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Analyzing the real estate market
How will the global financial crisis impact real estate in Central America?
The global financial crisis and it’s impact on international real estate is topic of discussion number one among real estate analysts in Central America. It’s still too early for clear predictions, and the tricky part is that the arguments being presented paint widely different scenarios.
On the one hand, large-scale real estate projects, especially if heavily leveraged, will be vulnerable as the economic mood darkens. The suspension of the St Regis project in Costa Rica in the wake of the Lehman Brothers collapse is a case in point. But, perhaps more important than the direct impact of the international financial crisis - the argument goes - is it’s indirect effect as financing becomes scarce.
But, when looking at the Central American market place, it may not be as simple as that. First, the majority of international real estate buyers make their purchases in cash. Granted there are isolated pockets of finance-driven speculation (for example Panama City, Panama and Jaco, Costa Rica), but the broad foreclosure waves as experienced in the US are unlikely. Second, international real estate markets, and Central America included, could be seen as smart choice by investors looking to shield themselves from a volatile stock market and recessionary trends in the US and Europe.
A portfolio play or a lifestyle choice?
US citizens looking to get a percentage of their assets outside the US may see an investment in Central America as a portfolio play rather than a lifestyle choice. But at the lower end of the market the arguments could play in the opposite direction. Here if buyers see their chances of retiring in, say, Florida unwind, they may seek out locales where the real estate is cheaper and, crucially, the cost of living more affordable.
It’s more important than ever to focus on quality
The results will be mixed both within and between countries. Investment activity will trend towards well-planned developments with good locations, quality products and a master plan that delivers against end-user requirements. The real estate developments that have only done well in the past due to speculation rather than the quality of their product will likely suffer. Many will stall. Investors will do well to avoid areas with oversupply risk and a glut of copycat developments selling pre-construction.
At least everyone agrees on one point: Central American markets will not be immune. But when we’ve managed to take a deep breath and look around; we may see healthier, more sustainable real estate markets, less dependent on loans and speculators.
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Article written by revealrealestate, November 2008
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