The Costa Rica Real Estate Crisis and Its Implications for Panama

Reuters reported in August 2008 that "Costa Rica vacation homes [are] hit by [a] crisis."

Asking prices for beach homes in Costa Rica have dropped 40 percent from their peak three years ago. Twenty percent of the decrease has been in the last six months. According to Reuters developers are holding on to empty buildings in some cases instead of dropping prices.

An example of the drop in prices is a three bedroom home is a beach town (Tamarindo) that sold for $490,000 after an initial asking price of $650,000. (A 25% reduction in price in a year)

The Root of the Costa Rican Real Estate Problem

The problem as described by Reuters is nearly all homes in Costa Rica that were purchased with cash. Most individuals chose not to finance in Costa Rica but to take out a second mortgage on their US home during peak real estate prices there.

As real estate prices have plummeted in the USA and banks have tightened credit many US citizens have tried to sell their Costa Rican property to raise case. This flood of sells has produced a buyers market.

We can assume that problem is especially acute for developers in Costa Rica as they have financed larger projects and now are sitting on property without buyers.

How Does the Costa Rica Real Estate Crisis Effect Panama Real Estate?

There is talk in Panama of a real estate bubble. Although many foreign real estate buyers in Panama can and do get local bank financing the same situation could apply if there is a rush to liquidate property here to cover debts in the USA.

If the Panama real estate bubble bursts here developers will be stuck with finished projects and no buyers. Many have made money in the Panama real estate market purchasing at "pre construction." Typically a condo buyer or investor puts 10% down with the remainder due at completion. As the Panama real estate market has gone up buyers have been able to leverage their initial investment into handsome profits.

If the value of condos at completion is less than then pre construction contract buyers will take their ten percent loss and walk away. This will leave developers, like in Costa Rica, with financed debt and no buyers.

Opportunity in a Panama Real Estate Bubble

If the bubble bursts in Panama real estate expect to see developers try to rent their completed condos thus flooding the market. Expect to see great rental deals for condos followed by purchase great prices.

If a situation unfolds in Panama similar to Costa Rica's crisis the services or a competent realtor will be critical. Someone who does business throughout the country and has the experience to pick the right time to buy may be your best bet. If you are interested in exploring the potential opportunities of a Panama real estate bubble bursting talk to us at ABPanama. We have over 23 years experience managing real estate portfolios and we do business throughout Panama.