In recent years Costa Rica has been experiencing a peak in the real estate market, strongly associated with the development of a large number of vertical housing projects or apartment buildings.

On the Grand Metropolitan Area (GAM) a subject that surprise and concern is the oversupply of vertical initiatives, in particular, the fact that real estate developers have continued to build. “A clear example of this situation is that today, for every kilometer traveled, we’ll probably bump at least into one construction”, says Eduardo Rojas, founding partner of ERP Lawyers & Associates ERP.

Too much real estate offer and a small demand

This oversupply, however, has led to a general decline in the sale of housing projects (new houses, lots and apartments). The trend was revealed in a study conducted by the consulting firm Gutiérrez & Gallardoand published in late June by the weekly El Financiero:

• In 2013, every month were sold between 500 and 600 apartments, houses or lots; but today that number reaches about 380.

Another inconvenient to commercialize the projects, is their price.

Gutiérrez & Gallardo analyzed 189 developments (5.414 houses and 3.938 apartments), of which 65% have a price above $120.000 (more than ¢65 million colones), cost that requires a net income of at least $3.000 and primes of 20% of the total cost of the real estate.

“The high prices are a problem that blocks the market. The kind of developments that have been implemented (from $120.000 up) are looking towards the middle-high class, because the middle-lower class cannot bear such a financial responsibility”, adds Rojas.

According to José Martín Azofeifa, associate of ERP, in addition to the high prices for acquiring new housing spaces, there’s the issue of the apartment’s characteristics.

“People are not used to live in buildings; they prefer to choose the traditional independent house instead of living in floors. Additionally, the spaces in each apartment are much smaller than the ones in a traditional home”, says Azofeifa.

Because many buyers can’t imagine themselves living in small spaces and don’t have the capacity to pay the high costs of a property in the GAM, they prefer to move away from the capital.

The favorite province, besides San José, is Alajuela, in specific La Garita; next is San Pablo at Heredia; and Paraíso, at Cartago.

At ERP Lawyers we want to keep you posted about the real estate market in Costa Rica, that’s why we invite you to follow our blog, where soon we will explain all the procedures that our firm takes care of when it comes to help our clients to develop a real estate project.