BUYING REAL ESTATE IN COSTA RICA
BUYING AND OWNING REAL ESTATE IN COSTA RICA
Owning a property in Costa Rica is the same as owning in Canada, the US, Europe, and many other countries. A “Fee Simple” property is the highest right of ownership and is permitted in Costa Rica. All private ownership of property is protected by the Constitution of Costa Rica. The only exception of complete ownership is purchasing “Concession Land”. Concession land refers to shoreline property within 200 meters from the mean high tide mark and heading inland. 95% of Costa Rica’s beachfront property is concession land. There is a section further down on concession land. Everything beyond this 200-meter mark is complete “fee simple” ownership.
CURRENCY FOR PURCHASING PROPERTY IN COSTA RICA
All real estate transactions are done using United States Dollars.
STEPS TO PURCHASING
After finding your dream property your real estate agent will prepare a letter of intent, we refer to this as a Purchase and Sale Agreement. This contains the dollar amount of your offer, conditions, and closing date. The PSA is then reviewed and signed by the buyer and forwarded to the selling agent of the intended property.
Once the seller and buyer have agreed upon the price and conditions, your agent will introduce you to a local Costa Rican lawyer, the lawyer will then prepare a legally binding contract.
The real estate agent will also introduce the buyer to a local Escrow company who will hold the initial deposit, final payment and all fees associated with the purchase until closing. A local agent from the escrow company will have the buyer complete what is called a “Get to know your customer” application. Upon completion the escrow agent will send the buyer instructions for their financial institution or bank on how and where to wire the funds. All escrow companies are registered in Costa Rica and dedicated to protecting funds; the monies are held in trust until closing.
Initial deposit – the initial deposit is ten percent (10%) of the purchase price of the property. This deposit is due within ten business days after both seller and buyer sign the intended PSA.
Property Inspection – as with most property purchases (homes or condos) a home inspection is suggested. Your real estate agent will make suggestions for local inspectors. This is usually done within ten (10) business days after the seller and buyer sign the PSA.
The remaining ninety percent (90%), along with the legal and government transfer fees are then wired before the closing date. All monies are disbursed on day of closing.
Due Diligence - this period which is usually twenty-one (21) business days, allows the lawyer to do the complete legal research of the property. This ensures there are no liens, legal issues, or contingencies on the property. Any professional study which may be required is conducted during this period.
Closing – Once an offer is accepted, closing could take anywhere from a month to six weeks. Exceptions can be made. The conveyance of the deed will be done with the lawyer who will register the property under the new owner.
PURCHASING UNDER A PERSONAL NAME OR A CORPORATION
Many buyers purchase under their personal name(s) and many open a Costa Rica corporation to purchase. Your Costa Rica legal team will advise on what is right for you.
LEGAL FEES AND CLOSING COSTS
Real Estate closing costs in Costa Rica will be a percentage of the purchase price, or the legal registered value of the property in the Public Registry System, whichever one is higher. A good number to keep in mind is roughly four percent (4%) of the value of the property. The following is an approximate break down of the total fees.
The amount charged by the legal firm representing you in the transaction. This fee will be 1.25% of the purchase price, or the legal registered value of the property in the Public Registry System, whichever one is higher. Most lawyers will base it on the sale price. This fee covers all the due diligence on the property ensuring there is free and clear title without liens, encumbrances or annotations. The fee also includes the registration of the deed.
The registered company holding funds which are disbursed at closing. The cost for this service is approximately $650
Real Estate Transfer Tax
This tax is paid directly to the Costa Rica Government and is 1.6% of the purchase price, or the legal registered value of the property in the Public Registry System, whichever one is higher.
This is 1% of the purchase price, or the legal registered value of the property in the Public Registry System, whichever one is higher.
PROPERTY TAX & LUXURY TAX
Property tax - Here’s the great part, annual property tax is 0.0025% of the registered property value. As an example, a property which costs or is valued at $200,000 has an annual property tax of $500. Just one more reason foreigners love to purchase in Costa Rica.
Luxury tax – Luxury Tax is applied to properties valued at 133,000,000 colones ( approx. $200,000 USD) and up. It ranges from 0.25 to 0.55 percent of the property value. So a house valued at $250,000 would be subject to an Annual Luxury Tax of $ 625 USD
Unlike Canada, the US, or Europe most homes or condos in Costa Rica come fully furnished and equipped. Typically, an inventory list of what is included is provided to the buyer within ten (10) business days of acceptance of offer by both seller and buyer.
Beachfront property is more commonly known as “concession property.” In Costa Rica, 95% of beachfront property is concession property and is governed by the Shoreline Zone Law (Law No. 6043) and other specific regulations including but not limited to special dispositions ensuing from local governments (i.e. municipalities) and the Costa Rican Board of Tourism (ICT). These legal dispositions establish the conditions under which foreigners and local residents can lease concession property.
In Costa Rica, a concession is defined as the right to use and enjoy a specific portion of land located on the shoreline zone for a predetermined period of time and based on a predetermined use of soil (zoning or master plan; in Spanish, “Plan Regulador”). The Government grants this right by means of a private agreement between concessionaire and corresponding municipality which is further recorded in the Public Registry. This agreement also establishes a yearly concession fee that is paid based on an appraisal performed by government financial authorities.
Costa Rica’s shoreline zone is comprised of 200 meters starting at the mean high tide mark and heading inland. The 200 meter zone is government owned; no individual or company can own this area.
The shoreline zone is further divided into two strips of land. The first strip is 50 meters (approximately 150 feet) wide and is known as the “public zone.” This zone is absolutely public and is not available for ownership of any kind. No development is allowed, except for constructions approved by government entities (i.e. marinas). Furthermore, this area is deemed public, therefore, it is available for use of any individual.
The following 150 meters can be subject to occupation or lease by individuals or companies. This is done either through a concession with the respective municipality (in case of residential and commercially exploitable portions of land) or a management Plan with the Ministry of Environment and Energy (MINAE), in the case of environmentally sensitive, low density, portions of land. In both cases, the property can be used, although not owned (same as with a lease).
Both concession agreements and management plans are entered into between private parties and the Government for a limited period of time. That ranges between 5 and 20 years, at the Government’s discretion, however most concessions and management plans are granted for 20 years. During such period, the concessionaire pays a fee for the use and occupation of such Government land. Renewal for equal and consecutive periods is negotiated between private parties and the corresponding government authority. Renewal is usually based on the concessionaire’s ability to comply with his or her commitments and obligations during the previous agreement. Such obligations include having assumed the compromise to build on, subdivide or perform other acts of development or improvement on the concession land, in which case the concessionaire will be required to obtain all appropriate permits from the local municipality.
Unlike fee simple property, foreigners do not have the same rights as citizens when it comes to leasing shoreline zone concession land. The law establishes that foreigners cannot be majority owners of concession land. A foreigner can, however, enter into a partnership with a Costa Rican citizen, in which the Costa Rican national appears as the majority holder of the concession land. An exception to this prohibition applies to foreigners who have resided in Costa Rica for at least five years; these foreigners can also appear as majority holders of a concession.