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Its pretty amazing that there was such vehement denial of the global financial crisis’ effects on CR real estate prices. When I was in CR in in October and November the real estate community was in complete denial that there would be any fallout in either Guanacaste or the Central Pacific. I think its fairly clear now that these “promoters”, “advisors”, “realtors”, whatever they want to call themselves were simply either wrong or lying…just as those who think CR is near their bottom of this trough are wrong. As fee takers the above camp of “real estate professionals” have no skin in the game so their function is basically that of information control. Due to CR’s lack of an MLS system, all of their optimisim was based merely on survival instincts…control the information being disseminated and you control consumer confidence.
I believe CR is NOWHERE near a bottom of their real estate problems. In fact, I suspect that its about to pick up…dramatically. Here is why, not only are prime loan defaults in the US escalating rapidly but the volume of Option ARM (Pick-a-pay) and Alt-A loan set to recast in 2010 and 2011 is equal to or greater than the volume of subprime resets. Now here’s the kicker for CR…the average balance of these type of loans in over $300,000. (For comparison purposes, the average balance of the subprime loans was approximately $175,000) Thus the “owners” affected in this second wave of foreclosures will be higher income families…families that likely bought a $300,000 house in 2003 with very little down, watched the value of their home double, took out a HELOC, came to CR and purchased a second home cash…and now have to liquidate their second home just to be able to save their US home. I know somebody will respond with the the US government stimulus package as their defense. Problem is that its highly unlikely that HELOCS will qualify for any sort of “bail out”.
Every week I receive five to 10 “Fire Sale”, “Purpule Sale” or “Liquidation Sale” emails from brokers in CR, yet in the next breath they say there is “no problem” with the real estate market in CR. My response is that those “sale” prices are not actually “sale” prices, those are just the “new” prices…anyone that paid more than that…simply paid too much.
Just my $0.02.
How much of the real estate in CR is of the kind you are describing? Second homes are surely a significant portion but I wonder what the percentage of total real estate that represents? No doubt CR real estate will be heading south even more over the next couple of years. How much is the question.
Many of the sellers of these properties have no idea of what their properties are worth. They are very stubborn on what the value is.
I’d have to agree that there are many people in the real estate business here in CR that were (or are) in denial about the market. Just like any other salesman… you have to understand their motivation… and make your own call on value. We all know that what’s happening in the US and around the world is having an effect here in CR. Prices in CR may be a bit “sticky” in that many sellers (and MANY more Ticos) are not in a tight spot… don’t need to sell NOW… and are waiting for that rich Gringo with a bag of cash to fall in love with their property. Unlike the US and other markets where people are way overextended… and have to get what they can… or in many cases are just walking away from properties, further pushing prices down.
The big plus that I see is that folks that have bought here in CR that are not normally the type that are sitting on primary homes with sub-prime/Alt-A financing. Don’t get me wrong… some are…. as well as some developers. Most are people that have taken the time to research CR and have made the move much more educated and aware of the market. Much more conservative investors will be fine here. Those caught up in the hype and fast money will not!
Just like with any “hot” market… there are your flippers and timers… and just like with the stock market there will be those that get burned.
I agree, there are many owners in CR who are not over extended. However, a material number are and unfortunately for those who are not, they got caught up in the same game as those who are, and consequently paid over inflated prices for their CR real estate. There are many different types of players…although they are all playing the same game.
Furthermore, as tourism goes, so does CR real estate. As CR’s largest group of each, tourists and foreign real estate owners, continue to suffer, so will CR real estate.
I understand that many projects have yet to re-price their developments…but my theory is that these groups are simply in denial. They haven’t lowered their prices because their projects don’t make sense if they do. My thoughts are that developers will either lower their prices or walk away. This is not a theory islolated to CR or the US, its simply a global re-pricing of real estate. Again, just my $0.02.
quote: “My thoughts are that developers will either lower their prices or walk away”: here in San Rafael de Alajuela we can see that a developer is preparing to walk away. The problems became too big….. finishing with the last construction-materials and then: goodbye !
My thoughts are that many folk intending to move here or recently moved had hoped to fund their retirement with small hotels, a few condos or a B&B. Not a couple of spare rooms in their home, but separate facilities, and they are going to be left with a large building that they can’t rent.
A friend completed a large hotel near Arenal beautiful,last year, very upscale with all the ‘special touches’. Last week when we stopped by, there was one couple. Lots of staff, but how long can one operate like that ‘during this high season’?
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