110 Current state of Costa Rican Real Estate

[Richard Bexon]

Good morning, Raquel. How are you doing?

[Raquel Moya]

Hi, Richard. I'm doing great. How about you?

[Richard Bexon]

Very, very good. Thanks very much for coming back on the podcast again. Yeah, it's a pleasure to have you back on it.

[Raquel Moya]

Thank you for having me again.

[Richard Bexon]

No, not at all, not at all. Well, let's get straight into it, Raquel. I mean, today we're going to be discussing kind of just what's going on in the market and also kind of your advice for anyone looking to invest in Costa Rica.

And then we'll focus a little bit more on water because, again, I think that's, you know, that's the kind of the thing here that, you know, is starting to float to the surface in a lot of areas that are seeing a lot of development, so.

[Raquel Moya]

Yes, absolutely.

[Richard Bexon]

Definitely. Well, I mean, the big question that, you know, I keep getting asked at the moment, I keep getting asked, Raquel, is, you know, there's a lot of challenges, you know, globally, especially with kind of inflation, exchange rates, uncertainty, you know, and the impact that may have in the Costa Rican market. But I mean, what are you seeing from your side?

[Raquel Moya]

Well, it's interesting. I'm definitely getting a lot of those questions too. And what I'm seeing, I'm seeing a lot of uncertainty, of course, like everybody else.

And I think that has a positive, but also a negative, but also a positive side to Costa Rican investment. On the negative side is people don't really know what's going to happen. And when you ask the different stakeholders in the market, the real estate agents, the people that are selling, developers, they don't really know what's coming on the next season.

And because of that, a lot of people are putting their real estate investment on hold. But there's also a positive outcome that I've seen. And is that many investors see that investing in Costa Rica could be an investment hedge in terms of inflation.

You know, because they want to diversify internationally. And real estate assets have an intrinsic value that could provide a consistent income in the future. And also, there's a perception that no matter what happens with the climate, there will always be a demand for homes and vacation homes in Costa Rica.

And I've seen in the course of transactions also that some people are desperate to move their money into a Costa Rican real estate asset. So they can protect the value they have right now because of this uncertainty of what's going to happen. So it's still attracting some investment here.

And I think if we see it from that point and we receive those type of investors, it could be positive for Costa Rica. Costa Rica could become a place in which people come and find a way to protect the values that they have and their cash flow.

[Richard Bexon]

Yeah, I mean, I can certainly confirm that. I spend a lot of time out on the road with investors looking here. And a lot of them are looking to diversify out of the US just because of the uncertainty.

Or they had assets in the market or in real estate up in the US. But they sold at the peak or somewhat near the peak. And now they're like, look, I don't want to reinvest back into real estate because I don't know where it's going.

You know, whereas here in Costa Rica, you know, we kind of see steady increases here. The reason being is it's cash buyers. You know, it's not motivated by finance.

So, you know, it's a great wealth diversification play that comes with a great lifestyle part to it as well, where you can come down and enjoy it.

[Raquel Moya]

Exactly. Exactly. And it provides a very attractive combination, as you just said.

It gives you a good lifestyle, something that you can enjoy. And then a combination of potential real estate capital appreciation and income.

[Richard Bexon]

Yeah, no, definitely, definitely. I mean, on your side, I mean, what type of transactions have you seen more of? Or what type of transactions have you seen less of recently?

[Raquel Moya]

Well, last time we spoke, we were seeing a very emotional market. And I think that has started to slow down. People are thinking more of future, of how they can receive income from the properties they're buying and how those properties could potentially resell because most of them reach a peak in value.

And I'm seeing buyers that are taking more considerations and more time to consider this a financial decision.

[Richard Bexon]

Yeah.

[Raquel Moya]

But I still continue to see that most of the people that are coming here, I see a lot of residential development and the market. The projects are being developed, are thinking of people that will be interested in leasing long term, relocating or coming here for a long stays to work away from home. We're still seeing all the trends that were created during the pandemic.

People wanting to come to Costa Rica and stay. And so it's mostly around residential. We're seeing a lot of really high end individuals coming here and seeing Costa Rica as their second homes and exploring also communities, which I think is a very good opportunity for the country because prices have increased so much in the peak areas.

The investors are starting to see the surrounding areas that were not so developed and that were not so attractive before because people want to experience the country in different ways. And I've seen an increase of that, which I think could bring a lot of opportunities for the country in areas that have normally been not been so attractive for tourism.

[Richard Bexon]

Yeah. I mean, typically what I find is that people, when they first come to Costa Rica, they like to stick to more of the path that's well trodden, the kind of the Tamarindos, the flamingos. But once they start to spend a bit of time there, they start to want to feel that authentic raw Costa Rica, you know, or people that have been here for a long time, like want to go back to how it used to be, you know, so they start moving out to those areas, you know, whether that's further south, you know, towards Negra, Junquial, further there, you know, or, you know, I don't know, you know, further south of, you know, towards Camaronal, you know, people are moving south and north of Nosada, you know, and even from Uvita area, you know, people are moving up into Jatio, Blatineo, or further down south of Ochoa, and even Tres Rios is moving pretty well at the moment.

[Raquel Moya]

Exactly, that's happening all around the country. To add to those examples, in Santa Teresa, people are moving to Malpais, Cahuilla, which was not really a part, and even there were areas that I have not heard of for a long time, like Delfines and are starting to come back up, or Paquera that was really never, you know, a place where people were buying. And I think this is also going to create an important challenge in terms of local government.

A lot of these governments are not prepared to receive this type of investment and income, and I think all professionals here, attorneys, real estate agents, and people that participate in the community are going to play an important role in becoming a bridge between investors and local governments to make it work.

[Richard Bexon]

I agree, I agree. Well, I mean, you know, you're involved and overseeing here of transactions happening in real estate all over here. I mean, in your opinions, you know, because I also often see people make mistakes or, you know, get the wrong advice.

I mean, what are the main mistakes that people make when investing in real estate in Costa Rica that you'd be like, look, just keep your eye out for this?

[Raquel Moya]

Yes, well, I think not seeking good advice at first and trying to cut down on costs before, it's definitely the biggest mistake. Normally, because they're not sure they want to move forward, or they want to just start investing in the property when they're secure that they're going to acquire, they cut down in certain technical reviews, and they don't involve their development team on time, and then they start experiencing a lot of delays when they try to build. And I think integrating a good team, and I understand people may have different budgets when it comes to purchasing land, but in all cases, you should try to integrate your team with good legal advice, but also very good technical advice in terms of, you know, exploring what you want to do with the land.

And I've seen that a lot of people perform very limited reviews of what they want, and don't really think of the part of building, because they think it's granted, you know, they believe it's something that's going to happen for sure. And they don't understand how complex our legislation is, in terms of construction, development, resources, and then they bump into this very unpleasant surprise that they can't do what they wanted to do, and it's too late.

[Richard Bexon]

Yeah, I mean, I agree. I mean, I think people should, you know, it's amazing how people come down here, and are just, I don't know what it is, they get like drunk on Costa Rica, and they don't ask the questions, or look at the look at it the way that they would do, you know, in their home country, if they were to make an investment in their home country, they'd look at it left, right, and center, whereas here, sometimes they don't look at it, or, you know, get that good team together in order to do that analysis, and that feasibility study, you know, on what it is that you, you know, what it is you want to do, I mean, just a very simple one of like an agricultural piece of land, you know, where you want to put multiple homes on, like you can't do that.

[Raquel Moya]

Exactly. And also, they, a lot of people go and they, because I've seen also that many people that are investing now, they stay in the areas for a long time. So they start getting to know people and hear stories.

And they base a lot of their decisions on what they've heard from people. And in Costa Rica, a lot of people used to do things in a different way a long time ago, and they whisper in the ears of investors and tell them, Oh, no, you, you can still do this, I did it like this 10 years ago, it's going to work out. And, and they go with this idea that things are going to happen smoothly.

And and then they get disappointed at the country for the wrong reasons, because they thought they were misleading. But if you learn and explore the land correctly, and you understand what's going to apply and what you're going to need to comply with to develop, then you're going to be happy with the development phase, of course, you could face challenges. But the more information you have, and the best technical diligence you performed on the land, the better the development phase is going to be.

[Richard Bexon]

Yeah, I mean, I completely agree. I mean, for me personally, understanding what a client wants to do is so important when looking at land, because again, you know, it's it's going to be restricted by water, which we'll talk about in two seconds. And also, you know, it's it's zoning.

So So yeah, but let's jump into water a little bit, because you know, a lack of, you know, you know, I want to ask you is the lack of water affecting real estate development in Costa Rica, you know, in other areas, certain areas that are more affected than others?

[Raquel Moya]

Absolutely, it is. And I think, although there are some areas that are more affected than others, all areas are affected by, I wouldn't say the lack of water, but the lack of infrastructure to bring water to different places. And and wherever you go, you're going to find this in in different areas.

Guanacaste is possibly one that's very affected by it. And everyone knows of that. But this is also something that happens in other other areas of the country.

And it happens in the South Pacific, it happens in in all areas. You know, when you go to the center, and the main areas that are already developed, they're already developed for a reason, they have water. But if you want to do something else outside, which is also what the places are people are attracted to right now the mountains and and places that are a little bit more secluded, there's no infrastructure to build the water to answer it to build to bring water and to build and develop.

And that's definitely affecting investment in two ways. First, if you do hire proper due diligence, you're going to find out that water is a challenge. And then that discourages a lot of people from buying.

And people that didn't go through that proper due diligence and already purchased land, they try to develop no matter what. And that compromises our water sources. And that compromises the way in which we develop the land.

[Richard Bexon]

Yeah, I mean, it's, you know, I mean, water is key, because again, you need water, you need water lettuce to, you know, it's a, yeah, well, that is a subdivide land to build a home for everything now.

[Raquel Moya]

And usually when when I'm talking about the water requirement, I try to explain it this way to my clients, you need water from a legal perspective and from a practical perspective. It's not just enough that you see water coming from somewhere in your property that's having water for practical purposes. But you need water from a legal point of view, too.

Because sometimes they go and see the property, they see there's a well, and they see water coming out of it, because it's a rainy season, for example, and they think they have it solved. But then when they start building, they realize that that well cannot be recorded, or that well is not enough for what they want to build. So you need to make sure and buyers need to understand that you need to secure you have water from a legal perspective and from a practical perspective, because also some people are willing to just go with the legal side of it, you know, having a legal source of water that's recorded, and that's going to allow you to apply for permits, even though you're not actually going to physically get water in throughout the year. And then you have all these challenges of actually supplying water to your project.

[Richard Bexon]

Yeah, I mean, I agree. I mean, looking at that water throughout the year is so important, you know, and especially in the northern areas where, you know, it's a lot drier, you know, in certain parts of the year, you know, I mean, I had a client the other day tell me, I can't believe it rains so much in the, you know, in the rainforest. And I was just like, say that again, you know.

But yeah, I mean, it rains all year round. That's what's called a rainforest, you know. But yeah, I mean, I advise people never to buy land without water, you know, if it doesn't have legal water, you know, I mean, and again, that can be like, look, hey, there's a registered well on the property from a legal, that's great.

But what's its flow rate? What are you trying to do, you know, etc, etc. So yeah, it's really important that you do due diligence, you know, or if you just want it easy, just buy in a development that already comes with everything, you know, it's just the best case scenario.

[Raquel Moya]

And yes, in terms of, you know, water, it's interesting, because there is, we have the legislation that we have for water is dated 1942. If I'm not wrong, it's, it's been a long time. And there have been efforts to, to renew that legislation to make it more flexible.

And sometimes when people hear that legislation is being, it's being changed to become more flexible, they think it's going to be a threat to the environment. And not necessarily, sometimes it's an improvement for management and an improvement for infrastructure. And they have been at least three attempts in the last 10 years to make this change, I think 2014.

The changing legislation in legislation was voted, and it didn't go through then again in 2017. And I think once again, last year, and it doesn't happen. And you know, what's interesting is water is so key for development.

And right now, we have at least 1500 local associations that manage at least 30% of the water that supply to the country. And, and it makes you think are those associations do they have the resources to understand that they're managing liquid gold and what it implies? Do we have the legal framework for to properly manage this important resource.

So water is definitely in a country like Costa Rica, so protective of environment, but also that receives so much income from tourism and development is something that needs to be taken into consideration more seriously. Water, usually in legal due diligence is a little section of your of your review. I mean, in what I've seen in many cases, and it should be such an important part of it.

And I think as I'm thinking of me as lawyer, and but you know, Costa Rica is very lawyer based. When you come to Costa Rica, you need a lawyer for pretty much even for opening a bank account. Sometimes it's not really reasonable.

But, but you know, as lawyers, we're involved in so many phases of investment, that we have a key role in emphasizing the importance of different things. And water is definitely one of them. Because we can help promote that tourism and development is performed responsibly.

[Richard Bexon]

Do most of them, you know, when most do you think most investors understand how much time or the resources that takes, you know, when understand when, you know, when planning a bit, you know, when investors from outside come in, and they want to, you know, do a development here, do you think they really understand is how long this could take? You know?

[Raquel Moya]

No, the short answer is no. And I was saying before that there's a point in which they get disappointed. And I think we can all avoid this.

Because there's a learning curve that makes people lose a lot of time. And it shouldn't, it shouldn't happen. And there's a sweet spot in which as attorneys and real estate agents, we need to not make it seem so complicated, because it's part of we're trying to make them come to our country and understand how to navigate the system, but also be transparent and provide enough information.

So people can allocate the correct amount of time and resources to the development phase. And this system that we have is is not is not very clear for everyone. And and depending on where you develop, the there's there's not a single way of doing it.

If you are developing meridians on land, which we were discussing last time, there are some extra steps. If you're developing a small scale house, you won't need environmental permits, if it's under 500 square meters, and it's not located in in protected area. So there are a lot of different things that you need to consider.

And and although we always need to rely on the technical team, I think if we're going to participate in the real estate market, in any way, whether as agents, whether as attorneys, we need to know the legal framework that governs the development phase. So we can prepare the developers and the owners.

[Richard Bexon]

Raquel, what would be your advice for somebody like they want to buy a piece of land, it doesn't have water available, but potentially, you know, maybe there are some options available to secure water? I mean, how would you go about managing, you know, or structuring a deal like that? Because again, the buyer wants to make sure that they do have a water source, the seller wants to sell the property, you know, so how do you, you know, find a middle ground there?

Are you structuring a deal that you don't close until you have the water source or like?

[Raquel Moya]

Usually the way I it depends a lot on on how risk adverse your client is, first of all, but to try to bring it to the middle, I usually try to recommend there are certain studies you can hire to determine the possibilities of getting underground water in the area based on the proximity of other wells. And I wouldn't be able to explain how it works. But you can see there are certain studies in which they evaluate at what points in the land they could dig a well and get enough water.

So I at least recommend when there is no water well performed at all. And that's, or it's property that doesn't is not served by by the National Water Institute, it doesn't have service by a local and then it all comes down to a well. I do recommend that at least they hire that.

And because in most cases, it the parties are not going to wait until the water of the source of water is recorded, but at least that they know it is a possibility. And even if you want to take time, it's going to happen. We also try to be transparent that in some areas, even if you get underground water, you're going to have challenges during the dry season.

And that's something that happens. And that you need to be prepared for that. And maybe gather water throughout the year and have a backup for a backup plan.

[Richard Bexon]

Yeah. I mean, what options do investors have in securing a water source in that property? I mean, you talked there about, you know, IEA, which is kind of like the main water, you know, management here in Costa Rica, there's the Asadas, which you talked about there, the local water associations.

I mean, what other options are there?

[Raquel Moya]

Yes, there are essentially three options, four options, I'll say. The first one, the best, I guess, is the Water Institute. If you have national water served by the National Institute, there is another option is if you get water from Asadas, which is not different than state water.

Water from Asadas is actually just a delegation that the Water Institute does into a local association. And there are some associations that don't have that delegation in place. And even though they do serve water, that water is not considered a legal source and you could have challenges.

So when you are getting water from a local Asada, which is an association, we usually try to be stronger with our due diligence to understand how the Asada works, if they were properly are authorized, and what their policies are, because sometimes their policies are not that clear. And then there is a third option. And before I say a third and a fourth, because you could have wells that subject to concession, which basically are authorized by the Ministry of Environment and Energy.

And they usually, because they're drilled wells, they provide a higher flow of water. Or you could have an artesian well, which is the simplest option in which you can just dig in the well, not drill it, and record it before the authorities. And this last option is the simplest when you're going to do a residential, a small residential development.

It doesn't work for all types of development. So if, for example, you want to do something touristy, or commercial, you won't be able to do it with a hand-digged well. So you usually try to explain all those little, all those different options.

[Richard Bexon]

Yeah, I mean, again, you just need an expert on these things, if you're going to start looking at land, or as I said, just buy land that has water from the National Institute, or, you know, from a SATA, then, you know, with water letters, sorry. But just do good due diligence.

[Raquel Moya]

Good due diligence, and, you know, responsibility. Sometimes, some opinions may not be as popular when you're promoting investment, but you also need to protect your product. Costa Rica is our product, and our product has a lot of green characteristics and protection characteristics that are essential to what people are looking for.

People are coming here because of that. More in some areas than others, of course, but that's the essential product that we have, and we need to protect it when we also promote investing and developing. And we need to make sure that water is presented as the key issue that it is, and that developers look for solutions and proper ways to develop.

[Richard Bexon]

Yeah, I mean, I like that, you know, water is kind of a holdback here, and it slows things down so that we don't get over development, you know, and so it's more of a sustainable development that we see here in Costa Rica, and that anytime anyone wants to do something big, like, it's, you better have time on your hands and be ready to do, you know, the studies that are necessary. But anyway, my last question for you, Raquel, is I think I've kept you long enough. If you had, if you inherited $500,000 and had to invest it into a business or real estate in Costa Rica, what would you invest it in, where, and why?

[Raquel Moya]

Well, you asked me that last time, and I thought I was feeling like buying like a massive land for protection and building a little mountain house. And I think I still feel that way. I think I'm still in the emotional side of if I had this amount of money, I would like to invest it into, you know, a part of it in, you know, something long term for me, my family and to enjoy it.

But also, you know, more and more, and when I started this project, I think I'll probably take some part of that to bring back to communities that are being so relevant for investment in Costa Rica, but are not receiving enough help. And for the people that actually live there, you know, I would like probably like to use it to promote housing, quality housing for for people that live in the areas. And that because of the prices, they can't seem to find any place to live.

And if I had to invest money right now, I'll probably do something like that. I think it's a good investment to develop housing for for low cost housing for people in the area that it's reasonable and and dignifies the way in which people live in the coast.

[Richard Bexon]

And you say that, I'm about to do that. So I'll let you know.

[Raquel Moya]

Really?

[Richard Bexon]

Great.

[Raquel Moya]

That sounds amazing.

[Richard Bexon]

Well, Raquel, this has been great. Really appreciate your your time coming back on the podcast. Anyone that wants to get into contact with Raquel, you can do all of her contact details will be in the description.

And Raquel, thank you very much for your time and hope you have a great weekend.

[Raquel Moya]

Thank you. You too, Richard. Thank you.

[Richard Bexon]

Bye bye.

[Raquel Moya]

Bye.