Word gets around: “Nicaragua is the new Costa Rica” but with prices 45-55% lower than its neighbor to the south. Nicaragua is truly recovering from its troubled and often misunderstood past, and is beginning to transform itself into a sought-after investment and tourist destination. Misconceptions still persist, but in many ways that only increases the opportunity that Nicaragua offers.
Nicaragua’s democratically elected government is showing great capacity for reform in line with its commitment to a free market economy. The country is booming and tourism is now the number one industry, with an increase of over 19% in 2005, even considering a record year in 2004. There is a real buzz in the air over this land of opportunity. Whether you are looking for a vacation or retirement 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 basic facts and trends, rather than hype and exaggeration (in both directions), can make the difference between a good investment and a great one. The objective 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 successful strategies to successfully invest in real estate in Nicaragua.
We hope this will encourage more investors to take the first step in confidently exploring real estate opportunities outside of their home countries. 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 destinations and investment contexts.
Seven successful strategies to invest in real estate in Nicaragua
1. Understand the link between tourism and real estate
Tourism generated almost $200 million in 2005, according to the Nicaraguan government, more than any other industry in its $5 billion economy. Current projections indicate that by 2007 there will be more than one million visitors to the country. The visitor profile has shown a marked shift from budget tourists to more affluent and sophisticated travelers, with high-end hotels in tourist areas showing consistently high occupancy.
There is a strong relationship between the leisure and vocational markets and the market for second homes and nursing homes. The areas that attract the most tourism are also generating the highest levels of real estate activity. For certain real estate products, the link between tourism and the real estate sector is especially direct and immediate. Pelican Eyes…Piedras y Olas, the highest quality hotel in San Juan del Sur, with occupancy levels well above industry standards since its opening, offers investors the possibility of buying a villa or duplex unit and participate in the income generated by the hotel.
2. Know where you are in an ownership cycle
Nicaragua has seen considerable price increases in recent years. We have calculated percentage changes in serviced lot prices between 2002 and 2005 for seven well-known real estate developments in the Pacific that have been active during this period (most developments are newer) and are still selling properties. During this period, prices have risen an average of 87%. Unimproved colonial houses in Granada have increased by about 25% per year for the last three years. These price increases indicate that Nicaragua is already on the map as an investment destination, the positive trend in prices has begun, but we are just seeing the beginnings of a “second wave” of investors: the early retirement and retirement market.
Speculators continue to make up a sizeable proportion of investors, but an increasing number of early retirement/retirement and second home buyers are emerging. Much has been made of the ‘baby boomer’ generation when looking at future shopping trends in many markets around the world. Baby boomers began their 50th birthday in 1996, and 78 million of them began to enter their peak earnings and discretionary dollar period. It is said that over the next 20 years, the baby boomer generation will likely constitute the largest potential market in history for real estate products, especially second homes and timeshare/fractional ownership offerings.
The real estate product on offer has also evolved from simple lot sales (sold primarily to speculative buyers) to turnkey products with sophisticated facilities and services for long-term investors and the retirement market. Steady growth in condo construction and sales has been evident for 18 months and is accelerating.
3. Follow trends, not events
Most of the foreign investment in the real estate and tourism sectors in Nicaragua is concentrated in the southwestern part of the country. To take the Pacific coast as an example, in conjunction with Calvet & Associates, we have cataloged over 70 developments in the Pacific marketing to foreign buyers between El Tránsito and the Costa Rican border. The southwest of the country also includes the colonial city of Granada, Lake Nicaragua and the beautiful crater lake Laguna de Apoyo.
Several investors are looking for areas where there is less activity, for example, areas facing the sea further north. Prices may be lower in the northern part of the coast, but for a reason, and it is important that investors take this into account before buying a property. The southwest coast has more dramatic geography, whiter sand beaches, richer biodiversity, better surfing, safer swimming areas, and refreshing lake and ocean breezes—and, yes, more recent investment momentum, too. This is not to say that there will not be price appreciation and development in the more northerly beach areas, but a significant price differential is likely to remain in the future.
4. Build a good network
Investors often complain about an overload of market information, and building a good network will allow you to triangulate and contextualize the information you receive. It is not surprising that, given the enthusiasm for the real estate market, a great number of stories and exaggerations are told. Do your due diligence, work with real estate agents who know the market, learn from the pros, and be skeptical of claims that you can trade your property for 100% more” when International Living investors come to town in a few weeks. “.
A good tip is to only buy what you see. Decide what you think the inherent value of the property you are looking at is. Do not factor the “new coastal highway”, the “new airport”, the “new Marriott” into the price. Certainly not if you are investing for the short term. Coldwell Banker Nicaragua has a network of lawyers, project managers, master planners and investment analysts who have a long history of advising investors on the acquisition and development of real estate in Central America; these are independent third parties who may provide unbiased emotional advice.
5. Due diligence on everything
More specifically, retain competent legal representation and purchase title insurance. Nicaragua has a particularly complex title history and some buyers who have not done enough research on the title history of the purchased property now find themselves embroiled in difficult legal problems. Many property developers try to persuade buyers to use their own legal team to purchase property. Our advice is to hire an independent attorney to at least review (if not draft) the purchase contract you are signing and advise you to check the title history of the property.
Coldwell Banker Nicaragua recommends that investors purchase a title insurance policy. Other real estate agents do not recommend title insurance as the due diligence that occurs can slow down the buying process and raise difficult questions. Pursuing title insurance will force your attorney to dig back many years into the history of the property you are purchasing and follow a series of criteria in your report. If you are buying parcels of untreated land outside of a development, your due diligence list should be longer and will cover infrastructure issues, environmental issues, and development permits.
6. Invest with confidence, develop with awareness
This is the slogan of the Nica Dev campaign led 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 another country and have an obligation to respect the land, the people and the environment. When you arrive in Nicaragua, the impression you get is of a warm-hearted nation that welcomes international visitors. For this warm feeling to endure into the future, local Nicaraguans must also 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 incorporated. For example, a basic solar power setup is provided to all who purchase, and the project runs a number of active community outreach projects featuring highly effective, yet low-cost, low-tech solutions for cooking and drinking water purification. Skills and suppliers for low-impact construction with things like rainwater harvesting, composting and recycling, hard to find 18 months ago, are now available in the country. Coldwell Banker Nicaragua is launching its own campaign to generate funds for the Nica Dev fund, as well as other projects our clients are involved in here in Nicaragua. We will give our clients the opportunity to contribute to selected projects at the time of closing.
7. Become an expert in investing in real estate in Nicaragua… before you invest
Coldwell Banker Nicaragua Real Estate has launched a series of concise buyer information sessions to assist investors interested in the real estate market in Nicaragua in their decision-making. The reports highlight real estate hotspots, analyze market trends, and pinpoint good-value investment opportunities.