Panama Investor Blog

U.S. Crisis affect Costa Rica Investments

The economic crisis is definitely affecting our neighbor to the west  with the recent announcement of major project cancellations or delays. I found two articles about this subject today, one of which quotes Ricardo Ledezma, an adviser to Communications Rubén Blades, generalmanager of the Tourism Authority, said that in Panama there are no similar case. "I do not see how it can affect Panama; when the projects reach the National Register of Tourism and have financialcapacity. Developers are not going to buy the land and do preliminary, for what they have to invest large amounts of money, whether do not have funding secured, "he said.

I don't think Mr. Ledezma understands how the development business works to make such a statement. It still takes money and a market to make a project happen and just because a company has applied for permits does not guaranty either. They may have money sunk into land and costs of design and permitting, but they will pull the plug fast if the market disappears. There are easier ways to lose a lot of money. In this article from Costa Rica Pages.

Excerpt: In Costa Rica, several major hotel chains announced that their impending investments would be suspended for an indefinite period of time, until project viability could be assured. These decisions represent a more than $1.2 billion investment in foreign investment. The president detailed the current state of the market, and explained that several hotel projects had been put on indefinite hold, including the $800 million St. Regis, financed by Lehman Brothers. “The decision to put the St. Regis project on hold is due to two main reasons, theincrease in construction costs and the uncertainty of the international real estate market (financing, financial institution bankruptcy),” Grupo Genesis marketing manager, Gabriela Tijerino, said.

Costa Rican developers offering real estate to weatlthy Chinese

Real Estate developers in Costa Rica are taking advantage of the new relationship with the Chinese government by offering high end luxury products to wealthy Chinese. In this press release we see that one development company is opening an office in China to facilitate this endeavor.

Excerpts: In order to take advantage of recently strengthened diplomatic relations, Costa Rican Development Corporation (CRDC) is making plans to open an office in China, a move that could propel this leader in the Costa Rica real estate market to even higher status among investors. CRDC’s
strategic move could easily open the door for construction of more lavish residential developments, such as Cerro Fresco (www.cerrofresco.com/), to fill a growing interest in Costa Rica as a choice for retirement, vacations, and investments.

Costa Rica real estate developers such as the Costa Rican Development Corporation are expecting the new trade relations with China to bring heightened interest to their high-end market listings. Cerro Fresco, an exclusive residential estate community, has less than forty percent of its Balinese open-air villas still available, and it is expected that Chinese investors will be purchasing many of these.

Read the details here....

More on the Chinese and Costa Rican scandal

The Costa Rican government will not release further details regarding the $300 million bond/loan from China, stating the public has received "sufficient information" regarding the deal. In other words, it is nobody's business but those who made the deal. It is ironic that the president of Costa Rica has received a Nobel Peace prize and yet dumps a democratic country with 60 year ties in favor of a communist oppressive regime for lucre. What are we to make of that?

Excerpt: The scandal began many months ago, when Costa Rica switched its political allegiance from Taiwan to China. Though reasons for the change were somewhat unknown at that time, Costa Rica announced in June 2007 that it would no longer recognize Taiwan as a sovereign nation, a prerequisite to establishing ties with China.

At the time, it was believed that Costa Rica’s choice was ultimately based on its desire to team up with a rising economic giant and open the country to one of the biggest markets in the world. “Taiwan has been very generous and I thank it for the solidarity and cooperation it has shown for nearly 60 years, but I have taken this decision thinking of all the Costa Ricans… it is an act of elemental realism,” President Oscar Arias said at the time.

Read more about the "elemental realism" here....

Costa Rica prepares for economic storm

The Costa Rican Pages blog observes that the country is taking steps to mitigate the economic woes it sees coming. With over $2 billion spent by North  Americans each year in their small country, it will certainly have a significant impact as these numbers are certain to decline. As the article points out, credit is hard to get and without it many foreigners can't buy the real estate properties being offered. The first thing people cut back on is travel when the economy is in the tank.

Excerpt:

In addition to these worries, the Costa Rica economy is partially dependent on the investment of Americans. Tourists spend $2 billion annually on Costa Rica vacations, a number that is set to dip sharply if the economy does not right itself. In addition, many Americans choose Costa Rica for retirement or real estate investment, taking advantage of a beautiful climate, hot real estate market, and proximity to their families in the United States. With less disposable income, the eventual effect will be fewer investors and retirees setting up house in Costa Rica. In fact, the U.S.-based lending bank Lehman Brothers, which just opened up services to foreigners in Costa Rica earlier this year, had to declare bankruptcy on Monday.

The United States’ economic problems and their effects on Costa Rica have left Costa Ricans feeling pessimistic. In just the past five months, Costa Rican preoccupation with cost of living has risen from 28 percent of the general public to a whopping 44 percent. Indeed, all socioeconomic classes are feeling the pressure, and 80 percent of Costa Ricans believe that their economic situation is worse than this time last year. Even more telling, the same percentage believe that the situation will only worsen over the next twelve months.

Read the whole story here...

China loans Costa Rica $300 million to dump Taiwan

Now, proof has surfaced of the deal that brought Costa Rica to sever ties with an old ally, Taiwan. So China sells North American' things they do not need with money they have to borrow then China gifts or loans the cash out to small countries throughout the Americas and the Caribbean. Now why in the world would they do that?

From Reuters news

Excerpt:

BEIJING, Sept 12 (Reuters) - China is secretly spending $300 million of its currency reserves to buy Costa Rica government bonds to reward the central American country for cutting diplomatic ties with Taiwan, the Financial Times reported on Friday.

The FT said it had obtained documents related to the deal after La Nacion, Costa Rica's largest newspaper, won a court case a week ago Friday and a judge ordered the government to release the information to the public.

Read the rest here....

Despite international crisis, Costa Rica continues to attract tourists

This article from the Guanacaste Journal in Costa Rica provides us with some insight into the tourism industry of Costa Rica that I have not seen before. The industry is concerned about a slowing growth rate and is taking steps to improve the situation through a $14 million dollar advertising budget for markets outside the  U.S.. Although the article points out that the industry is still growing despite a slowing growth rate, anecdotal evidence from tourist providers in Costa Rica I know tell me things are much worse than portrayed by the government statistics.

Excerpts: Despite the good news, the local tourism sector is beginning to feel the effects of the troubled world economy, as growth rates are down, particularly as reflected by arrivals at Liberia’s Daniel Oduber International Airport — which for the second month in a row saw a reduction in passengers compared to the same month in 2007 — reporting -3.3 percent in June 2008 and -1.9 percent in July of 2008, in relation to those same months last year.

Data from this year shows that as of April, accumulated growth was 15.5 percent; as of June it was 13 percent; and of July it was 12.2 percent. However, Vargas said, the country continues to experience a satisfactory increase in tourist visitation, especially compared to growth rates at other important destinations in Latin America during the first four months of the year.

According to Vargas, some of the factors that contribute to the decrease in tourism growth include the reduction in airline flights, the sustained increase in petroleum prices, the global food crisis, and the U.S. economic slowdown. That’s why both the public and private sectors are working together to attain a goal of 6.6 percent growth in the arrival of international tourists and approximately 1.8 percent increase in vacationing by local tourists, as outlined in the National Tourism Development Plan.

Among the key measures tourism officials have taken to deal with a possible recession are increasing the country’s tourism promotion budget to $14 million; rehiring an advertising agency in the United States to market Costa Rica as a destination; seeking alternative markets, particularly in Europe; and betting more on local tourism — through programs such as “Rediscover your Country at a Very Small Price,”

More tales of woe in the Costa Rican Real Estate market

Our neighbor to the west is beginning to feel the pinch as North Americans are unable to get financing for the many high priced homes being offered in the country. As this blog post points out, homes have dropped in price significantly and they are still having trouble selling them. Panama is experiencing a similar challenge, especially in the interior of the country where real estate agents tell us the market has slowed dramatically. Even so, we still see a number of people who want to escape the political scene and economic problems they see escalating in their home countries. Those with the means are still looking to buy, but their numbers are much smaller than when credit was readily available and their homes were selling the day they put them on the market.

Excerpt from the Costa Rica Pages:

Prices of vacation homes being sold to foreigners on the Pacific Coast of Costa Rica have fallen by 40 percent according to the online classifieds website encuentra24.com, which displays over 10,000 real estate listings posted by owners and real estate companies.

With the decrease in prices all along the Pacific Coast, residence homes that were once being sold for $640,000 are now going for $400,000. The decrease seems to stem directly from the hardening of home loan requirements in the United States due to the mortgage crisis as well as economically crippling inflation around the world.

Guanacaste is expected to experience a fall of 21.5 percent and Puntarenas is predicted to experience a 10.5 percent decrease. Although local Costa Rica real estate agencies have not confirmed that less construction will be a result of the decrease in prices, the joint-owners of Encuentra 24, which is also dedicated to listing Panamanian real estate, goods and services, did. Unlike Costa Rica, the prices in Panama have been maintained because the “hole” in the real estate market is being filled with Venezuelan and European buyers.

Costa Rica vacation homes hit by U.S. economic crisis

That's a strong headline coming from Reuters. As we expected, Central American countries are not immune from the havoc being wielded in the U.S. housing market. We have experienced a similar slow down here in Panama, at least in the non speculative vacation home market. Costa Rica is by far and away the leader in vacation home buying by North Americans in Latin America and it looks like the many developments under way are starting to feel the same pinch their compatriots are feeling back home. It may be a paradise, but it is now out of reach for many potential buyers.

How long will the downturn last? That is the big question on everyones mind. How long can the many developers hold out, with construction costs continuing to rise and sales slowing? My bet is that we will see a significant shake out with many projects halting and many developers going belly up. For those buyers who have the cash and still want to live in Paradise, the buyers market will mean much better deals are to be had, but they need to be careful that they buy into a project that can be finished and maintained.

Excerpts: The U.S. mortgage crisis has hit Costa Rica's once booming vacation home market, with sales plummeting as Americans who dream of buying a tropical getaway struggle to find financing.    

U.S. retirees and vacationers often pay for beach homes along Costa Rica's jungle-fringed beaches by taking out mortgages on their homes in the United States, but trouble in the banking sector has made that more difficult, realtors say.

   

Prices for some vacation houses and condominiums in the Central American country have dropped as much as 40 percent from their peak a few years ago and sales have slumped at least 30 percent over the past six months, they say.

Read the rest of the story at Reuters...

Beijing Stealthily Gaining Foothold in Central America

I have posted a number of times on the relationship between Costa Rica and China. Costa Rica, our neighbor to the west, has dumped its long term relationship with the democratic republic of Taiwan to engage in a financially lucrative relationship with Communist China. It is ironic that all of this has occurred with the push and blessing of the Nobel Peace Prize winning president Arias. Why should we care? Those who forget or don't bother to know history are destined to repeat it.

This is a well written article from the Epoch Times that points out the numerous financial gifts made to this small country from its new benefactor.

Excerpts: China has been busy making inroads in Central America, a region traditionally called Uncle Sam’s backyard. The new kid on the block challenging old regional assumptions, China, has been pouring money into Costa Rica since June of 2007. The change came after the Central American nation broke nearly 60 years of diplomatic relations with Taiwan.

China’s successful courtship of Costa Rica might seem like a side note on the stage of international affairs. But the red carpet treatment the Chinese are receiving these days in Costa Rica and elsewhere suggests that a significant regional power shift may be underway.

It is no accident that Costa Rica has emerged as China’s new best friend in the region. For the past several years, a diplomatic and economic tug-of-war between China and Taiwan has been happening. The isthmus of Central America—with its contiguous string of small countries—has long been a bastion of diplomatic support for Taiwan, but observers say China is increasing pressure to isolate Taiwan from its old allies.  

“One of China’s top foreign policy goals is the worldwide enforcement of the ‘One China’ policy,” says Erikson of the Inter-American Dialogue. “Reunification of Taiwan with the mainland is practically an obsession with Beijing.”

Read the complete story here...

   

Developers under fire in the Osa of Costa Rica

Just across Panama western border lies the last frontier of Costa Rica's rich environmental habitats. It is the only area on the Pacific that is still relatively under developed compared to the rest of the country. There have been a number of articles this week about a a recent investigation into "rampant" development in that area that is apparently unbridled and ecologically unfriendly. The rights of local municipalities to grant permits are being challenged by the state in a tale similar to the problems Spain has encountered in recent years. This is from a Blog post on Costa Rican Pages.

Excerpt: Costa Rica walks a tightrope everyday, struggling to find an equilibrium between its booming development and tourist dollars, and it cherished environment, which attracts the development. With many protections already in place, the country has done well for itself, establishing a global reputation as an eco-friendly country. Clearly, however, not all is green and well in Costa Rica, as financial gains often get in the way of well-meaning laws and individuals. To combat these problems, local watchdog organization have cropped up in many towns and cities, helping keep developers within their legal rights.