ffordable real estate make Nicaragua an attractive option for investors - April 1st 2007

When people travel to a foreign country like Nicargua, real estate is typically not at the front of their mind.

Very few can say that they have leased a property for business after visiting for just three days, but that’s just what Charles Southwell did nine years ago. Southwell is an investor and real estate developer who lived and worked in Costa Rica for years; he went on a trip to Nicaragua with a friend nine years ago. “Within a matter of 72 hours, I had leased a building for business and basically decided to move here,” Southwell, who now owns the RE/MAX Granada franchise in Nicaragua, said. “I could feel the opportunity.”

Owning oceanfront property on a sunny beach or a period home in an historic city are distant dreams for many people. Such properties seem beyond reach in most areas but are surprisingly affordable in Nicaragua. Nicaragua real estate is beginning to attract global attention because of its rare combination of stunning beauty, which includes long stretches of ocean beaches and cities featuring colonial architecture, and a low cost and high quality of living.

“We enjoy a lot more time because we’re able to afford help here in certain aspects of our living,” Jeff Finch, a real estate developer who moved from Virginia to Nicaragua, said. “We have two housekeepers. We have a gentleman and all he does is take care of our landscaping, he’s kind of our handyman. We also have a pool keeper and a nanny. They’ve become extended members of our family.” Finch pays each of his employees between $100 and $150 per month.

Other luxuries are bargain priced in Nicaragua as well. A high quality meal can cost as little as $10 per person; suites at luxury hotels can be had for $120 per night. Finch and his family pay about $12 per doctor visit and less than $5 per prescription. With prices such as these, it is easy to see why Nicaragua is growing in popularity as a vacation, investment and even retirement destination.

Simple geography is another reason many investors are turning to Nicaragua. “To get here from the States, it’s easy,” Southwell said. “It’s a pretty viable destination for somebody that lives in the States or Canada. It’s turned into quite a tourist mecca, and it has huge investment potential.”

Some, including Southwell, have drawn comparisons between Nicaragua and Costa Rica. Only a decade or two ago, Costa Rica was a poor, beautiful Central American country with limited infrastructure. The country made a conscious effort to market itself as a tourist destination and an inexpensive place to do business, bringing Intel, Microsoft and GE into the country.

The influx of businesses boosted employment, which led to the creation of a larger middle class in Costa Rica. “The countries that build the middle class are the countries that have long-term success, and that’s what’s happening here,” Finch said of Nicaragua.

Costa Rica now has a per capita GDP of $12,000, behind only the U.S. and Canada in the western hemisphere, and nearly $2,000 more than the worldwide average of $10,000, according to the CIA World Factbook. Costa Rica’s success has largely been the result of a stable democracy and investor-friendly policies.

Nicaragua is undertaking a similar effort to secure foreign investments and businesses by offering foreigners property rights equal to residents and granting substantial tax breaks and deferrals for tourism-related expenses.

“Law 306 was passed during the last 20 years for tourism investment incentive,” attorney Byron Mejia said. Mejia is a native Nicaraguan who spent 20 years working as an attorney for American Express in Miami. Mejia moved back to Nicaragua 10 years ago and has been specializing in real estate law there ever since.

“Specifically, they have 10 different categories of tourism-related projects in which the government gives tax incentives,” he said. “For example, if you want to establish a hotel or a bed and breakfast, they give you free import duties, you only pay 20 percent on your income tax, you pay no sales tax, and you pay no property tax.”

Nicaragua’s young population could also help lure foreign investments. Nicaragua’s median age is 20.9, and 96.9 percent of Nicaraguans are under 64, according to the CIA World Factbook. Nicaragua’s high percentage of young people means that it has a large population of workers available.

“The education system is booming ahead, and there’s going to be a really nice employment pool available here in the next five years,” Southwell said. “I think you’re going to have a really good opportunity to employ service industries, not to mention textiles and the tourism industry.”

Nicaragua has made great strides in recent years in shrugging off the perception many people have that it is a volatile and unsafe country. Still, many potential investors remain on the sidelines because they view Nicaragua as riddled with poverty and political unrest. According to Southwell, that’s just not true.

“It’s one of the safest countries in the hemisphere,” he said. “They really, really are kind, gentle people. They’ve been through hell and back. They want peace, they want prosperity.”

Though Nicaragua is the largest country in Central America, it is a poor country, with a per capita GDP of $3,000, according to the CIA World Factbook. It is the second-poorest country in the western hemisphere, trailing only Haiti. Its poverty was largely caused by the twentieth century’s political turmoil, suppression and revolution. This tumultuous environment left Nicaragua’s infrastructure badly damaged.

Many Americans are only aware of Nicaragua because of the Iran-Contra Affair, a political scandal from the 1980s. The Reagan Administration sold arms to Iran and used those profits to fund guerilla forces, called Contras, who were opposed to the leftist Nicaraguan revolutionaries, called Sandinistas.

Daniel Ortega was one of the leading Sandinistas in Nicaragua in the 1970s and 1980s; he served as president from 1985 to 1990, and was re-elected in November 2006 for another five-year term, much to the chagrin of many observers. They fear Ortega will revert to the leftist leanings he displayed in his past, which could hinder Nicaragua’s development and economic growth by alienating potential investors and causing the bustling tourism industry to grind to a halt.

Such a regression is not likely, according to Southwell. “Having been involved personally with the Sandinistas over the years—I lease two buildings from them and I know Daniel [Ortega] personally—I know that he’s probably going to be more interested in his legacy than in any of the things he was [interested in] in his leftist past,” he said.

Southwell is not alone in his optimism that Nicaragua is on the path toward stabilization and growth. “I don’t think they [the Sandinistas] want to go back to the past,” Mejia said. “We already had our civil war, and now it’s time to move the country forward.”

Concerns about private property rights, especially for foreigners, are keeping many investors at bay. During Ortega’s previous term, some private property was seized, leaving many wary about purchasing real estate in Nicaragua. That shouldn’t be too much of a concern anymore, according to Mejia. He has specific advice for investors concerned about title issues.

“What is advisable today is to stay away from municipal property, temporary titles or agrarian reformed titles, because even private banks do not make loans to these types of titles,” Mejia said.

Kevin Fleming, who moved to Nicaragua two years ago, is a real estate developer from Vancouver, Canada. He agreed that private property seizure is a thing of the past. “Daniel Ortega has gone on record many times as saying the days of stealing from the rich and giving to the poor, those days are gone. All that did was create poverty,” Fleming said.

Ortega has acknowledged that he must change his ways in order to help Nicaragua recover from its civil war and fulfill its potential. His efforts will be buoyed by two key economic events of 2005.

The G8—a coalition of the world’s seven leading industrial nations and Russia—granted foreign debt relief to Nicaragua in 2005. There are strings attached: in exchange for the relief, Nicaragua must strive to eradicate poverty, be forthcoming with the government’s finances, achieve political stability and support human rights.

Also, Nicaragua signed the Central American Free Trade Agreement (CATFA). Since signing CAFTA, which strengthened Nicaragua’s relationships with its Central American neighbors and the U.S., Nicaragua has exported 33 percent more goods to the U.S. than before. These events have allowed Nicaragua to grow its economy, and along with it, its infrastructure.

The biggest hurdle Nicaragua faces is updating its infrastructure. The country is devoting a lot of money and effort to improving infrastructure, particularly in areas most frequented by tourists.

“The airport in Managua has been rebuilt; it’s brand new. We have several ports in the Pacific that have been rebuilt and are ready to go,” Mejia said. “And it’s my understanding that there are plans of improving the inner roads of the country for production purposes.”

Few medical facilities are up to U.S. standards, but a state-of-the-art facility was recently opened along the Masaya Highway, which runs between two major cities: Managua and Granada. Managua, the capital, has better medical resources than most of the country. In addition, Managua’s airport is now one of the nicest in Central America, thanks to a recent $50 million overhaul.

Still, only one in four roads in Nicaragua is paved, and public transportation is substandard. The rainy season—from May to October—renders many roads useless. The government is focusing its building and repair efforts on the roads most often traveled by tourists, which is expected to boost tourism and create new investment opportunities.

Access to technology is also improving. “Now it is normal to see farmers riding on their horses on the backroads of the country with a cell phone on their hip,” Fleming said.

Technological development has made living and working in Nicaragua easier for Southwell than Costa Rica ever was. “Here, you can go down to the corner and get a cell phone, you’ve got three Internet companies to choose from—I mean, it’s just a lot easier to get things done here,” he said.

Electricity is sometimes spotty, but it is steadily improving. “The power used to go out here four to six hours a day, almost every day, before Daniel Ortega got elected,” Finch said. “Since he’s been elected, I can think of maybe three days that the power went out for maybe one or two hours. That’s because they’re building new substations.”

The new substations are only one component of the growth of Nicaragua’s energy infrastructure. Energy is undergoing a surge in development and investment popularity. “The government is promoting a lot of investment in energy,” Mejia said. “We are rich in rivers, volcanoes and other sources of energy revenue, such as wind power, solar power, geothermal power and hydroelectric power. Laws are being renewed to give investors sufficient incentive to invest in these types of energy products.”

The excitement and energy surrounding Nicaragua will grow as more people become aware of its potential. The right pieces seem to be in place for Nicaragua to catch up with its neighbors. A continued focus on building up infrastructure, combined with aggressive incentive and property rights laws to attract foreign investors, should provide a bright future for Nicaragua if the political climate remains stable.

From its natural beauty to its historical architecture, Nicaragua real estate has a lot to offer; if Nicaragua can capitalize on its potential, investors could see significant returns.

 

Source: NuWire Investor  

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