As light begins to peek through the dark clouds of the worldwide economic crisis, members of the Costa Rican real estate community are growing more optimistic at the tail end of what has been, for many, one of the worst years they can remember in the housing market.
“In 2009, there was very little movement in the sale of homes,” said Charles Wanger of Bienes Raíces Talamanca Real Estate, in the southern Caribbean region. “In the 12 years I have done real estate in Costa Rica, 2009 was the first year I was unable to fulfill all of my own financial obligations.”
Wanger is not alone. Many real estate agents and firms throughout the country experienced substantial drops in real estate sales during the first half to three quarters of the year. The difficulties experienced in the real estate market stemmed from the worldwide economic crisis, as well as from the fear engendered by the cataclysmic rupture of the housing bubble in the United States.
“People interested in buying property here became more cautious than they’d ever had to be before,” said Christopher Howard, author of “Guide to Real Estate in Costa Rica.”
“A lot of property owners here are from the U.S. and Canada, and they lost some of the funds they’d saved in hopes of buying property,” he said. “The crisis changed their plans and left a lot of people holding off on buying a second home or a vacation home in a foreign country.”
In some cases the crisis forced buyers who had taken the initial steps in property ownership, such as putting down a deposit or paying construction fees, to swallow their losses when their sources of capital were suddenly disrupted. Wanger said that seven of his clients had contracted architects and builders but were suddenly forced to pull the plug on their projects when the economy tumbled. To date, only three of those seven clients have paid the hundreds of dollars in preliminary construction fees owed. The other four claim they will pay when their finances recover in 2010.
A similar plunge in investment in the real estate market also occurred on the Pacific side of the country.
According to Les Nunez, of First Realty in Playa Hermosa in the northern province of Guanacaste, many prospective buyers who arrived before the crisis struck in 2008 made deposits of up to $100,000 on home purchases. However, when their expected financing was restricted, a number of them, unable to pay the remaining cost of their homes, lost deposits of up to six figures.
“When things went underwater, people were forced to walk on their deposits,” Nunez said. “Many of the developments and homes were frozen and never built.”
Lower Prices Boost Demand
This year, most property owners looking to sell have had to lower their asking prices in order to generate any interest in the market. These price cuts have reinvigorated the diminished demand that plagued the market for the first nine to 10 months of the year.
“The lowering of property values has been a blessing and a curse for the market,” said Brian Friedman of Century 21 Jacó Beach. “It is a blessing in that we have seen a huge increase in traffic and we are showing property daily, as people know there are killer deals out there. However, the bad news is that it is a bad time for sellers. I have talked to many people who are in bad shape and must drop prices significantly to make a sale.
Buyers are beating up on sellers right now.” Friedman, like Wanger, indicated that after the sluggish start to sales in 2009, buyers have shown increased interest over the past two months. Much of the revived demand has stemmed from significant drops in prices. Friedman mentioned a home that once was valued at $300,000 is now selling for $210,000.
Others in the real estate community also said they expect that lower-priced properties – often referred to as “value properties” – will re-energize the market. Most agreed that once the real estate market begins to thrive again, prices will adjust accordingly and again rise to what they believe is the actual value of the home or property.
But some property owners are standing pat.
“Some who aren’t pressed to sell or don’t have to move property are expecting the market to bounce back and are staying right where they are on price,” said Nunez. “Usually these are owners who have already paid off their homes and can afford to wait for the market to come back.”
Guarded Optimism for 2010
Like many sectors of the Costa Rican economy, the real estate market heads into 2010 with guarded optimism. Though buyer interest has shown a slight resurgence and the worst of the economic crisis seems to be dissipating, members of the real estate market remain unsure of what will come in the next 12 months.
“There is a semi-wary understanding of where the market is going to go,” Nunez said. “I don’t want to give a peaches-and cream forecast, but I’d say it looks hopeful. Are people coming here? Yes. Are people still interested in property here? Yes. If anything, we know people are out there and are looking. We just need to make it affordable enough for them to buy.”