080 Buying beachfront land in Costa Rica

[Richard Bexon]

So today we're going to be focusing our talk on beachfront property, as I mentioned there. And let's just get straight into it. Good morning, Raquel. 

[Raquel Moya]

How are you doing? Hi, Richard. Good morning.

[Richard Bexon]

Thank you very much for making time for us this morning to talk about the Maritime Zone concessions and beachfront land.

[Raquel Moya]

Absolutely. Thank you for having me. It's my pleasure. 

[Richard Bexon] 

Awesome. Well, Raquel, I mean, you've been involved in real estate and also the legal aspect of real estate for many years now. But I mean, over the past two years since the pandemic, I mean, what has really surprised you? And are you seeing any trends in the type of transactions that you're doing? Well, Richard, you know, the last couple of years have definitely been very interesting.

[Raquel Moya]

Very interesting. I think they have been very intense for the real estate market, at least in Costa Rica. And in some areas in the country, I think I could only describe it as a chaotic frenzy. 

You know, it's something that, at least in my experience, I've never seen happen before in the way it has for these last years. And as you know, when the pandemic started, many people realized that they will be spending much more time at home than they were used to for an indefinite period of time. So they started making changes in their everyday lives.

So for some people, this just meant renovating their home office or their kitchen. But for a lot of people, it meant deciding to go a little further in their pursuit for space and for comfort. So they bought second homes.

They started looking for vacation houses and a little space of paradise for them in the world. That's what I think was leading the real estate market in this last season. You know, people want more space, more beauty, more tranquility, and they want to feel free in a healthy environment, which is something that Costa Rica has to offer. 

So, you know, the real estate market started behaving very differently in the last two years, at least from what I was used to. And I think the things that surprised me the most were that the perception of risk changed. I had clients that were very risk adverse, that started making a lot of decisions that were out of character.

People were willing to move into transactions faster, to accept conditions they were not willing to accept before. You know, they kind of had this tomorrow that may never come feeling and were making a lot of decisions in that way. And also something that very much surprised me, and I think it is very obvious, but still, it's surprising to see it happening, is the impact of global mobility in real estate markets and how people realize, although we had all the conditions before, we had the same technology, but it just suddenly became very obvious that we can work from wherever we are and that you could decide to live wherever you want. 

And you don't have to make this decision based on what you do for a living, but where you want to live. And I think those are the two trends that were leading the real estate market that people were making, I will say, more emotional decisions. In many cases, they were completely aware that they were buying at very expensive prices. 

They are aware that it could be a risk and they may not be able to resell at a better price in the future. But still, all these people just really wanted a piece of land they would enjoy for them and for their families. And I think that's the trend for this last season. 

[Richard Bexon] 

I mean, I think that that's kind of the trend has been really, you know, it was really fueled by COVID. But then also, you know, the US printed, I think it was like 23% of all cash in circulation in the last two years and put it in people's pockets. So people have cash to burn, you know, the rich got richer.

And they, of course, wanted assets, you know, a diversification away from the US to some extent or diversification away from stock markets. And also, you know, real estate in the US, just because real estate in the US, of course, is sky high as well. And here in Costa Rica, you know, I think that there are still tons of opportunities, you know, for future gains. 

[Raquel Moya]

I agree with that. I think that definitely impacted the US real estate market in Costa Rica, for sure, no doubt. But also, that's the little real estate market, I guess, the most relevant and what you're describing is exactly right. 

But we also saw that this behavior and this trend was spreading among a lot of different people that did not necessarily have the size, the budget to do this. It's just that you will find a lot of different types of buyers and sellers as the real estate market becomes very different, I think. And for sure, there was a boost based on what you described, but also people were just finding a way of becoming a part of it.

Even, you know, the local real estate market reactivated a lot. A lot of people in Costa Rica that somehow had never thought about buying homes near the beach, they decided, you know what, I don't need this house in San Jose to be this big, I'm just going to relocate to somewhere where my kids can go to the beach more often and have a closer contact to nature and just live there. 

[Richard Bexon] 

Yeah, I mean, I always say that Costa Rica is kind of a spillover of the US, meaning when there's an excess of capital in the US, it spills down here in Costa Rica. 

And we saw that in 07 and 08, of course, and I definitely think the last two years. But yeah, I mean, I have a variety of different clients, you know, refinancing second properties to release equity from them in order to buy down here. But anyway, let's just change gears a little bit and talk about the maritime zone here. 

Maybe you can explain what the maritime zone is to our listeners and also what they need to understand about beachfront land in Costa Rica. Yes, well, I think it's very interesting to know about beachfront property. Beaches are definitely the most captivating real estate attraction in our country.

[Raquel Moya] 

Our beaches are just beautiful, stunning. And every real estate attorney or real estate agent is going to come across a marine zone land every now and then. And definitely not everybody understands.

It has a lot of differences when it comes to, well, of course, the process of acquiring land. And it's not actually acquiring land. We're going to go to it in a minute. 

And also the process of developing this land. It's very different from private property. So to start, it's important to know that the marine zone land is divided in two areas, the public area and the one that I like to call the concession area.

In Spanish it is the restricted area. But I don't like that name. I usually change it when I speak to clients because it sounds too restrictive and it's already too restrictive.

So I'm going to call it the concession area, the area that you can get in concession. So the public area is the first 50 meter strip of land, which is completely restricted from private ownership or development. And the concession area, which is formed by the next 150 meters that can be used, exploited and developed by a concession agreement.

I will describe a concession agreement like a lease agreement with the state. You leave the land for a period of time, usually 20 years. It can go from five to 20, but most municipalities use 20, which I think is the best because it gives people time to plan what they want to develop.

And provided that all requirements that are contained in the law are complied with, you will get an area through a concession agreement that would allow you to use, to enjoy and to build in a way that feels a lot like private property with certain regulations and differences. What would be the main difference? I think the most important thing to understand is that you're not technically acquiring land. You're acquiring a right to use land subject to certain regulations that during all this period that you're an owner, if you will, you will be subject to a lot of regulations that you would not be subject to if you were a title property owner. 

Although, constitutional protections that apply to private property are not the same that apply to marine zone rights. Here, the rights of the state to protect the land and the environment prevails, so you need to be very careful with the decisions and actions that you take and always make sure you have authorization and that you coordinate with the municipality. Also, you will need authorization for many things, not just to develop.

If you want to transfer the land directly, and we can also get to the different ways in which you can do it, you will need authorization. You will always be subject to a zoning plan. We have zoning plans in some areas and in some areas we don't.

When you want to acquire a marine zone area and develop it, one of the main requirements for it to be possible is that there is a zoning plan in the area, so you will be subject to specific rules. I felt like you wanted to ask me a question, Richard. 

[Richard Bexon] 

Well, no, I just wanted to give a summary just so that people are aware. 

From high tide, zero to 50 meters is what I like to call owned by the people of Costa Rica. I don't like to say the government, just because, again, the government is a representation of the people, so it is owned by the country and the people that live here. Then from 50 to 150 meters is the concession land, basically, whereas you said you're literally renting it from the Costa Rican people and you can develop it, but there are restrictions, but that is no different than some areas of New York.

There are some areas in Asia, London, where you are just renting buildings for 99 years. In the UK, we're used to it, but it's 99-year leases from the crown, which is the queen, or the king or whoever is there at that particular moment in time. But I just wanted to give a bit of a summary there to guys just so that they're aware.

Let me just ask, what percentage, because there are some titled beachfront lands here, right, that 50 to 150 meters, what percent of the land would you say is titled and what would you say that is owned by the people and you have to have a concession on it?

[Raquel Moya]

Well, the percentage that's titled is very, very low. It's a very unique find when you find something like that. I don't think I can come down to a percentage, but I can tell you where you could find that and why.

You find some of that in the Jaco area, for example, that was land that was titled by rule of exception. There were some laws that were approved for a very short period of time that would allow possessors to title the land. We find some cases in Tamarindo as well. 

But it's very, very unique. And there are three reasons why. 

[Richard Bexon] 

I know Jumquiao has some, Flamingo has some, because the Flamingo is there.

Jumquiao had some as well. So, yes. 

[Raquel Moya]

And when you find that, you know, it's the perfect find because you have a beachfront and you have all the protections of private property and you don't have to worry about all these things. 

It's one of the best finds you could have, but it's a very, very slow percentage. I think we can classify Mauritian zone areas in different categories. You can find that first jewel, which is not very common, and you find it in some places.

Usually when we find something like that, as lawyers, we do, sometimes we already know when a property comes and we know where it is. We know exactly how it got titled. But if not, then you will be very, very detailed in your diligence to understand how it was titled because there were only certain cases in which this could be done.

And if it wasn't done correctly, something that's important, the statute of limitations for the state to reclaim land never expires, which is why it's always important to understand how this happened. But if it's well done and if it complied with the regulations at the time, it's definitely the best find. So that's one type of Maritime zone area, the title one.

Then there's the one subject to concession, which is most, I will say the majority. And there's a lot of concession areas that could become concession areas that's still not governed by a zoning plan. We find that in many areas as well. 

And regretfully, there's nothing that can be done with it yet. And the municipalities, which are the institutions in charge of managing the zoning maps in the country and also the Maritime zone areas, have a great responsibility in working on zoning plans so this land can be developed. 

And some people would think, you know, why rush it? Why has this land developed? But the reality is that when you don't have a zoning map, people are still going to find their way in, especially people that live on the coast or that live from the sea, fishermen and families. 

They're still going to, you know, people if they were born there, they feel they own the land and they feel connected to it in a good way. And it's the responsibility of the state to create the conditions to have it grow in an organized manner that respects the environment. So we also have a group of Maritime zone land that is yet not governed by a zoning plan.

So it's not clear what you can do with it. Well, it is clear you shouldn't do anything. People still, you know, you still find some possession there. 

And we also have a Maritime zone area that it's actually classified as natural patrimony of the state, which is covered by forest and protected areas. And those areas are not subject to concession. You could eventually apply to obtain a permit to use it for forest projects and community projects in a very limited, restricted way. 

But it's not subject to development based on the Maritime zone regulations. 

[Richard Bexon]

You've mentioned earlier, again, you can get a concession here, which is basically I'd like to call a lease from anywhere from five to 20 years. What determines whether you get five years or whether you get 20 years? 

[Raquel Moya] 

There are no rules to that.So it's a decision by the municipality. They have some level of discretion. They probably exist, but I've never seen a five year one. 

OK. And I think it wouldn't make any sense. By the time you start building, it's over.

I do know some municipalities that use a 10 year term sometimes. And what ends up happening is that they reach expiration and nothing has happened, especially because, you know, now we're reaching a point in which there is more infrastructure to build in a lot of areas, but a lot of concessions were granted at the time where there was no water and not real conditions to develop. So people applied for concessions and basically held them for 20 years, not being able to do anything.

Or some actually decided they were going to do some land banking with it. But in most cases, it's 20 years. OK.

[Richard Bexon}

Let's talk about ownership of concessions, because can a foreigner own a concession in Costa Rica, meaning someone that is not a resident or a citizen? I mean, how does that work? 

[Raquel Moya] 

Yes, well, you could own it to start. You could own the concession directly in your personal name or you could own it through a company. OK.

If you own it directly through your personal name and you're a resident, you can own it as a resident, not Costa Rican, but resident after five years. OK. If you own it through a company, the rules are a bit different. 

Basically, it says that at least 50 percent of the shares must be held by Costa Ricans. And the other 50 percent could be owned by people that are not Costa Rican. But it doesn't make a difference between residents or non-residents. 

So a lot of people sometimes ask when you're trying to find a structure, OK, I've been a resident for X amount of years. Can I use my company to apply? And the answer is no, which is, you know, a difference that should not be there, because at the end, the purpose is the same. And more and more, if you want to develop property concession land, you will most likely like to do it using a company. 

Yeah. So you shouldn't see the difference shouldn't be there. Our legislation definitely needs to be refreshed.

I think the concept and the way it was drafted was very focused on protection, which is good, but it somehow ignores the economic value that this area has for the community and for the investors. It kind of wants to deny it, which doesn't make any sense because it's obviously there and it's attracting a lot of people to our country. So we definitely need legislation that recognizes that value and provides proper regulation to it and eliminates these types of differences and restrictions.

You know, there's, in my opinion, really no point in saying that you should or should be Costa Rican or not to develop land. You should focus on your ability to develop and in your actual development plans. 

[Richard Moya]

Yeah.I mean, that's interesting. You know, I mean, I mean, I get I can see both sides of it like, look, we don't want anyone that's not Costa Rican, you know, owning beachfront land. But there are just ways around it, of course, with the corporation and, you know, you know, entrusting shares to, you know, Costa Ricans. 

Well, our foreigner owns 50 percent. I mean, I'm sure that you lawyers will definitely find a way because you always do it. But yeah, I mean, I think it's a balance there because I think if it becomes too easy and everyone can own it, then, of course, there could be exploitation of beachfront land here.

And, you know, we could end up looking like Mexico and Hawaii. So I agree. I mean, it's you know, there shouldn't really be a reason that somebody from that's non Costa Rican could not own that. 

I mean, they can own that land today. There's just a legal structure, but maybe it could be simplified. And I'm sure that you have probably quite a few ideas on how to do that.

But let's not get into that too much. I mean, again, if there is a piece of land that is beachfront, Raquel, what are the questions that somebody should be asking if they want to buy it?

[Raquel Moya] 

Well, the questions they should be asking first is what's the status of that concession agreement and that concession file? Because in some cases, people think because they have been sitting on the land for a number of years and they have been processing their applications, they have a right. And sometimes they just have not been doing what they should be doing.

So the first thing would be, what is the status of your concession agreement? What's the expiration term? When was it granted? Was it properly granted? And is it going to be renewed when it expires? 

Because if all terms and conditions have been complied with, the municipalities pretty much always renew the concessions. But you need to make sure that it happened. 

Then the second question I will ask, what is the zoning? And is this concession currently compliant with the zoning? Is there something that needs to change when I renew this concession? Is there anything that needs to be updated? Does the survey currently reflect the zoning regulations? And what am I going to be able to do with this land? So I think that that will be the second most important question.

And the third important question is how am I going to structure these investments? Who are my investors? Is this something that I want for me? Is this something that I want to sell? Is this something that I want to develop? 

And, you know, when you say the word sell, in most cases, people are and of course, because our legislation is, again, very, in my opinion, old fashioned and kind of wants to deny this economic value. When you talk to attorneys and people in general, they don't want to say the word sell. But, you know, the minute, for example, that you own a concession right in with a company, your shares have a value and your shares are not in the Maritime Zone area.

And there is something that it is within trade that you could trade and sell. So, yes, a lot of people will not feel comfortable talking about selling or having transactions that have to do with Meridian Zone land, because, yes, Meridian Zone land is owned by the state. And the land itself is not meant to be sold. 

But, of course, there's an economic value that grows around it that needs to be understood and governed. You know, the minute you develop the land, if you create a five star hotel on beachfront property, OK, maybe there is no question about how the land is owned by the state. But what happens to that investment? You pay taxes concerning that investment.

And so, yes, because of all the details around it is important for you to ask yourself, what do I want to do with this? Is this something that I'm going to use for myself or my family or I want to get some sort of economic benefit in the future from it? 

Because that's going to make a difference on how you structure the transaction. 

[Richard Bexon]

Let's just talk, you mentioned tax and income. Is property tax different on concession property than regular property? 

[Raquel Moya]

Yes, the land actually is not subject to property taxes because it's not considered property.

It's subject to concession fees. So the state, unlike title property, is the one in charge of appraising the land and setting a value to it and then charging you for the use of it. The percentages are higher than real estate taxes.

They go from 2 percent to 5 percent. And when you develop the land, the constructions become private property. This is the interesting thing. 

And you need to pay property taxes for the construction on the standard rate, which is zero point twenty five percent. 

[Richard Bexon]

OK, OK. So you pay basically two five percent on the building, but pay two to four percent on the concession.

[Raquel Moya]

Two to five.

[Richard Bexon]

 Two to five. Wow.

[Raquel Moya]

OK. Yes, it's high. It's high.

And what has happened is that the municipality has not been very good at updating values and municipalities in some cases. But now they're waking up. Now they're upgrading their values.

And yes, it's definitely more expensive if I heard someone say once, I don't know, I can't remember who and I'm not going to say, but, you know, you know, owning a concession line is super cheap. He's like, no, no, no, no. Like if you compare it to real estate taxes, it's actually quite more expensive at two to five percent.

The thing is, they're not giving the land a proper value. But the minute those values increase, the burden is higher. 

[Richard Bexon]

Yeah. I remember buying a piece of land that was valued in the National Registry at twenty thousand colones. 

[Raquel Moya]

And, you know, that that's coming to an end and not not with Meridian Stone Land because it's different. But, you know, people weren't concerned about this. But because prior to July 2019, we didn't have capital gain taxes. 

But now you want your land to have the proper value. 

[Richard Bexon] 

Well, I mean, how does it take to get a concession record? I mean, if you're looking at a piece of land that doesn't have a concession and you want to apply, feel free to just tell me it's going to take as long as a piece of string. But like I mean, how long are people typically waiting, three years, six months? That's such a hard question to answer because it depends on so many things.

[Raquel Bexon] 

One of the main things being what municipality you're dealing with, because if you describe the process to apply for a concession, it doesn't sound very complex. You file your application with a survey of what you want to get subject to concession and all the documents that they need to review your application. They should receive it, review it, plan an inspection, and perform an evaluation. 

If everything looks good, they will publish an announcement granting people and third parties a period of time of 30 days to file oppositions. If there are no oppositions, they could start drafting a resolution draft that will be approved by the municipalities council. Then when it's approved, you will sign an agreement.

This agreement will go to the tourist board. The tourist board will check that everything is good, issue a resolution, and then you will transcribe all of this with a public notary and get it registered. So it doesn't sound that complicated.

[Richard Bexon] 

It does not at all, Raquel.

[Raquel Bexon]

It doesn't, but it is. Because among this process, you could find a lot of different things.

You could find issues with your survey, that there was something in the zoning plan that wasn't done correctly and doesn't allow you to move forward. Or the valuation can be insane. So you want to file an appeal before it becomes final. 

So a lot of different things can happen. When people ask me this question, I always first try to get to know the municipality a bit if I haven't worked with them in the past. If I know them, I can have a better timeline.

But I will say to you, it goes from 12 months, 12 to 18 or 24 months. And that implies you following up a lot. Yes, I'm sure.

[Richard Moya] 

I'm sure. Well, I mean, it sounds like there are various bottlenecks, of course, because you have all these people going to the local municipality. And then from there, it all goes to one bottleneck, which is the ICT, of course.

So, yeah. 

[Raquel Moya] 

And, you know, the ICT does a very good job, in my opinion. I think having better legislation and there's something being drafted right now, but I don't think it has had a lot of progress. 

But, you know, if we have better legislation, it will be easier for the state, for the municipalities and the tourist board to work because you're dealing with a reality that's not reflected in our legislation. So a lot of things that need a solution are not found in the law and that stops people from taking action sometimes.

[Richard Bexon] 

 Where is your favorite place to go in Costa Rica, Raquel? That's kind of a little off the beaten track.

I always like to ask people this. 

[Raquel Moya]

You know, and I love it when people ask me that question, especially clients. And then I always tell them that I like being an attorney, but I wish I was a tourist guide sometimes. 

There's so many places that I like here. I won't be able to answer your question with one.

Where would you go? I mean, if this weekend you were looking to go somewhere to kind of escape, where do you go to escape?

[Raquel Moya]

Yeah, I was going to first start by saying that my favorite thing about the country is that depending on your mood, you can decide for something completely different.

You could feel like going to the beach and then I'll tell you my favorite beaches or you could feel like going to the mountain, which is actually I think I would definitely go to the mountain. It's one of my favorite places. So for me to go and relax, I love Vara blanca

Vara blanca is beautiful. I love it up there as well. I love Vara blanca.

It's one of my favorite places. I love the places in Costa Rica that still feel like the town where you go and you'll find the pulperia and cows walking past. 

[Richard Bexon] 

Santa María, San Marcos, Vara Blanca. All those places. 

[Raquel Moya] 

Those are my favorite places and right now, in Santa Teresa, I work alot, in the Santa Teresa area and I like driving up to Manzanillo. It still has that feeling or Cabuya. It’s just nearby. 

In the middle of this feeling of Santa Teresa, full of people and investors and digital nomads. Then you drive a little bit up, you go to Cabuya or Manzanillo and then you feel like you are back in town and that’s what I like. 

[Richard Bexon] 

Wow. Well Raquel, my last question for you, if you inherited 500,000 dollars and had to invest into a business or real estate in Costa Rica, what would you invest it in?

[Raquel Moya] 

Well, I am going to follow the trends I was describing earlier of you only live once and you know, and I’ll take it as an emotional as I could be, as an emotional decision. 

I think I will build myself a stunning house in the mountains. That’s what I would do.

[Richard Bexon] 

Any particular location, Raquel?

[Raquel Moya] 

Well, I live in Santa Ana and Santa Ana has some mountain areas that are amazing and when you’re up there you don’t even have a view of the city. You just see more mountains. I would go there or Vara Blanca, which is one of my favorite places. 

[Richard Bexon]

Well, Raquel, I really appreciate you taking the time to talk to us here on this podcast, I will put all your contact details in the description down below for anybody that wants to reach out, that’s looking into a real estate transaction or beach front land, they should definitely reach out to you.

But, thank you so much for your time Raquel. 

[Raquel Moya]

Thank you for having me, it was great talking to you, Richard.