Compared with its Central American neighbors, Costa Rica has achieved a high standard of living, with a per capita income of over U.S. $5,000, a rate of economic growth over the decade of the 2000s averaging 6%, and an unemployment rate normally under 5%. Costa Rica's economic advantage is due to the historical success of its development policies, the nation´s lack of an army diverting funds from development to military ends, the reigning stable democracy, its well-educated and hard-working population, and its location in Central America with easy access to North and South American markets and direct ocean access to the European and Asian Continents.
Costa Rica is a country with a population of only 4.5 million people and a small geographical area, much of it consisting of mountains with limited agricultural potential. Nevertheless, the country compares well on all economic and social indices to the most advanced Latin American countries. While Costa Rica does not have the industrial might of Brazil, Argentina, Chile, or Mexico, its development policies have been successful in diversification away from traditional agricultural exports like coffee and bananas to industrial activity in electronics, pharmaceuticals and medical hardware, to a vital service sector in call centers and other outsourcing activity and software development, and Costa Rica enjoys a flourishing tourism industry that takes advantage of the country´s tropical marvels. The nation is at or near the top of the list for Latin America on indicators such as poverty level, life expectancy, and educational and health services. There is less inequality in income than other countries in the hemisphere. Costa Rica´s environmental policies are notably among the most advanced in the world. As a matter of public service since the 1950s, state enterprises have extended potable water, electric and telephone services, and serviceable roads to almost the entire population. A national health care system of high quality and low cost covers almost all Costa Ricans and the many foreigners who settle here. One study even makes the claim that Costa Ricans are the happiest people in the world.
This is not to say that Costa Rica is a paradise without real problems. The economy is in fact integrated into the global economy in a highly dependent position, vulnerable to international events over which national economic actors have little or no control. (See our comments below on the impact of the 2008-2009 international financial crisis and economic recession). Income inequality and poverty levels are rising, resulting in increased levels of social problems and crime. Real incomes of working and middle class people are declining. The historical extension of public services by state institutions and enterprises are now being curtailed. The infrastructure necessary to national development, such as roads, water systems and electrical grids, is being ignored, while the government is extending contracts to international conglomerates for port, airport, and other facilities which were previously the responsibility of government and oriented toward community development. This is not to say that Costa Rica is a paradise without real problems. The economy is in fact integrated into the global economy in a highly dependent position, vulnerable to international events over which national economic actors have little or no control. (See our comments below on the impact of the 2008-2009 international financial crisis and economic recession). Income inequality and poverty levels are rising, resulting in increased levels of social problems and crime. Real incomes of working and middle class people are declining. The historical extension of public services by state institutions and enterprises are now being curtailed. The infrastructure necessary to national development, such as roads, water systems and electrical grids, is being ignored, while the government is extending contracts to international conglomerates for port, airport, and other facilities which were previously the responsibility of government and oriented toward community development.
Costa Rica has been moving away from its historical record of successful government directed development programs toward what is conventionally termed the policies of neo-liberalism. These policies, promulgated to the extreme in most of Latin America beginning in the 1970s, involved opening the economy to integrate into the global system, an emphasis on exporting natural resource based products, dismantling government regulatory and development agencies, the privatization of public enterprises, the repression of unions and flexibilization of labor, and other measures that had very serious effects. In Chile and Argentina these policies were imposed by fierce military dictatorship, and in Argentina lead directly to economic collapse in 2000 and 2001. In the region as a whole, the policies imposed resulted in greatly increased poverty, income inequality, and social discontent, creating the conditions for recent successful political movement away from neo-liberalism.
While in Costa Rica this policy shift began in the 1980s it did not reach the extremes of most of the region and only became pronounced under President Oscar Arias administration from 2006 to 2010. This is in sharp contrast to most of the rest of Latin America which is now experiencing a decided move away from neo-liberalism toward more autonomous development and social democracy. In Venezuela, Bolivia, and Ecuador this takes the more radical form of “Socialism for the 21st Century” and in Argentina, Brazil, Chile, Uruguay, and Paraguay new forms of Social Democracy, although in recent years these positive changes have been reversed and the elites espousing neoliberalism are back in power. In El Salvador, Guatemala, and Nicaragua former revolutionary of the 1980s have been elected to form more left-leaning governments moving away from class dictatorship, military interventions, and neo-liberalism. This tendency was recently reversed in Honduras with the May 2009 military coup there. At present, together with Colombia, Peru, and Panama, Costa Rica is going against the hemisphere trend of a more progressive direction.
In 2008-2009 the Costa Rica legislature enacted enabling legislation for CAFTA, the Central American Free Trade Agreement with the United States. This is a commercial treaty that enshrines the principles of neo-liberalism. The free trade agreement, originally negotiated in 2006, met with widespread public opposition. Social forces opposed to the agreement included trade unions, farmers associations, environmentalists, university counsels, many professional associations, all progressive political parties and movements, high school and college teachers and students, religious groups, and other sectors of the public grouped into a loose association called the Patriotic Alliance. Opponents held massive protests on the streets and kept vigils in front of the Legislature. Active supporters of CAFTA were business associations and the media, controlled by business interests, and conservative political parties, which have a majority in the Legislature. The outcome was decided by a plebiscite with a narrow Yes vote in October 2008, gained according to opponents by a campaign of fear and intimidation.
In Costa Rica there are two competing visions of the future, one defined by the Free Trade Agreement and the policies it requires and the other a resurgence of the vision of a Costa Rica based on principles of social justice, social democracy, and autonomous development. With presidential and legislative elections scheduled for February 2010 President Arias successor was Laura Chinchilla of the National Liberation Party who pledges to continue to work toward Arias´s vision of the future. This caused a considerable political reaction and the more or less left of center party, the Partido de Acción Civica gained the Presidency and a large presence in the Camara de Deputados.
INTERNATIONAL FINANCIAL CRISIS AND RECESSION. IMPACT ON THE COSTA RICAN ECONOMY AND REAL ESTATE.
Costa Rica is a small economy in a vast global system. As such, the country is in a highly dependent position, subject to the decisions and conditionality of international institutions and to adverse events over which the country has no control. The international financial crisis originating in the United States and the subsequent rapid decline into deep recession on a world scale has had its repercussions here in the tropical periphery.
During the last quarter of 2008 the financial debacle abroad precipitated a virtual closure of credit in Costa Rica. However Costa Rican financial institutions had no history of unregulated banking excesses that brought collapse in the United States. No banks (the most important of which are State banks) or financial institutions failed and in early 2009 credit became available, at least to the most qualified borrowers. The survival of financial institutions in Costa Rica is in good part attributable to the regulatory system of the Central Bank and the Superintendence of Financial Institutions. To stabilize the banking system the Central Bank upped reserve requirements and the government injected a modest amount of liquidity into the banking system. There were no ¨bubbles¨attributable to a predatory and unregulated financial sector in real estate values, consumer debt, or stock indices.
The lack of credit, especially from international sources, and current domestic tightened lending policies had a considerable impact on business financing and particularly on real estate investments. This is notably the case in the Pacific Coast boom areas where a number of mega-projects for luxury hotels and expensive homes were suspended. Ironically, these projects were oriented to the international jet set that benefited from the bubbles in the foreign financial superstructure. Environmentalists and local people had been highly critical of these developments. More generally, since much of the financing for development projects in Costa Rica comes from abroad, investor uncertainty combined with the drying up of foreign funding caused a decline in real estate investment of all types in the country. Some of the many foreigners dreaming of retiring to the tropics, or younger people seeking new frontiers, have placed plans on hold since they have lost equity, or can’t sell, their properties in North America or Europe or find financing. However, local credit for home or building site purchase and for smaller scale projects is available, although the interest rate is high. Some Sellers offer owner-financing on favorable terms to acquire a home, land, or business.
Tourism, a principal pillar of the Costa Rican economy that enjoyed steady growth over the decade of the 2000s, experienced a small decline in 2009. This tended to place a temporary hold on hotel construction and the flourishing eco-tourism business—new construction permits declined 60% in the first quarter of 2009—although tourism was expected to rebound once the world economy began to recover.
World recession has impinged in painful ways on the Costa Rican economy. The high rate of economic growth, 6 to 8% over the period 20-2008, fell into the negative of about 2% in 2009. The unemployment rate increased from 4.5% in 2007 to over 6% in 2009. Employment fell with a first quarter 2009 production decline, compared to Q1 2008, in manufacturing of 16%, 10% in hotels, and 6% in construction and agriculture. Exports in all these sectors declined as consumers in the industrial countries tighten their belts. The recession here, moderate in comparison with many countries, exacerbated the trend already in motion in the prior decade toward increased inequality in income distribution, with inevitable consequences for poverty and crime rates.
The major real estate agencies in Costa Rica cater to foreigners relocating to this tropical paradise. Americans, Canadians, Europeans, Colombians, and Venezuelans immigrate here in large numbers. All Costa Rican real estate agencies that we were in contract with report a decline since mid-2008 in foreign visitors seeking residence relocation or a business investment. Real estate sales in general were down from the previous steady rate, although middle and upper income Costa Ricans were still buying homes. With more difficult financing and recession, and declining real estate values on a world scale, one could reasonably expect downward pressure on real estate values in Costa Rica. Market prices here are difficult to determine as there is no reliable data base. Although there is a glut of offerings on the market, pricing seems to be quite inelastic in relation to these pressures. In terms of availability of all classes of property at least, it is definitely a Buyer’s Market.
Is buying a home or starting a business in Costa Rica a wise and secure investment? Even today, 2018, it is not possible to give a certain answer to that question. A qualified Yes is reasonable. A more definitive answer depends in good part whether the international economy slides from recession into depression again. If the world economy sinks further, many who have already lost up to half their retirement funds and equity in their homes in the industrial countries will not have the funds to start anew in another country. Since the Costa Rica economy is so inextricably linked to global events, people here will also suffer and become less able to afford a new home or to undertake an entrepreneurial venture. If the world economy recovers with only adjustments to more realistic values in the previously bubble inflated real estate and stock markets, then Costa Rica will likely be a recipient of this liquidity. We hope that we are not being too optimistic in expecting that the worst will not come to pass.
Cost of Living
If you are from some other part of the world and are considering living in Costa Rica, one of the most important factors which will determine your cost of living here is your lifestyle. If you plan to continue an affluent style of living, you will spend more than someone who adjusts to the Costa Rican lifestyle. Either way, you can still live better here than in most other countries.
Until the great influx in speculative capital hit Costa Rica in 2010 and 2011 the cost of living in Costa Rica was modest in comparison with the U.S. or Europe. Although Costa Rica has one of the highest standards of living and is among the more expensive countries in Latin America, the American or Canadian dollar or the Euro went further in Costa Rica than in the United States, Canada or Europe. San José was rated among the least expensive cost-of-living cities in Latin America and fell second to Quito, Ecuador. When compared to 118 cities worldwide, San Jose's cost of living ranked somewhere in the middle. The cost of living in Guatemala City or Panama City, for example, was in 2009 about 14% higher than in San José. That changed dramatically since 2011 with the appreciation of the colon against the dollar caused by the influx of speculative capital from abroad. For un update on the economic forces behind cost of living see my blog “Exchange Rate, Costa Rica Colons and Dollars.” This analysis documents the source of Costa Rica´s over valuation of the local currency to the influx of speculative capital from the U.S. and Europe.
Neverthesless, up to today homes in middle-class areas are generally less expensive than they are in the US or Europe. For example, a small condo in a suburb of San Jose can cost as little as $100,000 while the same condo at the beach can be priced much higher. You could purchase a modest “Tico” style home for around $60,000 or you could spend hundreds of thousands or even millions on a larger beachfront property or country estate. You can also build a good quality home for a cost of about $50-$70 per sq.ft. depending on the quality of finishings you use. Property and other taxes are fairly low in Costa Rica, except for a sales tax on many items of 13%. In October, 2008 the Legislature passed a new law imposing a tax on “Luxury Homes.” These are defined as houses with a construction cost of $178,000 and up. The tax is .25% payable at the time of purchase. This tax is tied to projects to eliminate slums and provide affordable housing to the poorest sector of the population.
Domestic help such as a maid or gardener costs two to three hundred dollars per month. Telephone/cell phone service, electricity, and water are also less expensive than in North America or Europe. A monthly electric bill would average about $50. Cell phone service is about $8-20 per month and a land line is even cheaper at $6/month. Depending on where you live, water is free or costs as little as $8 a month. Cable or satellite television charge between $35 and $50 per month. High speed internet and Wi Fi service averages about $6/month. Because of Costa Rica’s temperate climate, there is no need to heat or air condition your home in most areas. This alone will save hundreds of dollars each month. You also have your choice for cooking and heating water with gas or electricity.
Some people that move here find that they do not need to purchase a vehicle because public transportation is most everywhere and reasonable. For about 50¢ U.S. you can take a bus ride to the mall or to the grocery store. You could easily travel by bus to the farthest part of the country and spend around $10. Taxi service is also reasonable and readily available, Uber is now available with quick and inexpensive service. If you decide that you must have a car, it is important to keep in mind that new cars are very expensive due to high import taxes. Insurance are about U.S. rates but vehicle repairs are less expensive.
Furniture is one of the great values to be found here. The furniture making capital of the country is in Sarchi and you can have anything you desire built at very affordable prices. You can also purchase pre-made furniture from the scores of furniture stores. Fresh fruits and vegetables as well as meats and fish can be purchased at the local farmer’s markets (ferias) or in larger towns, the central market. Prices at the ferias and central markets are much lower than at the modern supermarkets.
Health care here ranks among the best in the world and at a much lower cost than in other countries. The Social Security system provides universal family coverage of high quality with premiums for 100% coverage of about $70 monthly for foreign residents as well as nationals. People come from all over the world to take advantage of private healthcare services, especially dentistry and plastic surgery. Many medications available only by prescription in the US can be purchased directly over the counter here and at a significantly reduced price for generics. Pharmacists are permitted to dispense medications, give injections, diagnose and treat illnesses all without a prescription or visiting a physician. Only narcotics and addictive drugs require a prescription.
Property taxes are a BARGAIN in Costa Rica. On a $150,000 property in most locations, you could pay less than $300 per year. And when you sell your property, there is no capital gains tax. The no capital gains tax also applies to the turnover of investment properties.
One of the best ways for people with some resources to enjoy life in Costa Rica is to pay cash for all your major purchases like your home, car, furniture and appliances. Ship here only your personal belongings. Without any debt and keeping your lifestyle in mind, a couple can live comfortably with a monthly income of $2,000-3000 and a more luxurious lifestyle can be realized with an income over $4000 per month. Considering that middle-class Costa Ricans earn between $1000 and $2000 per month, paying mortgages and car payments, and those earning more than $3000 per month are considered to be affluent, you can see how well you can live here for less.
The cost of living for foreigners who move here and depend on income from abroad has been increasing over the last decade. This is due to the Central Bank control of the exchange rate, as well as the weakness of the U.S. dollar and the appreciation of the colon. With the appreciation of the colon since 2011 those who have dollars get relatively fewer colones in exchange and pay more for goods and services purchased here. This was compounded in the international crisis 2008-20010 as many people dreaming of moving from the U.S. or Europe to Costa Rica face a situation of declining asset value and reduced investment or retirement income, a crisis which seems, for now, to be mitigated.
If you are looking for bargain-basement living, then Costa Rica may not be for you. You can find cheaper real estate and a lower cost of living in other countries such as Nicaragua, Honduras, Guatemala, Belize and Mexico. However, there will be trade offs in safety and violence, unstable political situations, lack of infrastructure, unstable currencies and a lower quality of life. Costa Rica is la pura vida.
Text and images copyright Tucan Investments and Properties. All rights reserved. Information deemed to be reliable but not guaranteed. The data relating to real estate for sale on this web site comes from the seller, documentation in the local municipality or information publicly available in the Costa Rican National Registry. Listing broker has attempted to offer accurate data, but buyers are advised to confirm all items.