This ad was in last week's La Nación here in Costa Rica. Translation:

"This is the moment to buy. Stable price and
low interest! Resale opportunity. Pre-construction priced at $250,000.
Only 10% down and you can pay that in four payments! [So get into this game for only $6,000 now.]
To be completed in 2010, then finance 70-80% for 30 years. I sell these
properties in Miami." The rest is contact information…

There are so many things that struck Hal and I about this ad, like:

  • Advertising a Miami condo in a Spanish language third world country's newspaper? Isn't this the reverse of how it's usually done?
  • Advertising for speculators at this point in the market?
  • Could this be a sign that Costa Rica real estate is now as expensive, if not in some cases MORE expensive than Miami's?

From everything we know about Miami's real estate market, it's
crashing badly. Condos that sold pre-construction in 2004 for $600,000 are
selling now for $300,000. How much will these be selling for in 2010? Is the trend up or down?

Hal told me that in the first five years of the decade (2000-2005),
only 5,000 new condos sold in Miami. Total. That's 5,000 TOTAL sold in five years. I'm hammering this point because I kept thinking I wasn't understanding the numbers. Because…

As of 2005, there were 50,000 new condos in
the Miami pipeline
at some stage of construction. Fifty thousand new condos
being built… when only 5,000 new condos sold during the preceding five years.

Do developers do any research? Can they add? They can sure
extrapolate their presumed profits. But none of them, it seems, looked
back or around. They were building for the 77 million baby boomers coming along any minute, 50,000 of whom would surely want a new condo in Miami. "Who wouldn't?" the developers muttered to themselves on the way out of the architect's office.

Switch locales: On the road to the Multiplaza here in Escazú,
we pass, in a one-mile stretch, at least 10 new office buildings in
various stages of construction. TEN. Multi-story, multi-office, big,
fancy, brand spanking new so most likely expensive. I'm guessing in the $250K range. But it doesn't matter how much. Because there are too many of them.

Where are the businesses located now that are
supposed to fill all these offices? What will entice them to move to
far fancier, far more expensive new digs? These businesses are making Costa Rica-style
incomes… can they afford Miami-style expenses? And… do enough
businesses even exist? I'm betting most of these developers plan to sell or rent to start-ups.

Here's the scenario I've constructed for this office park boom. But it will work for any real estate boom anywhere:

  1. Costa
    Rica's real estate starts booming, driven by easy money people acquired
    in their home country – either borrowing on their primary residence or
    selling at the exact right time. Which was an incredibly short window
    of opportunity.
  2. People start to believe the hype, "Real estate never goes down."
  3. Everyone hears that commercial real estate is the next boom. That's what I heard two years ago in Key West.
  4. Two years ago, a guy builds an office building near the Multiplaza and it sells out.
  5. Nine other guys quietly buy land on the road to the Multiplaza, to build "the next" office park. They tell no one.
  6. One by one, they start to build… noticing the new office park going up right next to theirs.
  7. They start cutting corners and hurrying along to finish before next door so they can get to closing their pre-sales…

These buildings aren't completed yet, so we don't know if I'm an hysterical doomsayer or aptly able to put two and two together. We'll see.

I've managed to get to the end of this post without mentioned the 50 permitted condo developments slated for beachfront in Jacó right now, not including the St. Regis (starting at $800K per condo), the Ramada now under construction, the Four Seasons resort, the ever-expanding Marriot, the privately held developments of which there are many, and the property Trump just bought upon which to build his Towers. And this is just Jacó.

So… how do you think this will end?

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