United States Housing Slump Not Affecting Costa Rica

The slump in the US housing and financial markets, already spreading to Europe and Japan, is not expected to have a serious impact in Costa Rica, experts claim.

Despite concerns with house prices falling and a record number of Americans set to lose their homes to foreclosure, the general consensus is those buying in Costa Rica are not likely be affected in the least.

“I am under the impression that the foreign investors coming to invest in Costa Rica is precisely the type of investor that already has enough buying power, already resolved his housing situation back in the States and has come here to slow down and enjoy their new home in the mountains or on the beach,” Finance Minister Guillermo Zúñiga told Emerald Forest Properties in a phone interview Wednesday.

“That is not the investor that would be affected by this situation.”

The problem began, with what economists say are known as sub-prime loans — loans given to people who have poor credit or no credit. Many of those loans are adjustable rate, meaning the lender can change the interest rate. As those rates have climbed in recent years, many borrowers have been unable to meet payments, defaulted, and left the banks holding property, rather than money.

The business of repackaging debt to be traded in financial markets has meant the problem has had a wider effect, and the lack of payments has caused a shortage of money in the system, leading to a “credit crisis” and making it nearly impossible for some to get loans.

However, Mr. Zúñiga says there are no signs that Costa Rica is, or will be hurt by these problems. “I would not expect changes in what is happening in our country,” he said. “The foundation of our economy is solid, and our financial situation is very solid.”

In the first three months of 2007, mostly American foreign investors and homebuyers bought at least $192 million worth of property, largely in the provinces of Guanacaste and Puntarenas, according to Costa Rica’s Central Bank. That is nearly triple the $70 million registered in the same period in 2006.

Mario Solano, a Central Bank economist that worked on the estimate and tracks foreign investment in Costa Rica, said this week that the bank had not yet studied whether the crisis was affecting the country, but said, “Costa Rica could be affected, but not in the short term.”

Peter Graham, of Emerald Forest Properties in Jacó, said, “I believed it is just the beginning of what Costa Rica will see as a 10 year Golden Period for investors and home seekers alike.” “Costa Rica is an exciting alternative when faced with a grim U.S. economy and many baby boomers are ready for some fun in the sun. They’ve lost optimism about financial gains in the United States and know Costa Rica is booming,” he said.

Finance Minister Zúñiga said that if the US Federal Reserve cuts interest rates to help out the market that could result in lower rates in Costa Rica.

Scott Graves, Vice President of MDO mortgage, said he believed the slumping market in the United States is already driving US lenders to Costa Rica. Mr. Graves goes on to say that his office is having a hard time keeping up with U.S. applications.

“The housing market in the United States is in ruins and financial companies are coming here. It’s not a prediction, it’s a fact,” he said.

The Costa Rican interest rates are falling and becoming more and more attractive to foreigners.

“Banks are offering very low interest rates due to the high volume of real estate and construction going on in the country. With the arrival of huge U.S. based companies, it will be even more competitive,” he said.