on the southern Pacific coast), and in Golfito (farther south) they are going to build a very large marina and hotel,” Molina said. “On the Caribbean, it is a little bit neglected. The big development has not yet begun, but they are speculating that it will in a few years.”

Molina said that because the boom in Guanacaste is pushing prices up, it is becoming less profitable to develop or build there, and cheaper land in other regions becomes more and more attractive.


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