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Is the Real Estate market cooling revisited

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Just wondering what your thoughts are now on this topic that was covered on here in June. It seems since then the market has exploded in the central Pacific, I could not even begin to name all the projects being built, planned in the Jaco area. And it appears that sales are brisk and ground is being broken and most of the condos being developed are by large developers with experience. I must say I have often wondered about the tourist industry as I have also observed as pointed out in other posts the lack of guests in hotels in this region. Los suenos always seems deserted, the hotels in Jaco never seem that full. we stay for 3-4 weeks in Playa Hermosa/Jaco and the bigger hotels like Terraza seem barely occupied when ever we are there. Some of the smaller places fill up (less than 6 rooms) but that changes weekly. I was really surprised when I saw Terraza adding rooms to the hotel, where is everyone? There is a project being developed in Jaco called "Garden of Dreams" and although I am building a house in Hermosa I was considering buying a unit for investment there. They seem very sincere and well intentioned and are marketing this based on being able to rent it out to earn income. They quote government numbers that appear to support there claims of a busy tourist trade and hotels filled with guests. But over the last 4 years I have been visiting at times twice a year for up to 6 weeks at a time in different seasons the whole area is half empty. I surf and when you leave Jaco or Playa Hermosa the beaches are empty, never seen anyone on Los suenos' beach. Bottom line is most of the hotels are half empty...what gives? Are the government numbers fudged...not that that would suprise me.

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You are confirming what a fair number of people have seen this year.

 

I wrote about this back in June. Tourism is most assuredly down in many areas as are apparently real estate prices.

 

Jaco especially has issues. Drugs and gang type activity are written about in most newspapers. The local merchant's associations have been begging for more police presence in and around Jaco.

 

I did not know Los Sueños was suffering though. Interesting.

 

As for the goverment fudging numbers... THAT was discussed ad nauseum in these forums for weeks!

 

TG

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One has nothing to do with the other.

 

 

That was not the question, sorry if I was not clear. I was wondering your opinion of the state of the real estate market especialy in the central pacific area in and around Jaco.

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The opinion of some of the developers and others there is the same as everywhere...."If you build it, they will come...."

 

One of the towers we know being planned, some 250 units, has already presold some 100. In total I understand there are (amongst various projects) some 1300 units planned for Jaco. Will they all sell? Who knows. Will depend on price IMHO.

 

They say tourism is down? I think it is based more on number of hotel rooms now available compared to 5 years ago. At that time Costa Rica was just breaking the 1 million visitors per year. Last year saw 1.4 million visitors, yet the hotels are complaining of lower occupancy. That can only mean a)more rooms or b)tourist are staying in places other than hotels.

 

Anyone else noticed the huge number of backpacker hostels that have opened up?

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wow, I learned something here. that's something new. thanks. :lol: oh btw... i'm a newbie ( in case you can't from that panel on the side)

Edited by benmode

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Like RP said, with all the development room capacity has more than doubled (maybe tripled) in the last few years and there has not been the coorisponding growth in numbers of visitors. I was in Manuel Antonio just last week and all the resort managers are saying the same thing. The numbers of visitors to the park itself is up. Tour operators, ATV, canopy tours, fishing charters, ect are growing their businesses. They are doing fine.

 

Hotels are sucking wind because so many new rooms have come into the market and there just aren't enough visitors to fill them all. The NEWER locations tend to get a greater share, so the older properties REALLY feel the hurt.

 

This phenomenon is not unique to Costa Rica. This is a typical pattern of what happens in resort destinations that get HOT.

 

Arenal is hurting because the mountain is not as active as it once was and once you have seen it, well you have seen it. They are just not getting many return visitors.

 

Absolutely, positively, without any question, if there was any significant drop in the TOTAL number of visitors to Costa Rica the airlines would be cutting flights. Their margins are so thin, they just do not mess around with that at all. This is one statistic that it is essentially impossible for the govenment to fudge. Unless there is something going on that I am unaware of, there have not been any such cuts in service. The flights I have been on have been full!

 

I have to think with all this over capaicty that eventaully market forces are going to come into play and some real deals are going to become available. Then again, who knows? If CR gets the growth, it will all even itself out.

Edited by Kahuna

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The central Pacific zone is still developing like crazy - especially Jaco.

 

The problem that I have noticed is that about 80% of the buyers for these condo pre-sales seem to be investor/speculators. The traditional end-user like the average retiree or the vacation home buyer wants nothing to do with Jaco.

 

This is what I fear for that area. Investors/speculators are driving the growth, but ultimately they will need an end-user or buyer for their investment. Many of the retirees from the USA or Canada that I speak with will not buy in Jaco. The supply is already outgrowing demand.

 

I have learned of church groups that used to visit Costa Rica annually. They always stopped over for a couple of nights in Jaco. Last year, the teens in the group were approached numerous times by drug dealers trying to sell them crack. That church group has now canceled their annual trip to Costa Rica. This is just one of many stories that are turning off the average retiree from this area. The overwhelming majority of foreign retirees want a peaceful and safe retirement. Jaco simply can not provide for that.

 

The developers are making big dollars, but I would suggest to the investor/speculators to put their capital into other Costa Rica markets that DO attract the average retiree. Clearly there are many areas offering good investment fundamentals.

 

Good Luck! Pura Vida!

Jeff Hickcox

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Jeff, that is an interesting insight into the Jaco market: that it is in fact speculators that are propping up the real estate values in the Jaco area. For those that are patient, there may be some great opportunities when the speculative bubble bursts in Jaco, wouldn’t you say?

 

I have argued in other threads that the Family Vacationer and the Eco Tourists have been displaced in two primary destinations, Jaco and Tamarindo. They have been displaced by an even greater number of the Party Seekers that come to these areas to seek out what they have become. Moral arguments aside, from an economic stand point this trend is not necessarily unsustainable, nor is it necessarily bad for the Costa Rican tourism industry as a whole. There are an awful lot of people, with an awful lot of money, that are always on the look out for new destinations in which they can fullfill their pursuit of pleasure. Jaco and Tamarido are filling that nitche within Costa Rica.

 

What will be interesting to see over time is if the Party Seeker demographic will step up and invest in real estate in these areas as an “end user” as you say. I agree with you, I think both destinations have lost their ability to attract the Retiree market. If the partiers do not step up to the plate and invests as "end users", it should be expected that there will be a major shake out in this area. If they do step up to the plate, we may be seeing just the very beginnings of growth in these destinations.

Edited by Kahuna

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Speculators will continue to make money until they drive prices higher than the financial fundamentals of the average "end-user".

 

This happened in the States during the bubble, most notably in areas like Vegas and Florida, where development got way ahead of demand, and way ahead of financing fundamentals. Now the Financial institutions are taking a beating, the buyers are foreclosing, and the development has halted.

 

I do not think we are even close to that yet in Costa Rica - and particular Jaco/Tamarindo. The bubble is still blowing up and lenders are scrambling to offer products in CR.

 

The availability of Financing (or Capital) is the biggest indicator of up or down RE cyles. With sub-prime lenders collapsing in the States, and the prime lenders proceeding with extreme caution, Capitol is leaving the U.S. market, thus continuing to suck the air out of the bursting bubble. And this could just be the beginning...

 

In Jaco there is capital flying everywhere, albeit alot of it is quasy-private capital, it is still just the beginning of this terrific up-cycle. The fundamentals are starting to look erily similar to US in 2001-02, where capital was everywhere, development was exploding, the cost of building was rising daily, and buyers were lining up. With those fundamentals much money was made even during the next 4 years.

 

I believe there is money to be made in almost every facet of real estate in Costa Rica. I just think investors should be aware that when investors outway "end-user" buyers on a particular project - they may be assuming more risk. At this point, these pre-condo sales and buy & hold strategies should remain solid for at least a few more years.

 

90% of the demand (end-user) - that I have experience with - is looking for a home under $250,000. Certainly, the 10% crowd is actively involved in Costa Rica, but the 90%(middle-class buyers) are what will sustain this up-ward drive for years. So, in my view, I would really scrutinize any investment over $250K. Like I said before, money is being made way above that pricing and will continue to be made.

 

You are right about the party crowd. They do exist and they do have money. I'm just not sure what percentage of overall demand they represent in Costa Rica. I don't know the tourism numbers well enough to have an educated opinion - although, I have heard that inventories of hotel rooms and condo rentals are also way above demand. Have you heard any statistics to prove or disprove that?? I am hungry to find some hard data on that.

 

Jeff Hickcox

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That is all very interesting Jeff.

 

To answer your question, no I do not have any data on that. I am not sure there is anyone collecting it.

 

However, I think there is a consensus among the resort managers that I have talked to that this is the case. You don’t need hard data to see the explosive growth in the resort destinations.

 

I am with you, I think we are in the very beginning of all this. People look at Jaco and Tamarindo and compare it to what they were 5 years ago and the perception is that both destinations have become over developed.

 

My perception is that they remain under developed, at least in terms of being resort destinations. I spent time on Maui in the early 80’s before it exploded and I lived there through much of the 90s. What a lot of people here don’t understand is what happens to a place when a destination becomes a global hot spot. Most just look in the rear view mirror and compare it to what it once was and they can’t believe the change.

 

Many people are turned off by the change, which is understandable. Personally, I am not a fan of resort destinations and they are not the type of place that I want to go when I am on vacation. However I also understand the economic realities of what happens to a destination when it becomes HOT and the corresponding opportunities.

 

While many are turned off by the changes that have taken place in these destinations, many more will be attracted to the improvements in infrastructure. There is a demographic shift that takes place with the type of visitor that is attracted to a destination as it goes through this sort of transformation. Your example of the church group is a perfect example. Jaco is booming, the church group you mentioned has been replaced twice over by a differnet type of visitor.

 

I don't think it is all bad nor do I believe that it is something to fear. Maui at one time had similar problems with drugs and crime in its early growth stages. Yet Maui turned out pretty damn nice. Maui has concentrated resort development in two primary locations and a major part of the island is much how it always was, albeit with improved infrastructure and a higher standard of living for the inhabitants.

 

I have mentioned this before and I mention it again, very few people here appreciate how important the Four Seasons Papagayo is to Costa Rica. Few appreciate the economic impact. That resort alone has put Costa Rica on the map for the moneyed elite. Everyone is focused on the gross numbers of visitors coming here every year. Few understand that one couple at the Four Seasons will spend as much in a week as 60 backpackers will in a month. A couple there can easily run up a $10,000 or $20,000 tab for a one week stay, and 30K, 40K is not out of the question. When people like that start coming here and they start investing here, they have a transformational impact.

 

Some have argued on this BB that tourism and the real estate markets are not related. I could not disagree more. There is a pattern to all this that has played out in many destinations around the world. This is all new to Costa Rica, but in reality, it is an old story that has played itself out many times in the past.

Edited by Kahuna

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I'll throw this out as I think it might be valid.

 

I am sorta with Kahuna on this but from a different angle. I think most boomers are looking at Costa Rica for the simple fact they cannot afford to live in the US after retirement. Sad fact. But it is those boomers who will be buying the lions share of property I think.

 

Therefore, what is very unclear is what happens when the cost of living in Costa Rica, not just the housing cost which is just nuts... but the cost of food, utilities and other necessities reaches the point where Costa Rica is NOT so desirable?

 

Costs are up far more than is being reported by the government that uses a market basket approach that does not apply to most foreigners. My cost of living has more than doubled since I arrived, and it gets worse every day.

 

So when they realize that it is not all that much less to live here... then what?

 

Just throwing this out for you experts to debate... TG

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I agree 100% with that assestment. The overwhelming majority of the 77 million baby-boomers are working-middle class. Many of them are seeking a retirement area with a lower cost of living out of neccesity.

 

I don't know how long before the cost of living will reach US pricing (if ever). But a good example is in Panama where the cost of living is much higher than in Costa Rica. That did not happen over night and they use the US dollar which inherently drives up costs. But I agree, the cost of living increases will lower the demand from the working class retirees.

 

The sticker shock of houses is a strange concept. Someone from California or New York may look at a spectacular $350K 4000SF home in Costa Rica and say "What a Bargain!". At the same time, a wealthy doctor from Mississippi may be shocked at such a high cost for a home in Costa Rica. Everything is relative to the eye of the beholder. Some may scoff at these prices and vow to never pay that much in a Third World Country.

 

That comment bugs me the most. I ask them how many third world countries have great public health care, a higher life expectancy than the USA, a literacy rate of 97%, clean public water, cell phones in the hands of nearly every young adult, high speed internet available almost everywhere, public transportation to rival any country, and all the rest.

 

North Americans require good infrastructure (electric, internet, clean water, etc..) to be comfortable. If some of that comes at a higher cost (which is still well below what they are used to), they will still gladly pay it. The real savings for these retirees are in the cost of food, hired help, health care, taxes, insurance, and many other areas. Although these costs are rising - they do still remain attractively low.

 

Also, if expats are willing to live a simple life, there are many live-able Tico homes in the country that can be found for around $50K. With another $5K - $10K you can add many of the ammenities that you are used to.

 

We live in a new Tico style home with on-demand hotwater in the shower only. The shower is located in the only bathroom in the house. We do not have a dryer for our clothes - we hang them up like the Ticos. We do not have a dishwasher, AC, and we rely on only one car (a luxury here, but a huge change for our active family). Our simple life allows us (family of 4 w/ one more one the way) to live for about $1000 - $1200 per month.

 

Pura Vida!

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