Bouyant prices over recent years have made buying property in Costa Rica a sound investment. Whether you intend to live at the address or are making the purchase as an investment, buying property in Costa Rica promises good returns in the future.
Costa Rica is the most prosperous of the five nations that make up the Central American Common Market (CACM) — which also includes El Salvador, Guatemala, Honduras, and Nicaragua — and the country displays greater economic freedom than its regional partners, as well as a low inflation rate of 2.3 percent, according to the Index of Economic Freedom 2020.
The county has some of the lowest crime and violence statistics in the region, and has famously enjoyed decades of political stability that have seen it keep no standing army since 1948. These factors in combination with a business-friendly environment that is welcoming to foreign direct investment (FDI) have contributed to Costa Rica becoming a mecca for tourists, investors, and expats.
The country had a gross domestic product (GDP) of $61.77 billion (USD) in 2019, and has registered GDP growth every year over the past 38 years other than during the 2009 global financial crisis. Costa Rica has also seen consistent growth in gross national income — a strong indicator of prosperity among the population — which more than tripled between 2000 and 2019 to reach $11,700 (USD).
Costa Rica’s main export commodities include agricultural products such as coffee, bananas, and sugar, while its booming tourism industry accounts for roughly five percent of GDP.
If you seeking legal counsel in Costa Rica to help you buy property, or are otherwise interested in the country’s real estate market, read on to learn about some key considerations you will need to take into account when buying property in Costa Rica, as well as the costs and steps involved in the process.
Buying property in Costa Rica: key considerations
Costa Rica’s pro-investment outlook has seen the government give the same rights to foreign property buyers as local citizens, even in the case of the buyer being a foreign corporation, rather than an individual.
While the process is relatively straightforward, when buying a property in Costa Rica you must consider the following:
Property type and location: whether you are looking for a beachfront property or a commercial space, you must first determine the type of property you are aiming to buy in Costa Rica and seek the appropriate location to do so. Beachfront properties close to international airports are some of the most coveted real estate since they are convenient, but they may not represent the soundest investment in terms of future returns.
Reliable counsel: you want to make sure that you don’t only have an excellent real estate broker, but also a reliable attorney or legal counsel with experience in the local property market, who can review the status of the property and determine if there are any liens or encumbrances.
Due diligence: Although Costa Rica has a Public Registry of Properties, some information must also be obtained from other institutions as well as private records provided by the seller. Therefore, you must have someone with good legal knowledge go through all the information in order to advise you on the safety of the investment.
Tax compliance: Costa Rica oversees a low tax regime, meaning your property tax burden should not be a major concern. However, failure to meet tax requirements fully can incur severe penalties, so it is worthwhile finding a local partner who can work with you to guarantee full compliance.
Property maintenance and management: it is important to keep your property well maintained and in full compliance with all local laws and regulations. Timely payment of taxes, reviewing the status of your property in the Public Registry, and tri-annual declarations of property value, are just some of the obligations a real estate owner in Costa Rica must comply with.
Costs related to buying property in Costa Rica
While real estate prices and the related tax burden are very favourable in Costa Rica compared to the likes of the United States, United Kingdom, or Australia, it is worth knowing which taxes and other costs you will be liable for. Below are some of the main costs to consider:
- Property Transfer Tax: every time a property is transferred in Costa Rica, the government charges a transfer tax based on the value of the transaction.
- Public Registry stamps and fees: all property title transfers in Costa Rica must be submitted to the Public Registry, which charges fees for stamps and other administrative duties, calculated based on the value of the transaction.
- Notary public legal fees: the notary public who performs the closing and the notary public transfer deed will also charge legal fees for its services.
- New corporation filing fees and government fees: incorporation of companies will also imply paying the cost of this service.
- Due Diligence: the legal services provided by your legal counsel regarding the research and feasibility of the transaction are also usual in this type of transaction.
- Power of attorney: in the event that the buyer doesn’t attend the closing, he or she can be represented by a power of attorney at closing.
- Real Estate Commission: as mentioned above, retaining a good realtor to advise you in regards to the purchase of your property is strongly recommended.
The property acquisition process
Once you’ve selected the property that best suits your needs, you will follow the following process when buying property in Costa Rica:
- Execute a Sale and Purchase Agreement with the seller: with the support of a trusted legal counsel, you must prepare a Sale and Purchase Agreement (SPA) in order to ensure the agreed terms and conditions of the transaction in writing.
- Open and deposit funds in an escrow account with a licensed escrow company: the most secure way to avoid risking your capital is by means of an escrow account. Note that Costa Rican government oversees all legitimate escrow companies, which must register and comply with stringent requirements, so be sure to confirm they have an escrow license.
- Conduct due diligence: your legal counsel should perform thorough due diligence on the property and confirm that there are no legal matters that imply a risk or a liability for the potential buyer.
- Incorporate a new company: depending on the nature of your investment, the incorporation of a new company for it to hold title to your property is one possible approach that your legal counsel can advise you on.
- Closing: once all of the previous steps have been fulfilled, the buyer and seller, along with the closing attorney and notary public, must sign a notary transfer deed that ensures the transfer of the title from seller to buyer.
- Register the property with the Public Registry: After closing has taken place, the notary public should file a copy of the transfer deed to the Public Registry to inform it of the change of ownership on the property so that it is reflected as such on the Public Registry’s records.
Biz Latin Hub can assist you buying property in Costa Rica
At Biz Latin Hub, our experienced legal team is able to advise, assist, and represent you in the process of buying property in Costa Rica. Our team of multilingual specialists is equipped to help you through every aspect of the property acquisition process, and can provide a wide array of additional support for any commercial operations you have in the country.
Reach out to us now to find out more about how we can assist you in buying a property in Costa Rica as a foreign citizen.
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