Insider secrets to investing in real estate in Nicaragua

Insider secrets to investing in real estate in Nicaragua

By Claudia Gonella

June 2006

The word is is out: “Nicaragua is the new Costa Rica” but with prices 35-55% lower than its southern neighbour. Nicaragua is well and truly bouncing back from its troubled and often misunderstood past and beginning to transform into a sought after investment and tourism destination. Misconceptions still persist, but in many ways that only increases the opportunity that Nicaragua offers. Nicaragua's democratically elected government is showing a great capacity to reform in line with its commitment to a free-market economy. The country is booming and tourism is now the number-one industry, increasing by over 19% in 2005 even considering a record-breaking year in 2004. There is a real buzz in the air for this land of opportunity.

Whether you are looking for a retirement or vacation destination, a place to start a business or a place to invest for the future, Nicaragua is definitely worth considering.

How much is good real estate information worth? Market knowledge based on fact and base trends, rather than exaggeration and hype (in both directions) can make the difference between a good investment and a great one. The aim of this article is to capture the essence of the successful real estate investor in Nicaragua. We have consolidated the experience of hundreds of investors and identified seven success strategies for successful real estate investing in Nicaragua.

We hope that this encourages more investors into taking the first step in exploring real estate opportunities outside their home countries with confidence. Although imbued with a Nicaraguan flavor for the purposes of this article, many of the principles and steps highlighted in this article will also hold true in other investment destinations and contexts.

Seven success strategies for real estate investing in Nicaragua

1. Understand the link between tourism and real estate
Tourism brought in almost $200 million in 2005, according to the Nicaraguan government, more than any other single industry in its $5 billion economy. Current projections indicate that by 2007 there will be more than one million visitors to the country. The profile of visitors has shown a marked shift from budget tourists to more affluent and sophisticated travellers and higher-end hotels in tourist areas show consistently high occupancy. There is strong relationship between leisure and vocational markets and the market for second homes and retirement homes. The areas attracting the most tourism are also generating the greatest levels of real estate activity. For certain real estate products, the link between tourism and real estate is particularly direct and immediate.

2. Know where you are in a property cycle

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Nicaragua has seen significant price rises in the past few years. We have calculated percentage price changes for serviced lots between 2002 and 2005 for seven well known real estate developments on the Pacific that have been active over this period (most developments are more recent) and which are still selling property. Over this period prices have risen by an average of 87%. Unimproved colonial homes in Granada have been rising by around 25% per year for the past three years. These price rises indicate that Nicaragua is now on the map as an investment destination, the positive price trend has started, but we are only just seeing the beginnings of a “second wave” of investors: the pre-retirement and retirement market.

The number of commercial investors researching opportunities in Nicaragua has also increased considerably in recent years. The real estate product on offer has also evolved from simple lot sales (sold mainly to speculative buyers) to turnkey products with sophisticated facilities and services for longer term investors. A consistent growth in condominium constructions and sales has been evident for 18 months and is accelerating. Much has been made of the ‘baby boomer’ generation when analyzing future buying trends in many markets worldwide.

Baby boomers began turning 50 in 1996 and 78 million of them began to enter their period of highest earnings and greatest discretionary dollars. It is said that over the next 20 years the baby boomer generation will likely constitute the largest potential market ever for real estate products, especially second homes and timeshare/fractional ownership offerings.

3. Follow trends not events
The bulk of foreign investment into the real estate and tourism sectors in Nicaragua is focused on the south-western part of the country. To take the Pacific coast as an example, in conjunction with Calvet & Associates, we have catalogued over 70 developments on the Pacific marketing to foreign buyers between El Transito and the Costa Rican border, an area highlighted on the map below. The south-west of the country also includes the colonial town of Granada, Lake Nicaragua and the beautiful Laguna de Apoyo crater lake.

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A number of investors are seeking our areas where there is less activity, for example beachfront areas further north on the Pacific coast. The prices may be lower in the northern part of the coastline - but for a reason - and it is important for investors to take this into account before they make a property purchase. The south western coastline has more dramatic geography, whiter sand beaches, richer biodiversity, better surfing, safer swimming areas and cooling lake and ocean breezes and, yes, investor momentum. This is not to say that there will be no price appreciation and development on beach areas further to the north but that a significant price differential will likely remain into the future.

4. Build a good network
Investors commonly complain of an overload of market information. This makes building a trusted network to triangulate and contextualize information that you receive very important. Not surprisingly given the excitement about the real estate market there is a great deal of story telling and exaggeration that goes on in Nicaragua. Do your due diligence, work with realtors who know the market, learn from professionals and be skeptical about claims that you can flip your property for 100% more “when the International Living investors come into town in a few weeks.”

A solid piece of advice is to buy only what you see. Make up your mind on what you think the inherent value is of the property that you are looking at is. Don’t factor in the “new coastal road” the “new airport” the “new Marriott” into the price. Certainly not if you are investing for the short term.

5. Due diligence everything
More specifically, retain competent legal representation and take out title insurance. Nicaragua has a particularly complex title history and some buyers who have not looked deeply enough into the title history of purchased property are now mired in difficult legal problems. A number of real estate developers try and persuade buyers to use their own legal team for property purchasing. Our advice is to employ independent legal advise at least to review (if not draw up) the purchase contract you are signing and check the title history on the property.

You are strongly recommended to take out a title insurance policy. Some realtors do not make this recommendation as the due diligence that ensues can slow down the purchase process and raise difficult questions. Seeking title insurance will force your lawyer to delve many years back into property histories and follow a set of criteria in their reporting. If you are buying raw land parcels outside of a development your due diligence list needs to be longer and will cover infrastructure issues, environmental issues and development permits.

6. Invest with a confidence, develop with a conscience
This is the strap-line of Nica Dev a campaign run by Donn Wilson a developer, entrepreneur and surfer who has made San Juan del Sur his home. Nica Dev recognizes that real estate investors are entering into another country and have an obligation to respect the land, the people and the environment. When you arrive in Nicaragua the impression that you get is of a warm hearted nation that is welcoming to international visitors. In order for this positive feeling to endure into the future, local Nicaraguan also need to benefit from the real estate and tourism activity that is taking place in the country.

Las Fincas, a development aligned with the Nica Dev campaign, is designed with sustainable development principles built in. For example the developer provides a basic solar power setup for everyone who buys and the project supports a series of active community outreach projects introducing highly effective, yet low-cost and low-tech, solutions for cooking and purifying drinking water. Skills and suppliers for low impact construction with elements such as rain water capture, composting and recycling, hard to find 18 months ago, are now readily available in-country.

7. Become and expert in investing in real estate in Nicaragua…before you invest
Coldwell Banker Nicaragua Real Estate has launched a series of concise buyer briefings to help investors interested in the real estate market in Nicaragua in their decision making. The briefings highlight real estate hotspots, analyze market trends and set out good value investment opportunities.

Claudia Gonella is a Director of Coldwell Banker Nicaragua Real Estate, Nicaragua's premier Real Estate Company and consultants to investors. She has published numerous articles on the real estate market in Nicaragua and prepared bespoke market analysis reports for investors. Coldwell Banker Nicaragua Real Estate is in the process of establishing a Central American REIT. Visit us at www.cbnicaragua.com for our free investor briefing, property listings and investment opportunities or email info@cbnicaragua.com

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