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Insider
secrets to investing in real estate in Nicaragua
By Claudia
Gonella
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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
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.
 This
graph considers the relative proportions of five buyer profiles at different
stages of a classic property investment cycle. The arrow is an estimation
of where we are the moment in Nicaragua. Speculators still make up
a considerable proportion of investors but an increasing number of pre-retirement
/ retirement and second home buyers are emerging.
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.
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. -
Article Continued Below - |
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- Article
continued From Above -
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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