Benefits of Owning Real Estate in Costa Rica

There are a number of advantages to owning real estate in Costa Rica, the first of which is that land prices in many parts of the country are still below prices in North America and Europe. Be forewarned, however, that prices are rising and that dreams of finding a dramatically undervalued property may no longer be a likely possibility. (Those who already own land are of course happy to see the increase in land values.) In addition to affordable land prices, Costa Rica also offers construction prices that are well below those found in industrialized countries.

A second advantage to owning real estate in Costa Rica is astoundingly low property taxes. They are low for two reasons. First, property taxes are applied to the value of the property as recorded by the local municipality, which often values properties below true market value. Second, the current property tax is a mere 0.25 % of the recorded value of the property. Thus, annual property taxes on a $300,000 house would be $750 ($300,000 x .0025). Keep in mind that in many areas of Costa Rica, a $300,000 home would be a luxury purchase; if you owned a $200,000 house, still a very nice house, you would pay just $500. And all of this assumes, perhaps naively, that these properties have been valued at their “true” market value, otherwise you would of course pay even less.

Lest you begin packing your bags in order to escape onerous property taxes back home, we should make two additional notes about property taxes in Costa Rica. Politicians at the national level have in recent years raised an increasingly vociferous cry for a change in Costa Rica’s tax system. The national coffers are dry, say the politicians, while the citizen in the street is likely to claim that poorly maintained roads, for example, are due to government corruption and inefficiency. Most probably the truth resides somewhere in the middle. That aside, winds of change are in the air, and you should expect to see an increase in property taxes sometime in the future, though no politician is currently proposing burdensome tax increases. There is a second, related point about current property taxes. Time and again, we have heard foreign owners of homes say that they think property taxes are too low, an opinion based on the implicit notion that indeed the national government, however corrupt or inefficient it may be, is underfunded. If that’s true, then the government doesn’t have the money it needs to provide the services that all homeowners should want; namely, the funds to ensure safe, crime-free streets and neighborhoods, to maintain roads and other public infrastructure, and to provide quality education. In short, some people would argue that such low property taxes aren’t necessarily a good thing.

A third attractive feature of the real estate market in Costa Rica is that there are no taxes on capital gains. When you sell your home, you receive both the original cost of the house plus the appreciated value (plusvalía), tax free. As with property taxes, however, there is a move afoot in the National Legislature to change all of this. No one knows for sure whether a capital gains tax will be instituted—nor when or at what percentage—but many people who are in the real estate business assure nervous home buyers that such a tax, if instituted, would be a “reasonable” tax.