BOOM TOWN

Costa Rica 2017 | CONSTRUCTION & REAL ESTATE | FOCUS: CONDO BOOM

Having fully recovered from the global economic slowdown, a new wave of high-rise housing development is transforming Costa Rica.

Times are booming in Costa Rica. A surge in real estate development has led to market acceleration and a “condo boom" as investors look to take advantage of the country's stable political and economic climate.

This is not Costa Rica's first housing boom. In the first few years of the 21st Century, high-rise construction spiked as capital returned to the country. Construction was clustered in two regions: the capital of San Juan and the coastal resort towns that drew tourists by the thousand every year. In Dominical, for example, prices skyrocketed from 2003 to 2007 as investors tried to get in on the region before soon-to-arrive infrastructure and transport options caused tourism to boom. The majority of this first housing boom came from American and European citizens looking to use the houses as investment, banking on the secure political situation and well-integrated economy to produce future gains. However, this came to an end when the global economy stalled in 2008. US buyers, the single largest group of foreign investors, withdrew from the market, sending prices plummeting amid diminished demand.

In the past few years, however, the market has begun to pick up again. Buoyed by an improving domestic and global economy, developers have resumed construction projects, targeting foreign investors and expats again. San José has seen this manifest itself in a new series of high-rise towers, which are transforming the skyline in the hope of producing a new wave of economic development. Costa Rica's government has encouraged such construction, believing that such construction projects would help draw people and investment back to the capital, thereby improving the quality of life. In recent years, the Ezcazú and La Sabana neighborhoods have seen a wave of new construction that has spread to traditionally low-rise neighborhoods like Heredia and Curridabat.

Most of this construction has been in the form of apartment buildings. “There is a saturation of office space at the moment," developer Rodriguo Van Der Laat told TBY, “and office availability in San Jose is around 10-15%, which is quite high… hence, developers have stopped building office buildings until occupancy rates in existing buildings start increasing." In contrast, there is significant housing demand in San José. High-rise housing in the city is attractive to Costa Ricans and international citizens because they meet current trends; there is increased demand for living spaces in urban areas, and condos are a better fit for smaller, more mobile workers. Minister of Housing and Human Settlements Rosendo Pujol Mesalles believes these trends are positive and new construction sorely needed. “We need to build houses and apartments closer or inside cities and towns," he told TBY. “Some of the houses built in the past were poorly located."

Costa Rica, one of the most environmentally friendly countries in the world, also recognizes the ecological benefits of denser, less sprawling urban areas. “The central valley is a small area with strict construction regulations," Ing. Manuel Terán Jiménez told TBY, “and there is very little land left on which we can develop our projects; hence, we are trying to develop fewer projects but with more density and less footprint." The country's natural resources are one of its main draws, and moving to a construction model that has a smaller environmental impact can only be a good thing for the future.

This surging high-rise housing market has been assisted by generous access to credit on the part of banks. Lending requirements have been alleviated as Costa Rica's state-owned commercial banking sector enjoys a stronger fiscal position, allowing buyers to be more aggressive with their investments. New credit unions have also emerged that allow for increases by sharing the risks of financing. This helps ensure that the housing market remains accessible to middle-class Costa Ricans, increasing occupancy rates and generating more economic activity. Van der Laat, whose firm built the tallest building in Costa Rica, stressed that it is important for the health of the market that apartments have high occupancy rates. “[The] important thing with apartment buildings is that we have to ensure that the buyer is the party that will live there," he told TBY. “So as long as the apartments are rented there are no problems. The real problem occurs when there is an over-commitment of capital in real estate and low occupancy rates, which leads to losses."

Moving forward, industry participants say that streamlining the regulatory process and improving communication between planners and the government will be key to the continued health of the market. Still, the future looks bright, as the fundamental properties that continue to draw people to the country look unlikely to change anytime soon.