Costa Rica Real Estate – an Investor Overview for 2019

A Guide to Costa Rican Real Estate in 2019

Investment facts on Costa Rican Real Estate:

For lack of precise official statistics, it is difficult to assess the Costa Rican Housing market with complete accuracy, but as of 2019 it still seems that the market has still not recovered from the 2008 market collapses, and that in many regions of the country, the Capital included, prices are still slowly depreciating, with average listing prices if 1100$ USD per SQM of construction.
Low pricing continues moreover in all the countries regions affording high yields on investment.
Also to be noted that analysts warn of high amounts of building in Costa Rica’s GAM (greater metropolitan area of San Jose Capital and the central valley) – mainly condominiums aimed at the higher-middle class and also a large quantity of commercial projects.

How Much do Costa Rica Properties Cost on Average?

Costa Rican property is still reasonably priced with an average of 500 – 1300 USD per square meter of construction in city centers.
In rural areas pricing of lots is based on different factors including location, commercial potential, zoning, views, geographic and topographic considerations, special features such as living water, availability of services, infrastructure, and more.  

Can Foriegners and US Citizens own property in Costa Rica? 

Yes. US Citizens, and all foreign investors, can own property in Costa Rica, and in some cases be eligible for residency. By law, foreigners can freely hold property in Costa Rica with all the rights afforded to citizens – with the exception of Ownership of Beach Properties in Costa Rica – where the laws are more complicated.  

Moreover, investing in real estate can even make you eligible for Costa Rica Residency (More on Costa Rica Residency through real estate investment).  

Returns on Investment

The median return on investment in San Jose capital remains high with an 8.6% return in high end projects and higher returns in less desirable parts of town, In trendy high end Santa Ana and Escazu returns are a bit lower with an average of 7.5%.
Vacation Rentals on Costa Rica’s beachfront paradises continue to afford the highest level of return averaging between 12 – 23%. 

The Property Market

Although depreciating prices, real estate transactions in the country are rising due to a large influx of foreign investors who decide to live fully or partially in Costa Rica and also due to constant rise of tourist arrivals to the country.
Practically speaking, the market is very much still a buyer market allowing excellent opportunities to buyers with ready money. As stated above, financing in Costa Rica is expensive and hard to get making it a cash money market.
The Economy
National statistics confirm an annual rise in tourist numbers with 12.8% year to year increase-and a record 2,925,128 people in 2016, and also consecutive annual economic growth with a relatively low 9% unemployment rate.
On the other hand Costa Rica is contending with a large fiscal deficit from government spending that is threatening the country’s credit rating.  

Is investing in Costa Rica recommended – The Pros and Cons of owning Costa Rican Property

To start, Costa Rica Real Estate is not for everyone. Moreover, owning and investing in real estate in general, regardless of the country, is not for everyone.
It entails responsibility, constant maintenance, and money. Even more so in Costa Rica, which is a finance poor environment where credit is usually expensive and hard of access.
The pros on the other hand are numerous for the right kind of investor that is aware of the economical environment and laws of the country he is investing in.
To begin with, as stated above, foreigners can freely own and hold land and property in Costa Rica with all the rights afforded citizens. Moreover, as stated above, Costa Rica is an Investor friendly country and investing in real estate can make you eligible for Costa Rica Residency with all the benefits awarded including free health and education services.
Secondly, taxation in Costa Rica is very attractive (much so in comparison to Europe and North America) – read more on real estate taxation in Costa Rica in the following passages.
Thirdly, property prices in Costa Rica have still not recuperated from the 2008 crisis, and rental yields are still very high.
Fourthly, property taxes in Costa Rica are incredibly low.  

Taxation and Other Costs

Taxation on rental income in Costa Rica
Income in general in Costa Rica is based upon income classification. In the matter of long term rental taxes, Costa Rica offers an attractive venue for investors with low to reasonable taxation.
Current government is discussing economic changes including taxation in the near future, but as of the beginning of 2019 the current taxation is as follows. Note the giant differences on taxation between individually or privately held properties and properties held by companies. Also to be noted, the new sales tax law applied to short term or vacation rental properties.  

Rental Income:  

Rental income is taxed at progressive rates depending on gross income at 10% to 25%. Private (non corporate) income from property is not taxed up to the amount of 3.5 million Colones (roughly 6300 usd).   

Income tax for rental income received by Individuals:
The amounts are in Costa Rica Colones (calculated by around 600 Colones to a dollar)
Up to 3,549,000 per year – Exempt
From 3,549,000 to 5,299,000 – 10%
From 5,299,000 to 8,840,000 – 15%
From 8,840,000 to 17,716,000 – 20%
More than 17,716,000 – 30%   

For Corporations with gross Income of:
Up to 53,113,000 per year – 10%
Up to 106,835,000 – 20%
More than 106,835,000 – 30%  

Sales Tax on Costa Rican Vacation Rental Properties
According to current legislation, passed in 2016, all residential real estate that is rented for short terms (contracts of less than a month) must pay a sales tax (Impuesto de Ventas) of 13%.  

Capital Gains Tax  

There are no capital gain taxes when selling your home. Any sale of a commercial nature is taxed at a 30% rate.  

Inheritance Tax   

Costa Rica doesn’t have inheritance taxes per say. Nonetheless inheritance is seen as a transfer of property and is taxed as such at a 1 -2% transfer fee.  

Tax On Residents  

As an investor in real estate you may be eligible for a Costa Rica Residency. Residents of Cost Rica pay taxes only on income produced in Costa Rica. Local income from Real Estate and investments is taxed separately from commercial activities and employment.  

Closing and Selling Costs and Tax   

Closing and selling costs are relatively reasonable in Costa Rica ranging between 8.75% – 13.75% for a complete buy and sell process, including realtor fees (between 5-10%).   

Property taxes in Costa Rica   

Property tax costs are surprisingly low in Costa Rica. Annual fees paid to the local municipality are calculated according to recorded property value according to 0.025% (a quarter percent – 1/4%) of declared value. Therefore a property with a recorded value (usually less than real value) of 50,000 USD will pay 125$ per year.

Landlord and Tenant Relation Laws 

Costa Rica is still a very pro tenant society. While evicting problematic tenants has become easier with new legislation in that field, Costa Rica is still a very pro tenant market.
Contracts are free to be negotiated with a minimum period of three years. Tenants can leave earlier with a three month notice.
Rent prices cannot be changed during rental period if agreed upon in dollar.   

Can you buy Beach Front Property in Costa Rica? 

The first 200 meters of the coastline (measured from tidal high point) in Costa Rica our considered public domain – and cannot be freehold owned.
Out of the first 200 meters, which are called the maritime zone, the first 50 cannot be built upon nor owned and are set aside as a rule for public use.
The second 150 meters can be owned through process of concession rights. This is a complicated and lengthy process not recommended for inexperienced buyers. Moreover, foreign nationals cannot be sole owners of a concession property and will need a local partner to register the property. After the 200 meter line all including foreigners can freely hold private land. Read more on investment opportunities in Costa Rica.  

Squatter rights in Costa Rica

Squatter rights in Costa Rica are an issue and if not dealt with directly may lead to loss of property. Simply stated, if a property owner allows someone free use of his property for more than one year, that person may claim ownership rights and even outright ownership over time.
Among the services we offer absentee property owners is watching of houses and land to guard against possible future squatter issues.
To read more about land watching services.

Morgatges and Real estate financing in Costa Rica

Costa Rica’s Real Estate market as of 2019 remains a market based mostly on cash buys. Traditional financing, while cheap and accessible in Europe and North America, remains very expensive and difficult to obtain in Costa Rica, especially so for foreign nationals that have not yet received permanent residency.

Current mortgage rates average on a nationwide level for 20 year fixed rate mortgages average at 9.46% interest.

On some occasions partial owner financing may be negotiated at more reasonable interest rates but usually for no longer than a 3- 5 year period at 5 – 7% interest rate.

Interested in financing real estate in Costa Rica? Contact us for a free consultation.