Why Does It Make Sense To Invest In Real Estate in Costa Rica?

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The tiny country of Costa Rica in Central America tucked between the Pacific Ocean and the Caribbean Sea that is a well-known tourist destination is fast transforming into a hot spot for real estate investment too. Tourists who come for a vacation to the country quickly fall in love with its immense natural beauty and biodiversity. The hospitable locals and their simplistic and laid-back lifestyle impress tourists so much that many of them lose no time to decide to buy a property there. Add to this the encouragement of the government to attract foreign investment in real estate by framing laws to give equal property rights to foreigners. They made the buying process very easy, and it will not be hard to understand what drives the housing market in Costa Rica that is going from strength to strength.

High returns from rentals

Whether you want to set up a home in Costa Rica or create an investment property, you can reap the benefits of investment without any doubts. Since tourism is a booming industry in Costa Rica, you can ride the tourist wave and invest in a vacation property that assures good returns. All houses in San Jose, the capital of Costa Rica, provide rental returns to the tune of 8.6% with apartments providing a slightly lower return of 7.5%. The difference in returns from housing and apartments is only marginal. The figures relate to the returns from high-end markets, but in selected areas, the returns from smaller properties are likely to be higher.

Prices are increasing

If you belong to the group that keeps questioning – why buy property in Costa Rica? Then you must look at some recent data about the price of houses in San Jose that will give you enough encouragement to make some investment. According to data available from reliable market watchers, the average listing price of homes in San Jose in July 2019 to $1,110 per square meter, an increase of 3.7% as compared to the same period of the previous year. Similarly, the average condominium prices have increased by 1.8% and reached $1,724 per square meter.  The trend was similar in other places like Alajuela, Cartago, Heredia, Puntarenas, and Limon that experienced a price increase in varying degrees, with the only exception of Guanacaste where housing prices decreased by 2.8%. Property transactions too have risen by double-digit since 2013.  

Tax on property

In line with the government’s initiative to attract foreign investment in real estate, transactions that do not relate to habitual transactions get exemptions from capital gains tax. In other cases, the capital gains tax is 30%.  Costa Rican properties attract inheritance tax between 1% and 2% at progressive rates. Tax on rental income calculated based on progressive rates ranges between 10% and 25%. Residents must pay tax on their global income at progressive rates.

The moderate transaction cost for owning properties in Costa Rica, together with the fees of a real estate agent, is between 8.75% and 14.75%, with the buyer and seller sharing the agent’s fee, which is 5% to 10%.

As the country takes new steps to bolster its economy, investing in real estate is likely to become more attractive.

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