Thanks to Daniel Ortega, Beach Prices Are a Steal

Wednesday, July 15, 2009

Dear 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. 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…in the year-round sunshine.

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 are struggling because of a perceived risk in the market. But once buyers and investors realize that the values 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 experienced two major setbacks. 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 subprime crisis and onset of recession in the United 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 extended a welcome to new investors in the country. He 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 report on how Ortega has friendly relationships with Chavez and Iran. You will read much less about how Nicaragua is engaging positively with the IMF and the EU and the U.S. government. You will not hear much either about the Coastal Law which was approved last month. It respected property ownership rights, generating positive reactions from developers and investors.

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. New inventory is trickier. It’s difficult to make direct like-with-like comparisons. I know one project that was selling $350,000 condos a year ago…and today is selling two-bed casitas for $139,000. As I say, direct comparisons are very difficult…the $350,000 condos were ocean front, whereas the casitas are a short walk from the ocean…but the lower price point is obvious. 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 type of product wasn’t available two years ago.

Today’s lower prices reflect a perceived political risk…but that 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. Buyers may not get promised infrastructure in certain cases.

There is a major buying opportunity in Nicaragua today, but you need to be careful. Remember to “buy what you see” and look for projects that are well financed and have already delivered infrastructure. 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…perhaps stronger than ever…in the next two to three years. But I could be wrong; it could happen sooner. Nicaragua is pointing firmly 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