Buyers Guide to Real Estate in Costa Rica

• Introduction
• Property Types
  • Titled Property
  • Condominium Properties
  • Concession Property
• Sale/Purchase Process
• Basic Terminology
• Structuring Property Ownership
• Costs Associated with Purchase

Introduction to Buying Property in Costa Rica

The acquisition of real estate is one of the most significant investments a person can make during his or her lifetime. Serious due diligence is required and care and patience must be exercised to avoid common mistakes. Language barriers, unfamiliarity with local laws and procedures, and lack of a true Multiple Listing Service are among the reasons why you should get proper and trustworthy counsel during your real estate transaction. This means you should deal with both an experienced professional Realtor and a seasoned Real Estate Attorney.

Property Types

Titled Property

The most comprehensive form of property ownership in Costa Rica is titled property. Fortunately for foreigners, ownership rights and responsibilities are the same for Costa Rican nationals as they are for foreigners. The concept of titled property is very similar to the concept of fee simple title in the US. Basically, titled property gives the owner of that property the absolute right to materially own the property, use it, enjoy it, sell it, lease it, improve it, etc., subject only to conditions outlined in the Costa Rican Laws. Buyers who purchase fee simple titles have the most rights under the law to enjoy and use the property as they see fit.

Condominium Properties

Condominiums can be owned in either a horizontal condominium (subdivision) or a vertical condominium (multi-family housing). In Costa Rica, there is a specific law that, in combination with other legal dispositions, regulates all conditions required in order to set up a condominium. Each Condominium development has its own bylaws containing all of the restrictions, limitations, and privileges that can be enjoyed by individuals who purchase a property in such development. Ownership of property "in condominium" is fee simple ownership but specifically restricted to secure the interest of the condominium community set initially by the Developer and later by the Home Owners Association (HOA). It is advised that you require the owner of the property to give you a copy of the by-laws to check for architectural guidelines, land use and others.

Concession Property in the Maritime Zone

In Costa Rica, 95% of beachfront property is considered concession property and is governed by the Maritime Zone Law and other specific regulations including but not limited to special dispositions stated by municipalities and the ICT (Costa Rican Institute of Tourism). These legal dispositions set forth the conditions under which foreigners and local residents can own concession property. A concession in Costa Rica is defined as the right to use and enjoy a specific property located on the maritime zone for a pre-determined period of time. The Estate through the respective municipality grants this right.

The Sale/Purchase Process for Buying Property in Costa Rica

Once the Buyer has identified a property they wish to purchase, the next step is to understand what the process of acquiring the property may entail. The following are basic steps that a purchaser must follow when buying a property:

Step 1: Sign a Purchase/Sale Contract with the seller. This is most likely negotiated with the professional help of your Realtor. In some cases, the parties choose to go further and have their Attorney prepare The Purchase and Sale Contract.

Step 2: Engage the services of an Escrow Agent who will hold all funds deposited by the Buyer and remit the proceeds of the sale to the Seller at the closing date in accordance with the Purchase and Sale Agreement. All Costa Rican real estate transactions are required to be handled through a government-sanctioned Escrow agent.

Step 3: A Title search is performed and the due diligence is performed to ensure all requirements of the Purchase and Sale Contract are fulfilled and the property is received free and clear of defects, liens and encumbrances.

Step 4: Closing - Execution of Transfer Deed or Endorsement of Shares.

Step 5: Record new transfer deed with the Public Registry.

Basic Terminology

Here are some common terms used in real estate transactions in Costa Rica:

• Folio Real: A unique property number used to identify a specific parcel of land in the National Property Registry.
• Plano Catastrado: The official survey map of the property, registered with the National Registry and required for all transactions.
• Escritura Pública: The public deed, drafted by a notary public, that formalizes the transfer of ownership.
• Notario Público: A specially licensed attorney who is authorized to prepare and register public deeds.
• S.A. or SRL: Legal structures (corporations or limited liability companies) commonly used for property ownership in Costa Rica.
• Due Diligence: A comprehensive investigation of the legal, physical, and financial status of the property, typically conducted by a real estate attorney.

Structuring Your Property Ownership

1. Personal Ownership

The buyer holds the property in their personal name. This is a straightforward method, but it may have limitations in terms of liability, estate planning, and taxation, especially for foreigners.

2. Corporate Ownership

The property is held by a Costa Rican corporation (typically a Sociedad Anónima (S.A.) or Sociedad de Responsabilidad Limitada (SRL)). This approach provides:

• Additional legal protection from personal liability
• Easier transfer of ownership by endorsing company shares
• Simplified estate planning for heirs
• Possible tax advantages

Many foreign buyers opt for corporate ownership, especially for investment or rental properties. A qualified attorney can help form a corporation and ensure it complies with local laws.

Costs Associated with Purchasing Process

Buying property in Costa Rica involves additional costs beyond the purchase price. Here's what you can expect:

• Transfer Taxes and Stamps: Approximately 2.34% of the declared value (1.5% transfer tax + 0.84% registry stamps and duties).
• Legal Fees: Usually around 1% to 1.5% of the purchase price, negotiable with your attorney.
• Escrow Fees: Generally 0.25% to 0.5%, shared between buyer and seller, depending on the escrow company.
• Due Diligence Costs: Costs vary depending on property complexity, but may include surveys, appraisals, environmental studies, and zoning research.
• Corporate Formation (if needed): Approximately $500 to $1,000 for the legal setup of a holding corporation.
• Homeowner Association (HOA) Fees: Common in gated communities and condominiums. These can range from $100 to $500+ per month, depending on amenities.
• Utilities and Services Setup: Deposits and installation fees may apply for water, electricity, internet, and other services.

Additional Considerations

Residency and Ownership

While owning property in Costa Rica does not automatically grant you residency, foreigners can apply for Investor Residency by investing $150,000 USD or more in real estate or business ventures. This can streamline the residency process and allow longer stays.

Rental Income and Taxes

Foreigners can legally rent out their property and collect income. However, they are required to register with the tax authority, declare rental income, and pay applicable taxes, including:

• 13% VAT (Value Added Tax) on short-term rentals
• 15% income tax on net rental income (after deductions)

Hiring a local accountant is highly recommended if you intend to generate rental income.

Conclusion

The real estate buying process in Costa Rica should be stress-free and your time should be spent on making sure you find and choose the Costa Rica property that is going to best fit your personal needs. By insisting on working with professionals you will have the confidence you need to make a well-informed and safe investment that will give you years of enjoyment to you and your family.