A Guide to Buying Land for Development in Central America
The most common investment strategies for buying land in Central America fall into two main categories. The first is buying a large parcel generally with limited infrastructure with the aim to subdivide the property and sell off smaller lots to end-users, typically serviced at a minimum with water and electricity. The second is purchasing vacant lots within a real estate development ideally with some infrastructure in place either to build houses on the lots for re-sale or to flip the vacant land once the development has moved forward with its master plan.
The “Path of Progress”
A critical factor with both approaches is to choose the right location for the land investment. In Central American markets, which are generally less developed than markets in the US, you want to position yourself in the ‘path of progress.’ It’s important to find out about local trends. Where are infrastructure improvements planned? Are tourism number rising? In Panama, for example, the airport at David in the western province of Chiriqua is currently undergoing expansion to accept international flights. In San Juan del Sur, Nicaragua, the government is expanding the port facilities to accept more cruise visitors and in Placencia, Belize, the road along the length of the peninsula has recently been paved. These are all positive signals for developers interested in momentum effects and getting a foothold early in maturing real estate destinations.
You Won’t Find A MLS in Central America
Seasoned land investors realize that they need to put in the legwork to find the best deals. Property for sale in Central America counties like Costa Rica, Panama, Nicaragua and Belize is not managed under a Multiple Listing Service, as it is the US. This means that there is no single source of information on available properties any most of the land listings will be ‘pocket listings.’ So there’s really no alternative to contacting all real estate agents in your target market and building a network of local contacts if you want to be sure you are seeing all there is to see.
Data and Comps Are Hard To Come By
Bear in mind that official data on property sales is not available in Central America. Without access to reliable statistics on price trends or information on how long properties have been on the market, it can be difficult to get a good feel for value. It’s a good idea to start building your own spreadsheet comparing asking prices. And you’ll also find some sources of objective analysis on line. Sites such as Reveal Real Estate, which tracks asking prices in real estate developments across Central America, will help in your research. But treat asking prices like starting prices. They often vary considerably from sales prices, especially in the current ‘post-crisis’ market environment.
Protect Yourself and Do Your Due Diligence
Hiring a competent attorney to do your due diligence is vital before you put any money at risk. Ensure they dig deeply into the title history of the property you are looking at to find any liens and encumbrances. Speak with local planning authorities about your development plans to determine if there could be any restrictions and determine what permits will be required and who will need to approve these. Verify water sources and electricity provision and any improvements needed. When working out your budget for a development project it is critical that you ensure that your funds will cover the land purchase as well as any infrastructure improvements required. The business model of selling unserviced lots or funding infrastructure provision on the back of pre-construction sales was always a risky one, but particularly so in the current market where investors are retreating from more speculative investments types.
Jane Bakerson is lead writer for Reveal Real Estate. She covers Central American overseas property markets with a particular focus on real estate in Belize.
Photo Credit: Shared Interest