icaragua Becomes the new Costa Rica
- Sept. 18th 2008

As he reclines in a white leather easy chair with cocktail in hand, his gaze wandering beyond the swimming pool across the shimmering Pacific Ocean, Chris Renshaw admits this was not exactly what he had had in mind.

On holiday in Costa Rica, he impulsively jumped on to a local bus heading north to escape the crowds and what he felt was an overdeveloped coastline.

“When we got to Nicaragua we just loved the people and the country – and then fell in love with this piece of land,” said Mr Renshaw, an Englishman who directs musicals in London’s West End. Three and a half years, some $450,000 and a reservoir of patience and dedication later, he had turned a two-acre plot into an exquisitely designed multi-level property spilling sympathetically over a steep, jungly hillside that drops abruptly down to a small, deserted white-sand beach.

“Now it is home,” he says of his tranquil villa an hour’s drive south of the Nicaraguan property market’s epicentre, San Juan del Sur.

Mr Renshaw was not the first to discover the charms of Nicaragua, which first started to attract foreign property buyers about a decade ago. But developers are confident that he will not be the last, either, as foreigners increasingly look beyond the region’s most traditional market, Costa Rica, where investors have been heading since the 1980s, and which is now becoming both crowded and expensive.

Where, in Costa Rica, land with an ocean view costs at least $200 per square metre, and up to as much as five times that, in Nicaragua, premium property has not yet exceeded the range of $100-$150 per sq m – even if the same land could have been snapped up for around $20-$50 per sq m 10 years ago (although plenty is still available at that price). The prevailing mood in Nicaragua is that its enormous potential has yet to be realised.

“There’s no reason why prices here shouldn’t reach the level they have in Costa Rica,” says Raúl Calvet, a leading property consultant in Nicaragua, who believes a number of temporary factors are holding back land valuations as well as investment.

Like elsewhere, Nicaragua has suffered from the knock-on effects of the US subprime crisis, but the effects have been magnified by the accession in January 2007 of a populist president and former Marxist revolutionary, Daniel Ortega. The uncertainty this produced has caused development projects to slow and the pace of land sales to fall, although prices have remained firm, particularly of developed property.

“We’re not worried about the rhetoric per se, but we are worried about the effect this could have on prospective investors who don’t know better,” says Mr Calvet, who argues that macro- economic policy remains faithful to the IMF rulebook. “We are at the lowest part of the cycle.”

Other concerns include a patchy infrastructure, particularly in water and electricity, while many roads remain poor.

But legal issues pose perhaps the most serious barriers to investment. One problem is that much land in the war-torn years of the 1980s was expropriated, leading to some uncertainty over ownership.

“You have to make sure you have a good lawyer,” says Kirk Hankla, president of estate agent Coldwell Banker Nicaragua.

Among the most keenly awaited changes is a new coastal law, although new laws in the pipeline on zoning, municipal development and protection of the environment will also improve investment conditions.

Despite sounding a note of caution, Mr Hankla – who is also a US investor behind Aguas Calmas, one of the most ambitious projects underway in San Juan del Sur – reels off a series of reasons to be optimistic about Nicaragua’s property market.

Not only does it have all the natural beauty of Costa Rica – it has understandably become known as “the land of lakes and volcanoes” – but, unlike its neighbour, it is also endowed with a rich cultural heritage.

The jewel in the crown is the elegant colonial architecture of the city of Granada, which is vying to be recognised as a Unesco World Heritage Site. Wedged between a volcano and the shores of Lake Nicaragua, it already has a significant expatriate population that has fallen in love with its easy colonial charm and traffic-free streets.

Nicaragua has also long stopped being the bloody battleground of the Sandinistas and US-backed counter-revolutionaries, and is now the safest country in the region, despite also being its poorest.

Indeed, living is cheap, an attraction that is impossible to ignore for some 80m baby boomers in the US alone, whose pension system is looking precarious.

Mr Hankla reckons that $800 will buy you in Nicaragua what $3,400 will in the US. Certainly, sheer demographics will drive Nicaragua’s property market if nothing else.

So far there are more than 4,000 US citizens in the country, while some $85m has been invested in the property market. But analysts expect investment in the sector to surpass $1bn over the next decade.

While the growth of the real estate market has a great potential to generate jobs and economic growth, triggering a virtuous cycle that will lead to infrastructure improvements, in turn enhancing the value of property, some locals have their reservations.

Alan, a fisherman from San Juan del Sur squatting on a rocky outcrop assailed by crashing waves, contemplates the bobbing heads of dozens of surfers, the first foreigners to discover the area.

“I just hope that we don’t make the same mistake as Costa Rica,” he says, worrying about massive condominiums scarring the landscape and problems such as prostitution and drugs.

“If it brings more prosperity that’s great, but not if it means spoiling our country.”

 

Source: Financial Times  

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