Source: El Financiero.
REAL ESTATE BUBBLE CONTINUES TO GROW.
Many Costa Ricans believe that properties are over valued. Nevertheless, foreign investors consider Costa Rica to be a much cheaper place to invest in the purchase of a house than in their own country or surrounding areas. For valuers this factor means that properties are overvalued. Whilst realtors and developers think that it is fair considering all of the added value that an investor gains from purchasing a property in Costa Rica. Foreign investors pay not only for the property but also for a “productive country” that includes a relatively stable social environment and geographical location. This difference between the “real” price that dictates the markets creates a real estate bubble, which, for the moment, no one thinks is gong to burst. Nevertheless experts are recommending that it is important to watch the market closely to avoid devastating consequences. Miguel Bolaños is the president of the Costa Rican Valuations Institute (Icoval). His main concern is that there are some areas where “real estate prices are extremely high.” For Nicolás Vialé, from Century 21 Coastal Real Estate, office Guanacaste, the panoramic views of the land close to the Guanacastecan coast, luxury finishings
and additional facilities in vertical condominiums in Escazú, increase the price.
CHARACTERISTICS OF THE BUBBLE
Walter Campos, a valuer from Grupo Aica, property developing company, agrees that the variation in prices is large, principally in the coastal areas. “The type of developments that are commercial, focusing mainly on wealthy foreigners from other countries, considerably elevates the price and affects nationals,” he indicated. “For the foreigner that arrives with strong capital, the price seems cheaper, and this is why developers do not lower the prices,” he added. Prices also increase in and around the metropolitan area. In the edition dated the 25th of April last year a Real Estate supplement, gave information about projects like Los Laureles in Escazu, which is made up of a series of towers with apartments with luxury finishings and diverse additional services. The sizes of the apartments are from 239 to 345 meters squared and the starting price was from $250,000.
At present, others with the same standards are being built in that area, they are also luxury tower apartments with multiple services but the sizes and the prices vary. One offers units with areas between 81 and 160 meters squared. The prices of these apartments oscillate between US$150.000 and US$300.000. This means that, the price per square meter jumps from US$1.046 to US$1.851 approximately.
CONSEQUENCES OF THE BUBBLE BURSTING
Miguel Bolaños, from Icoval, warns that if the bubble bursts it could present serious problems for the finance companies who lend credit on properties that are over valued. In this moment the value of real estate would suffer a serious fall which could represent a high risk situation for the banks. Although the methodology of “The value of repossession” is the most common way to value a house and offer back up for a mortgage what is growing more is the “market method” or supply and demand explained Bolaños. This is the reason why many properties acquire a superior value than how much they appear to be worth and also because of the valuations can differ from one professional to another, added the expert. According to Óscar Bonilla, an investigator from Icoval, 120,000 valuations are being carried out a year by financial entities. He insists that the methods used to value properties should be the same so that an official database can be created where you would be able to see the necessary parameters to make an appropriate valuation.
