Thanks to Daniel Ortega…Beach Prices Are a Steal

International Living Postcards--your daily escape
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Friday, May 16, 2008

Dear International Living Reader,

Along the southern Pacific coast of Nicaragua are rocky outcrops and pounding surf. Although frequently compared to the coast of Southern California, this doesn’t do Nicaragua’s Pacific coast justice in my mind. The wave breaks along this stretch of the Pacific attract surfers from all over the world…dramatic rock formations and ridges present unparalleled ocean vistas…and the brilliant scarlet and orange sunsets are truly jaw-dropping.

This is the ideal getaway to relax…and to unwind. You can snorkel in the clear waters or sit in peace in the sun all day long--the sun shines year-round.

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But you can buy property here for less than one-tenth of what you would pay  across the border in Northern Costa Rica...and just a small fraction of what you would shell out in California.

Real estate prices in Nicaragua right now are at 2005 levels because of a perceived risk in the market. But once buyers and investors realize that the big discounts on offer today are for a risk that doesn’t exist…they’ll take another serious look at this enchanting country. And values will soar again.

Allow me to explain.

The real estate market in Nicaragua has experienced two major setbacks in the last 18 months. First, the election of Daniel Ortega was followed by a nervous wait-and-see view of the market. The second and killer blow came from the sub-prime crises and onset of recession in the States. The real estate market in Nicaragua was dependent on U.S. investors, who rapidly dried up.

Bottom line: The market stalled.

Shortly after his election, Daniel Ortega met with dozens of the country’s top business leaders and foreign investors and promised to respect property rights and support the country’s Central American Free Trade Agreement with the United States. The Ortega of today is more a business man than a revolutionary…more a deal maker than a war maker.

He assured existing investors that they would be able to continue their work as they have in the past and expressed his welcome to new investors in the country. Of course, there was a great big elephant in the room until he came straight out and said:

“No one is going to allow seizure of property, big or small. We need to eradicate poverty, but you don’t do that by getting rid of investment and those who have resources.”

The mainstream media today report on how Ortega has cozied up to Chavez and has friendly relationships with Iran. You will read much less about how Nicaragua is engaging positively with the IMF and the EU and U.S. governments. More importantly, I don’t know one developer, local or gringo, who fears that Ortega will renege on his promise to respect property ownership rights. The same goes for my contacts at First American Title Insurance, who just opened an office in Nicaragua.

Tourism, export, and foreign investment numbers are holding up. The tourist towns of Granada and San Juan are buzzing with new hotels, restaurants, and bars. A hotel room in high season in Granada is difficult to find. Property owners in certain projects are starting to get rental income for the first time.

A buyer’s market has been created but you need to tread carefully.

While developers haven’t changed their official price lists on existing inventory, many are open to deals on price or terms. I know one developer who has accepted an offer of more than 30% off the asking price for the purchase of multiple units.

For new inventory, it’s difficult to make direct like-with-like comparisons, but it’s clear to me that pricing is substantially lower than 18 months ago. For example, I know one project that was selling $350,000 condos a year ago…and today is set to release two-bed casitas for $139,000. As I say, direct comparisons are very difficult…the $350,000 condos were oceanfront, whereas the casitas are a short walk back from the ocean…but the lower pricing is obvious. Today you can buy a golf lot in an oceanfront master planned resort for $39,000 or an ocean-view lot for $47,000 in the top resort in Nicaragua. This value wasn’t available two years ago.

The clock has been turned back two to three years, with prices now at where they were when the boom in Nicaragua really took hold in 2005. Today’s lower prices reflect a perceived political risk…but the political risk has diminished since 2005.

No one knew what would happen if Ortega was elected. Now we do. The greatest fear was always that land would be confiscated. This hasn’t happened nor is there any indication that it will.

But as well as lowering prices, this perceived risk has hurt several developers, and the pain isn’t over. Projects will fail and buyers may not receive infrastructure promised in certain cases.

Today, there is a major buying opportunity in Nicaragua but you need to be careful. Remember to always “buy what you see” and look for projects that are well financed and have delivered infrastructure already. Don’t be afraid to ask questions…like “how can you prove to me you have the funding to build your amenities?” Solid projects will be happy to answer your questions.

The market in Nicaragua will come back…I believe perhaps stronger than ever…in the next two to three years. But I could be wrong; it could happen sooner. Nicaragua is firmly pointing in the right direction. The road will continue to have bumps but as a long-term value play it doesn’t get much better than this. Take your time…tread carefully and buy where the risk of project failure has passed and you’ll do well…very well.

Ronan McMahon

Editor’s Note: Regardless of what’s going on in the U.S., there’s always money to be made someplace--if you can get in early enough. Ronan McMahon is the executive director of Pathfinder, and contributing editor to Real Estate Trend Alert, a new IL publication for individuals who want to take advantage of global real estate trends long before they become common knowledge…like how to secure top-quality beachfront for a few hundred dollars. Read more here.

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