REACHING THE SKY

Costa Rica 2018 | CONSTRUCTION & REAL ESTATE | REVIEW

The construction sector in Costa Rica has recovered significantly from a slump in 2016. However, the country has much to accomplish, especially in terms of ensuring new residential projects are inclusive for all income levels and fixing the infrastructure problem.

The construction sector in Costa Rica faces a unique predicament in the region. The country is a leader in green technology both regionally and globally, and as such has been the recipient of a large amount of global finance. Despite much emphasis and momentum for developing some of the most state-of-the-art construction projects, the country has a high portion of residents living in poverty—over 21% to be exact. The government is thus faced with ensuring the country's housing demands are met while maintaining a steady flow of foreign cash.

Though the country has oft been praised for its accomplishments, ranging from green energy to social progress, Costa Rica still faces some significant impediments to increased development, namely infrastructure. The country lags behind its neighbors in terms of infrastructure, with urgent public projects being neglected, mismanaged, or delayed by excessive red tape. The problem was finally addressed in August 2016 with the passage of a bill that was designed to expedite necessary infrastructure projects as well as impose a fine of over CRC5 million on unnecessary delays. A long needed expansion of the San José-San Ramón highway was finally set in motion in January 2017 with the approval of the country's comptroller.

Another potential solution to the country's infrastructure problem could be found in increasing public-private partnerships (PPP). Despite congressional effort, PPPs have been utilized with relative infrequency; a 1998 concessions law aimed at easing the PPP model and improving private investment has been utilized just five times since it was enacted. These projects have included a water pipeline as well as the Puerto Caldera Port and the Daniel Oduber Quirós International Airport. The country has since made some effort in bringing further reforms to the local PPP model in hopes of garnering more investment; however, despite support for an overhaul bill and calls for reform by the country's eminent PPP agency, little progress has been made. Several projects have been earmarked for potential concession as a PPP, including renewable energy facilities and public housing and infrastructure. However, the same characteristic mismanagement and red tape that has impeded infrastructure projects has also hampered these potential PPPs

TBY recently sat down for an exclusive interview with Gastón Orostegui, the General Manager of Globalvia Ruta 27, the concession company that deals with the design, financing, building, and repair of Route 27, the San José-Caldera Highway. Orostegui shed light on the status and potential role of PPPs in Costa Rica. “At the beginning, Costa Rica started timidly with the PPP scheme. Therefore, the first concessions were those with higher risks because many matters had to be resolved on the go, such as construction risks and the implementation and realization of contracts. At the end of the day, we were pioneers in this scheme, which implied many risks at the beginning; over time it helped us have more consolidated contracts," Orostegui explained. “However, the law of concessions was supported by the experiences of other countries and this allowed us to work according to a solid regulatory framework. There have been matters that were resolved during the period of concession."

For the sector, 2016 was a rough year, with private-sector projects declining by over 17%. While residential projects fell a rate of close to 6%, non-residential projects fell at a rate of more than 30%, according to the Central Bank of Costa Rica. Approximately 18 fewer projects were started in the country in 2016. Some attribute the slowdown in construction projects to large developments, such as the City Mall in Alajuela or the Reventazon Hydro Electric Plant, which soaked up most of the country's finances.
Fortunately, 2017 lived up to forecasts and saw a considerable increase from 2016 numbers. The rebound was evident by the last quarter of 2016, which saw a YoY rise in construction activity by over 10%, or approximately 1.2 million sqm of new projects. The last half of 2016 saw the beginning of construction of Oxigeno in San Francisco. The project, the first of its kind in Central America, is sometimes defined as a human playground; the complex will bring together entertainment, retail, food, and sports for all age groups, as well as a condominium. The project is bringing in an investment of over USD200 million from urban development firm Cuestamoras and will take up approximately 200,000sqm. A similar project, the Escazú Village, located in San Rafael de Escazú, will see mixed-use facilities go up on an area of 130,000sqm, with an investment of some USD1 million. The country also began industrial projects, the largest of which is currently Green Valley, a 97,000sqm space located in Alajuela that will be a free trade zone.
Over the past few years there has been a drastic increase in demand for high-rise apartment buildings. In fact, in March 2017, the country welcomed its first skyscraper, the Torres de Paseo Colón, a pair of high-rise residential buildings exceeding 100m in height located in San José. Elsewhere in the capital, the developer Omnia recently announced plans to build the Torre 40, a 40-floor, 150m tall building also located in Paseo Colón. The USD35 million project is set to be LEED certified and open in 2019.
In a recent interview, Esteban Cespedes, General Manager of leading construction firm Civitar, explained to TBY why not only Costa Rica, but also cities throughout Latin America have seen an increasing demand for high-rise residences. “People want to live closer to areas in the city where the job opportunities and services are and avoid traffic. Smaller residential solutions allow people to buy properties within the city," Cespedes told TBY. “This is a trend that already happened in larger Latin American cities like Bogotá and Mexico City. This awareness has arrived in Costa Rica. Five years ago, 85% of the residential business was made up of horizontal solutions; however, nowadays the market is probably 50-50, and will probably keep growing in vertical constructions."
The trend of high-rise buildings has flourished; some, however, have been left behind. A recent study by the University of Costa Rica claims that some 80% of residents in San José are unable to afford these new homes or apartments. Comparing housing prices with the National Institute of Statistics and Census' Household Survey, the study found that the sector's recent boom is far from inclusive, with the majority of low-income households forced into smaller, government subsidized housing. The research found that a new 33sqm apartment in Pavas sells for approximately USD88,000, a size inadequate for a family of more than two. The study also found that the most affordable buildings were found in the neighborhoods of Alajuela, Pavas, Purral, San Antonio de Alajuela, and San Rafael de Alajuela, whereas the most expensive projects were located in the districts of San Francisco, de Heredia, Rohrmoser, Mata Redonda, Escazú, San Rafael de Escazú, and Santa Ana.