icaragua Real Estate Market Matures - May 29th, 2008

SAN JUAN DEL SUR, Nicaragua: The days when a visiting surfer would impulsively stop by a real estate office and buy a plot of land or a small beach house for $20,000 are gone.

The area around this once sleepy fishing town of about 10,000 is the hub for foreign investors looking for luxury real estate along the Pacific coast of Nicaragua. But the credit crunch and subsequent real estate slowdown playing out across the globe have slowed foreign buyers, just as prices in the area have been rising.

"People are less willing to take risks," said Joos Tavernier, a sales agent at Water's Edge International Realty.

Adam Harris, an agent for the Century 21 branch here who has been selling in the area for about two years, describes it a little differently. "We're seeing fewer sales but more dollar volume because more people are buying homes and condos and finished products," he said.

During the boom years of 2005 and 2006 buyers were scooping up property based on nothing but plans on paper - and sometimes not even that. Now, agents in the area said, buyers want finished homes built to Western standards; properties fitting that description, like the new, large houses overlooking the town or apartments in gated complexes, sell quickly.

"The market's kind of maturing into more of a retirement and vacation destination. There's still a lot of spec, but two or three years ago that was a huge part of the market," Harris said. "The prices are much higher and people with a lot more money are coming to buy."

Foreign investment also is increasing in general. In 2005, a total of about $241 million was invested in the country by non-Nicaraguans. In 2006, that number grew to $268 million and then it rose again in 2007 to $335 million, according to Raul Calvet, president of Calvet & Associates, a research and consulting firm based in the capital, Managua.

Calvet said the lower end of the real estate market had suffered since the credit crunch began. In contrast, "upscale projects are doing very good," he said. "Prices are rising if not maintaining their levels. Sales are very good."

Nicaragua's economy has been improving but the country continues to be the poorest in the region, according to the International Monetary Fund. Tourist dollars, however, are becoming a larger part of an economy that once was focused on agriculture exports.

Almost all that improvement has come during the nearly two decades of peace Nicaragua has enjoyed after years of violence. The turmoil began with the Sandinista revolution in 1979, followed a few years later by battles between the Sandinistan government and the U.S.-backed contras, which ended with elections in 1990 that the Sandinista party lost.

The 2006 election of Daniel Ortega, once a prominent figure in the Sandinista government, as Nicaragua's new president created the first lull in what real estate agents described as a frenzy of activity.

"It just became completely dead for his first six months," said Robin Donaldson, a local real estate agent and developer.

But gradually, as Ortega refrained from pursuing an aggressively social agenda, foreign investors and the market began "slowly coming back," she said.

Despite its poor economic standing, Nicaragua is ranked as one of the safest countries in the region - although in mid-March the brief kidnapping of a local American business owner in San Juan del Sur produced the headline "Crime Wave Slams Into Beach Town" in the English-language weekly newspaper, The Nica Times.

Most local expats said they were uncomfortable about the blaring headline because the town felt safe to them and its people were welcoming. The general sentiment a week after the incident was that petty crime had been increasing but the area was no more dangerous than U.S. cities.

Part of the problem, according to Chris Berry, co-owner and manager of the Pelican Eyes Hotel and Resort, was that crime had been almost nonexistent, so any incident was shocking.

Getting to San Juan del Sur is not easy. Private shuttles run from Managua but the ride takes about three hours over a partially paved road. Modernization of the highway started several months ago.

Nicaragua has plenty of models in Latin America for growth in its real estate sector. Much like Panama, it has been trying to mold real estate laws to welcome foreign investors and retirees.

But buying land here can be tricky. Global Property Insight, a research company, warns on its Web site: "Beware: determining who exactly is the owner of a property can be very difficult. Even comprehensive title searches sometimes fail to reveal ownership uncertainties." It recommends hiring a local lawyer for any real estate transaction.

Also, there is little infrastructure in San Juan del Sur: Power failures are common and property owners are responsible for their own water and electricity. But the lack of services has prompted some to build self-sustaining homes with their own wells and wind or solar power.

Despite the potential problems, investors still are being attracted to the San Juan del Sur area by the low property prices. The country is among the least expensive in Latin and South America, bested only by Chile in terms of price per square meter. Global Property Insight says the average home sells for $710 a square meter, or $66.35 a square foot; Chile is $533 a square meter, and Argentina leads the region at $1,833 a square meter. Property in San Juan del Sur is priced in dollars, so these days Europeans and Canadians are arriving with a financial advantage over Americans.

In November, Pierre-André Demaugé-Bost, a resident of Lyon, purchased two studios in the Pelican Eyes development, the hotel and resort that clings to a steep hill overlooking the town.

"I felt more confident buying inside a bigger development than a raw piece of land from some locals, because of some past issues with property titles in this country and because of the hassle-free property management they offer," Demaugé-Bost said during an interview.

He also purchased a piece of land in Rancho Santana, a development further north, "where I plan to build my dream house." That plot of land comprises 8.7 acres with good views.

Demaugé-Bost, who first visited Nicaragua several years ago while on a surfing vacation with his brother, said he did extensive research on the country before deciding to invest.

"I became confident that the risk/reward ratio of my investment would be excellent," he said. "With the tourism boom that is currently under way, I believe the real estate market in Nicaragua will behave and evolve in the same way than it did in Costa Rica many years ago."

 

Source: International Herald Tribune  

Back to news