January 2, 2008 - House-buying Frenzy?

House-buying Frenzy

One thing that is guaranteed to happen when you get a bunch of people in Costa Rica together from the USA - you talk about housing. Actually, you talk about buying and/or building a house. It’s easy to see why so many people think there is a buying frenzy here. “I gotta get mine before they’re all gone!”

Two years ago, when we went to the ARCR seminar on living in Costa Rica, the old-timers had advice on renting vs buying. The laws here highly favor the renter, and rents were pretty cheap. The rule-of-thumb (for a house with a mortgage, which is actually very unusual here) is that rents should be about 1% of the total worth of the house. Well, rents were running at about 0.65% - quite a deal! And renters can usually lock in a rate for 3 years.

At about the same time, all of the books we had read on moving to Costa Rica stated that it was very easy to find a nice place to live at a very reasonable cost (e.g., a basic, furnished smallish 1-bedroom apartment in a nice neighborhood of San Jose for $250/month).

We spent the next two years watching (just casually, since we really aren’t ready to settle on a place yet) real estate ads - and we saw a good half of the houses for sale languish for over 6 months (many for over a year). Then we met a friend who wasn’t sure whether Costa Rica would be right for her, so she decided to buy a house and live here for a while. This was to be *less* of a commitment than going through the residency procedures, and somehow better than renting… Well, within a few months, she knew that she wanted to move on. She put her house up for sale, and left. Six months later, it still has not sold.

All this was a pretty good case for renting - forever!

But…

More and more often we talk to people who bought property 3 or 4 years ago, and say that they wouldn’t be able to afford that same property now.

Others talk about neighbors who sold their houses within days. They calculate that their house has increased by 15% (or $40,000, or some other nice figure).

Housing tours are getting to be big business. The latest tour that we heard about had 14 people in it - in 10 days, they were shown various properties around Costa Rica, and by the end, *eight* people had bought houses!

Mortgages for houses were unheard of in Costa Rica only a few short years ago. They are still very uncommon, but we are starting to see ads for them. They are hard to get, with a lot of hoops to jump through (e.g., you need to get life insurance to cover the loan in case you croak), and the interest rates are *high*!

So, perhaps it is getting to be less true that it is easy to buy, but hard to sell. Perhaps the housing bubble is moving from the states to Costa Rica. Perhaps the baby boomers will turn it into a solid market.

Whether there is a “valid” frenzy or not, it is still difficult to know who to trust - “buyer beware” is the watchword, and plenty of things can go wrong - adding unexpected costs and anxiety to the experience (buying *or* building).

And you still need to know *where* you want to live.