Costa Rica’s Top Economic Industries

Tourism

Costa Rica is the world's fastest-growing destination for adventure and nature travel, and travelers from all over the world are pouring in, too. The resort industry is booming in Costa Rica and has surpassed their previous leading industries in agriculture; that being bananas and coffee back in 1993. The country has recently been adopted as the darling of the ecotourist: the just reward for preserving its national parks and wildlife reserves.

At current rates of tourism expansion, the country needs to open 500 new rooms each month. It is currently difficult to get beds Nov.-April, when a severe case of room shortage afflicts many of the more popular spots.

The Beach Resort Boom

Sprawling resort complexes are beginning to sprout all along the Pacific coast shoreline. Chief among these is the Gulf of Papagayo project encompassing several beaches. The megaresort, being constructed by a host of European developers spearheaded by the Spanish developers Sol Melia, will be the largest "leisure city" in Central America, with rooms for 6,000 tourists in 2,000 rooms, 50 luxury villas, 400 family villas, and 700 apartments, replete with shopping center, golf course, and other supporting amenities.

Costa Rica stands to gain much more than cash from the current boom. Firstly, optimists suggest that the profit potential of tourism encourages private landowners to regard natural areas as long-term assets rather than a source of quick cash, and that resort developers realize that the added expense of building around rather than through a forest pays ample dividends in the end. Kalia Modern Eco-Living is a good example of this.

Other Big Business...

Intel leads the way with for Costa Rica exports. The Intel facilities in Heredia sits upon 126 acres and includes two manufacturing plants and one distribution center dedicated to the assembly, testing and distribution of the world's fastest processors: the Intel Pentium 4 processor, Intel Celeron processor and Intel Xeon processor. Intel has nearly 2,000 employees in Costa Rica and annual exports of about US$1 billion.

Another brand name Procter and Gamble has well over 1,000 employees in Costa Rica and according to Alfonso Cos, the VP for GBS (Global Business Services) North America: "The quality of education we found in Costa Rica is impressive. We have confirmed that the talent and training of the people is one of the best we have seen worldwide."

Agriculture

Agriculture dominates the Costa Rican economy. The fact is obvious everywhere you go, where a remarkable feature of the land is the almost complete cultivation, no matter how steep the slope. Nationwide, some 12% of the land area is planted in crops, 45% is given to pasture, and only 27% is forested.

Coffee and bananas are the most important crops in terms of area and export earnings. The vast banana plantations which cover the Caribbean plains produce some 50 million boxes of bananas per year, accounting for 30% of the nation's export earnings in 1992 and making Costa Rica the second-biggest exporter of bananas in the world, behind Ecuador. Sugarcane is grown by small farmers all over the country but becomes a major crop on plantations as you drop into the lowlands (particularly rapid growth in sugar production occurred in the 1960s after the U.S. reassigned Cuba's sugar import quota; production has since gone into decline--in 1981 Costa Rica had to import sugar to meet domestic demand). And cacao, once vital to the economy many years ago, is on the rise again as a major export crop.

Recent attempts to stimulate nontraditional exports are paying dividends in agriculture. Cassava, papaya, the camote (sweet potato), melons, strawberries, chayote (vegetable pear), eggplant, curraré (plantain bananas), pimento, macadamia nuts, ornamental plants, and cut flowers are all fast becoming important export items.

Bananas

Costa Rica's banana industry, currently the country's number one earner of foreign currency (outside of tourism), continues to expand to meet the demand of a growing international market. Some 32,000 hectares are currently planted, a 50% increase since 1985. Most growth is concentrated in the north Atlantic lowlands.

Coffee

Costa Rica's possesses ideal conditions for coffee production, and beans grown here are ranked among the best in the world.

The first coffee beans were brought from Jamaica in 1779. Within 50 years coffee had become firmly established; by the 1830s it was the country's prime export earner, a position it occupied until 1991, when coffee plunged overnight to third place in the wake of a precipitous 50% fall in world coffee prices after Brazil scuttled the International Coffee Agreement quota system in 1989.

Real Estate Rights in the Dominican Republic

The following information about buying real estate was provided by my attorney in the Dominican Republic, Sara V. Sicard Sanchez, partner at Sanchez Raful Sicard & Polanco.

The acquisition of real property rights by foreigners is not subject to any special condition, falling under the same legal regime applicable to Dominican nationals.

Registration System

Law 1542 of 1947 on Land Registration establishes the Torrens system of real property registration.

Real property rights registered under this system are deemed to be known by, and thus biding on third parties. Therefore, the presentation by the seller of a Property Certificate issued on his behalf by the corresponding Registry of Titles should in principle be enough to prove that the seller is entitled to transfer the ownership rights of the property. Any mortgages or charges would also be mentioned in the certificate.

However, it is always advisable to verify the status of the property directly at the Registrar’s offices, whose records are open to any interested party, and even obtain a written confirmation on the result of these findings, before purchasing the property. This is usually achieved requesting a certification on the status of the property in question to the Registry of Titles.

The Dominican Republic registration system protects the buyer against any sale or mortgage that, although previously signed, has not yet been registered when the buyer files its purchase agreement for registration.

For these same reasons, the prompt registration of the sale is very important.

In order to do so, the buyer must file at the Registry of Titles the following documents:

a) An original of the purchase agreement, which should be legalized by a Public Notary.
b) The Property Certificate issued on behalf of the seller, which will be canceled and exchanged for a new one on behalf of the buyer.
c) Certification stating that the Tax on Luxury Real Property and Empty Urban Lots (IVSS tax) has been paid, or that the property in question is exempt from such tax payment. Article 13 of the 2004 Tax Reform amends the first three articles of Law 18-88, extending the exemption of this tax from three to five million pesos, and from no exemption to a five million pesos exemption for urban lots.
d) Proof of transfer tax payment.

If the seller in question is a legal entity, the buyer will have to file additionally:
a) Certified copies of the shareholders minutes of the seller, designating its current Board of Directors.
b) Certified copy of the minutes of the Board of Directors approving the sale of the property in question and authorizing a person to sign on it behalf.

Transfer Duties

As mentioned above, the registration of the transfer of a real estate property at the corresponding Registrar of Titles requires the payment of the following taxes and duties:

3% of the market value of the property. This tax also applies to real property transfers for a value exceeding one million pesos that have been purchased with loans of financial entities. This amount is subject to inflation adjustments; and,
Stamps under Law 80-99, calculated as follows: market value minus 20,000 and the result/ 1,000 x 13 + 232.00. This value is subject to annual inflation adjustment.

These taxes amount to approximately 4.8% of the market value of the property.

Another aspect to take into account is Law 18-88 of February 5th 1988, on Tax on Luxury Houses and Urban Lots, amended by Law 288-04 of the Tax Reform, which establishes an annual tax on houses and apartments whose value exceeds five million pesos amounting to 1% of the surplus of such sum. The amendment enlarges the scope of this tax by including commercial properties and urban lots were previously excluded. However, property owners older than 65 years who have owned the property for at least 15 years and who do not have any other property are exempted from the payments of this tax. Furthermore, rural land used in agriculture, as well as equipment, machinery, generators, goods and other personal property located in the properties, is also exempted.

Politics in the Dominican Republic

When I mention that I am invested in real estate in the Dominican Republic, the first question I am usually asked is "what is the political climate there?". I think this is one of the biggest concerns most people have about investing internationally.

Recently, I-REIF's contributing writers were discussing eminent domain, the right for a government to buy or nationalize private property for public use. We were discussing how the fear of losing property to a foreign government is one of the reasons that investors might shy away from investing in an international market, even if the profit potential is extraordinary.

Janet Fish, who is currently developing two large resort real estate projects in the Cabo San Lucas area in Mexico stated "Let's not pretend eminent domain does not exist in the United States." Good point, Janet.

Another interesting topic of discussion was whether or not title insurance provides any protection against nationalization of private property. The answer is no. Title insurance only promises clear title at the time of purchase; it does not protect against the future as home owner's or car insurance does.

With that said, we all agree that exploring the political climate is an important part of due diligence when considering any real estate investment, domestic or international.

When I started investigating the Dominican Republic, I learned that the DR is a politically stable, free and democratic nation. I discovered that most people who know the Dominican Republic, believe that the stability of the DR government, combined with its close relationship with the United States make it a pretty safe bet as far as real estate investment.

The President of the Dominican Republic, Dr. Leonel Fernandez, served as President from 1996 to 2000, was elected with a large majority vote to a second term in 2004 and is up for re-election in 2008. On our last trip to the DR, I asked many Dominicans about their view of the upcoming election. Based on my casual polling, it seems Dr. Fernandez will very likely be re-elected.

Dr. Fernandez's political agenda has been one of economic and judicial reform and technological development. His administration has been recognized for its respect for human rights and civil liberties and for the economic growth that has occurred during both of his terms. A professor since 1979, Fernandez has lectured at numerous universities, including Yale, and has authored several books and numerous articles about politics, economics, communication, history and law.

Personally, I'm comfortable with the political climate in the Dominican Republic as it relates to my personal investments as well as developing real estate there in the future.