Jaco Market Analysis July 31, 2008


Our Own Top Sales Executive Brian Smith responds to our favorite online thread, July 31,2008 http://groups.yahoo.com/group/CostaRicaLiving/ 

Although I agree to a number of things, I must take a moment to clarify the area where my expertise and knowledge are strongest, the Central Pacific.

1. Virtually dead RE market, prices dropping?.
Not here! We've seen price stabilization in the last six months, but no real price drops except on those properties that were clearly overpriced in the first place.

Our office is busier than same time last year. Other RE agents here tell me they have picked up the pace in the past several months as well. Probably 50% of our prospects are folks retiring in 5-7 years and interest is VERY strong in beach area properties. This percentage seems to grow every month. Even with a bad U.S.
economy, prices there for beach properties are astronomical! Mr. & Mrs. Average North American can afford something nice on or near the beach here that they can't get there...

2.) Stewart Title says "business is dying"?
Perhaps that has more to do with the fact that international title insurance companies pay off so seldom on problematic titles. They won't issue it on anything that might be a problem and who would pay 1% for title insurance when the company does decide to issue it to them with virtually no chance to pay off on it?

3.) Prices are quite high, selling prices FAR below asking?. This is true in the Central Valley and Guanacaste in many cases. I can't believe the asking prices (especially new condos) in the Valley. For something similar here, the price is the same. The only difference is that it has ocean view and you can walk to the beach. This makes a 40%+ price difference in most places around the world, so
the Valley places are overpriced. Guanacaste is discovering that poor infrastructure and low water tables can't be hidden forever, that sooner or later the market takes note....

Here in the Central Pacific, selling prices are remarkably close to asking prices. In the past week our office has seen a $220K beach house go for $215K, a $195K new condo go for $192K and a Los Suenos home go for about 6% less than asking price. This trend of which you speak is not found here.

The only exceptions we're finding are those few "emergency" sales that are prompted not by the CR market, but rather for the U.S. market, particularly Florida and California. Investors losing their shirts in those markets are sometimes forced to sell off appreciating assets here to cover losses there....

4.) Inventories quite high?. In the Central Valley, yes, this is true. I know of several nice condo projects that were completed 3 or 4 years ago with something like 20% sold. Many of these Costa Rican builders believe that the waves of ex-pats are coming, so they keep building them. Common sense says to wait until 90% of these unsold condos are bought before building more.

Here in the Central Pacific, we get tons of requests for preconstruction sales. Folks want to lock in today's price. My own personal opinion is that more condos are not needed here. What is needed is single family homes in gated communities. There are few here and probably 40%+ of our prospects are looking for this sort
of property....

5.) Interest Rates Rising?. This is quite true. Is there anywhere in the world right now where they are not?

6.) Virtually impossible for prices not to drop, up to 40% corrections.     In the Central Valley and Guanacaste, I think this is absolutely true. Here in the Central Pacific where a pure beach front 2 BR luxury condo can be bought for as low as $200K-$275K, I simply can't see a 40% drop! Did I mention that these condos come fully turnkey furnished and include all closing costs? I don't
believe that these condos will be worth just $150K in the near future.....

I have such confidence in the market here that I'm making an offer on a property next week. I feel that there is still some room to grow and that a rebound of the U.S. market will only feed this one. Sure, I'll ask the title insurance company if they'd issue a policy on this property. If they say no, I'll be real careful in my research. If they say yes, it will just give me more confidence in my purchase....

I'd be more than happy to show anyone the types of properties, comparables, selling prices, the market and more here in this area....

Brian L. Smith
CR Beach Investment Real Estate   brian@crbeach.com
 

RE: Current state of real estate market...

"the fact that the st moritz project, a very chi chi development near los suenos has shut down (for now) must say something."

I believe Mr. Lee is referring to the St. Regis development. Trying to sell 1 BR studio apartments with NO kitchen for $800K+ SHOULD lead to a shut down and it did here. I simply cannot see how that could possibly be an indicator of the current and near-future market place....

How about the newly announced high end project across the bay from Los Suenos that just started sales about 6 weeks ago? We heard they are moving well....

"in jaco, there is a glut of unsold beach codos, but the cranes (our new national bird) continue to pour more concrete"

I just spent an hour researching the numbers and found that less than 15% of all the currently existing and reasonably priced brand new condos are unsold. Naturally it is the way overpriced projects that are having difficulty selling more than 10% or 15% of their units. Also, presales have been excellent for reasonably priced condos as well. I believe that 15% unsold doesn't qualify as a
"glut" as a glut by any standard. Go to the Daystar office or Vista CR and get an update for yourself. They are the big boys in town some 10 beachfront projects.

What remains unsold are generally the grotesquely overpriced ones....

The proof is in the pudding:
Costa L condos (252 condos) have sold 20+ units in the month of July, about 30 remain available....

Ac sold four units this month, only three left....

Monte R, only one unit left....

Jaco  Viage, only one 2 BR unit left.....

Vista M, sold out (38 units)

Palo B., just four units out of 38 remaining....

Ba Az, sold out (38 units)

Ba E, sold out (38 units)

Tr. Res, just three units remaining....

Dia. el Sol, sold out (72 units)

Presales are also doing well for at least 6 other projects currently under construction.....

Finally, if folks believe that these condos won't get sold or there is no market for them, think again. A lot of condos have come on line in the last twelve months. I defy you to come to Jaco, the single most popular beach in all of Central America, after Dec. 10 and try to rent one. Chances are you'll be staying in a hostel....

I think that to get a true understanding of the market, one must pound the pavement every day, look, listen and get the facts. Developers talking about slow sales in what is traditionally one of the slowest months for real estate sales doesn't surprise me a bit. Let's try this experiment again in mid-January 2009. That will be the true test....Respectfully, Brian L. Smith

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