Costa Rica’s Southern Zone, Supply Constraints, and the Next Opportunity

Episode Summary

In this episode of Notes From the Field, Ronan McMahon reports back from an extensive scouting trip through Costa Rica, sharing what he found in the Southern Zone and how the market is evolving.

From rising costs and full hotels to tightening supply, restrictive permitting, and the continued strength of the right developer-led opportunities, Ronan explains why Costa Rica remains compelling—but also why selectivity matters more than ever.

Episode Description

Broadcasting from his base after returning from a wide-ranging scouting trip through Costa Rica, Nicaragua, the Riviera Maya, and central Mexico, Ronan uses this dispatch to focus on one market in particular: Costa Rica’s Southern Zone.

His first takeaway is immediate and unmistakable—Costa Rica is full, and Costa Rica is expensive. From airport hotels in San José to resort stays and basic travel costs across the country, Ronan found a market where demand is strong, pricing is high, and supply remains constrained. While that can be frustrating for travelers and budget-minded lifestyle buyers, it is very good news from the perspective of real estate owners and income-producing property.

In the Southern Zone, Ronan sees the same big forces that have shaped the long-term opportunity for years continuing to strengthen: dramatically improved access, extraordinary natural beauty, strict environmental protections, and a regulatory environment that makes new development increasingly difficult. In his view, that rising barrier to entry is creating a widening moat around existing, permitted real estate.

He also shares what he found on the ground: scattered projects with high price tags and mixed execution, a vibrant and increasingly cosmopolitan local scene, and one standout exception—the long-established landholdings and communities created by a developer Ronan has followed for years. For him, that remains the clearest path to opportunity in the region.

Most interestingly, this trip also sharpened a new insight: while ocean views continue to command the premium, some of the most compelling value may now lie in mountain-view homesites—larger lots with lush surroundings, privacy, space for gardens and pools, and a significantly lower entry price.

For Ronan, the opportunity in Costa Rica is still very real—but it is no longer about broad market bargains. It is about understanding where scarcity is deepest, where permitting has become most restrictive, and where the right developer and land position can still give buyers an edge.

In This Episode

Ronan covers:

• Why Costa Rica now feels exceptionally full and expensive
• How higher travel and accommodation costs support the income case for real estate
• Why the Southern Zone remains so attractive from a lifestyle perspective
• How improved highway access transformed the region
• Why environmental and permitting rules are making existing inventory more valuable
• What he found in the current condo and homesite market
• Why some projects struggle despite strong tourism demand
• The continued strength of Sylvain’s landholdings and communities
• Why mountain-view lots may now offer overlooked value
• Why northern Costa Rica no longer excites him in the same way
• What to watch for in the next RETA member opportunity

Key Takeaway

Costa Rica’s Southern Zone remains one of the most special and supply-constrained markets on Ronan’s beat. But this is no longer a place for casual or broad-brush buying. The real opportunity lies in permitted inventory, strong land positions, and selective buying where scarcity continues to deepen.

Transcript

SPEAKER_00 0:14

Welcome to your notes from the field. So I'm back at base in Calabo now. I've been back at base for whoa, just about two weeks. So it's been two weeks since I got back from a uh a scouting trip that started in Costa Rica, went from Costa Rica to Nicaragua, and from Nicaragua to the Riviera Maya, and from the Riviera Maya to central Mexico. So it was just an incredible trip, covered, covered so much ground, um, so saw so much of the good, the bad, and the ugly, and mixed in in all of that is some really, really exciting opportunities that you're going to be hearing about in the coming months. But to for today, I wanted to talk a bit about Costa Rica, about what I saw in Costa Rica, and about what all of that means for our Costa Rica opportunity in the southern zone, where we've been able to buy lots and homes this past year, and also just how things are shaping up in other parts of Costa Rica. So I I flew, um, I flew from Mexico City to San Jose, Costa Rica. Um first observation from from arriving in in San Jose was was twofold. Um first of all, how incredibly expensive the hotels were, and secondly, how how full everything is. And this is a theme that you know I'm gonna come back to across the the entire Costa Rica trip and kind of ties as well with our big idea that now there's the barriers to entry for hotel and real estate are so high that it's really, really restricting the supply. But on arrival I checked in and I had pre-booked obviously into one of these airport hotels, I think it was the Hamptons Inn, or one of those bog standard three-star hotels. The others were full, and you know, here I paid maybe like $180 per night, and that is more than I pay pretty much anywhere for a you know, for a bog standard, three-star, you know, perfectly acceptable and perfectly clean but um hotel. And I found this theme running throughout when I went to Los Wenos later in the trip. I paid more than I'd ever like to play pay for a meat for a mid-range resort um hotel. When I got to Liberia, the airport hotel was completely full. I couldn't even get onto the onto the waiting list, and I ended up having to stay somewhere 10 miles away. So Costa Rica is is full, is the first observation, and Costa Rica is expensive. Um you know, in truth, I was I was quite taken aback by how expensive everything is. In Hacko for you know, fast food pizza joint. I paid 20 bucks for a mid-size pizza. Um just right across the trip, I I found everything extremely expensive. Now I I hadn't been to Costa Rica, I guess, in probably two years, and it was expensive then, and it feels like it's got significantly more more expensive then. You know, more expensive to the point that it certainly felt a lot more expensive than most travels through through through Europe, and it was felt more expensive than than lots of the the US and Canada. Now, I guess as an overall theme, that this can be a a good thing and it can be a bad thing. It's a setback if you're looking to relocate there and and and live on a budget. And again, you know, I'm sure if you're living there, there's the the off-the-beaten track way of doing things uh a lot a lot less expensively. Um but then from our perspective as real estate investors, this is extremely positive because you know, Costa Rica was always a high-end destination, um, it's retaining that status, and people are willing to pay, you know, pay top dollar for everything. And that includes your accommodation, that includes your um your your your restaurants, etc. So this is this is extremely good news from the from the from the real estate investment and and and income perspective. And it's all tied to this big thing that supply of real estate is incredibly constrained now in Costa Rica, and that's thanks to the the really high permitting and bureaucratic costs involved in in development. So from San Jose um I drove or was was driven to the southern zone. You know, as as most of you will be extremely familiar, this is now a straight shot on an excellent highway. Ten years ago we announced the opening of the new highway, and this was a big moment for us at real estate trend alert because this triggered a path of progress event. This triggered that the southern zone was now much, much more accessible than it had been. So in the past, if you were to go back 25 years ago, you would have been talking about a nine-hour drive to Costa Rica Southern Zone. Now that's down to about three and a half or our four. And when you get there, it is just magical and it's it's special. So I was there in in dry season, but still everything maintains that really rich verdant green canopy. It's just it's the the quintessential picture perfect Costa Rica of your postcards, of your coffee ads, of your nature wildlife programs. It's it's all that. And it's even that in dry season, which is the big difference to the north of Costa Rica, which this time of year is bone-dry. So access is now now excellent. And again, the the interesting thing about development in in the southern zone is that this part of Costa Rica, two-thirds of the land is protected by way of by way of national parks. And then you also have the heightening bar and the heightening restrictions in in terms of environmental and other permitting and other regulations that have really, really limited development. And this trend is is getting more and more acute. You know, each year there's new regulations introduced in terms of access to water, drilling of wells, there's new permits in terms of minimum lot sizes, there's this whole raft of regulations that's basically creating an economic moat around real estate that that already exists. So real estate that already exists, that has permitting, that's ready to go, that's becoming more and more valuable as this regulate as this regulatory hurdles increase. So what's the what's the market doing down there? Um in general, um I looked at I looked at a condo project that's on the the the beach side of the road, but down in a hole. Um their condos were starting from from 500 grand. Um you don't have any you don't have any views of of the ocean, but you're within walking distance. But it seems extremely pricey to be paying kind of five to eight hundred grand for you know a comfortable and reasonable quality condo, but you've you've no ocean view and you're effectively on the the side of the highway. Um there's a couple of other small projects dotted around the place. You know, some are in trouble, they're in trouble either because they got their concept or their delivery completely completely wrong, um, or else they were they they just didn't have the financial wherewithal to go the whole way through. So it's very interesting is that you know tourism traffic here is way up when you're in the village of a hochal, it's just vibrant, vibrant, vibrant. There's new restaurants opening, French bakery. Um it's this really kind of eclectic, vibrant, foody, foodie place. But all around a lot of the the projects are, you know, no one has has burst onto the nothing new has, you know, no new developer has has made a a go of a go of anything. And that's to a large extent a a function of again back to this thing that the bureaucratic and the environmental permits and the bar is so high that it's an extremely difficult market to get into now without being at the top top end of the market, without being in the multi-million dollar bracket. And to be in that bracket, you pretty much need to be on the beach, and you're not going to get permits for any for any development on the on the beach there. So the kind of the the real outlier in terms of in terms of success and the continued capacity and strength in the market is um Sylvain's projects. And Sylvain is a developer who many of you will have met at the gathering, and many of you will have um visited her opportunities over the over the past decade. And she came down there, whoa, I guess it was over 30 years ago, and she started buying up land. She's got a total of about 120 kilometers of road built through her land. So that's the the extent of the infrastructure she's put in, that's the the extent of of the investment. And I looked at a couple of things. First of all, I looked at lots that Rita members bought just about 14 months ago or so. And these were these were lots that we were launched to Rita members in December 2018. We were getting in at prices of around or about $100,000. And these lots just have these amazing special views to the to to the Pacific. And these lots now list for about $160,000 to $180,000. So there was a range of prices depending on size and view that we could buy at. So there's a real supply crunch at the at the at the level of at the level of accommodation. So if you bought one of those ocean view lots, you know, you're you're you're sitting pretty. So excuse me. Um but also something else that kind of really, really surprised me, and a big observation I had when when I was down there is how appealing the the mountain view, um, how appealing the the mountain view view homes are. You know, we kind of, I think we all have this perception about being drawn to the ocean, but when you're in Costa Rica's southern zone and you just see the towering rich verdant mountain rising up behind you, it's absolutely stunning. And while I was staying at my guest house in the southern zone that had both ocean and mountain views, I frequently found myself orienting towards the towards the the towards the mountain views. And you know, within Sylvain's communities, you know, she's had some of these fabulous acre and a quarter lots that we've been able to buy for you know fifty and sixty thousand dollars. And you know, these lots, what I loved about some of the homes I saw on these acre and a quarter lots is that they had a really really nice pool area um and a really nice garden, but with an acre and a quarter, you've plenty of space to create a veggie garden and to to do other things. You know, what I what I really really liked, and I saw some people using maybe about half their lot for a conventional pool and garden area, and the other half maybe maybe for a veggie garden. And again, you know, construction costs in in Costa Rica are certainly higher than than Mexico, but still you can, you know, a really tasteful home of about 1500 square feet, but it's designed in a way to open up to to nature, to the gardens, and some of these, some of these acre and a quarter lots even have protected areas and forests at the at the edge of the lot. So you know you're very uninterrupted. And here you can for about $200,000, um, $200 to $250,000, you could build a home of about 15 or 1,600 square feet with a really, really nice garden um and and pool area. You're going to be looking at nature and looking at the mountain, not looking at the not looking at the ocean, um, but it really is is is very very attractive. And as a place for a base for for part of the year, you know, this is a this is a a great option. So, you know it it's it's an interesting anomaly that we can profit from because the the price of the the ocean view lots is just going up and up and up because that's where, you know, rightly so where where all the perceived value is. And when people go there, that's what they're what they're drawn to. But there's the the mountain view lots are this kind of overlooked category that that I think offer deep, deep value for for for us right now. Um so I was very excited what what I saw with Sylvain. We spent two days driving all across her her land, you know, two full days in in her truck. That's how much land she has. And she's working on some really, really exciting things. You know, she's working on plans for a a condo project that would sit right up at the top of a hill with those expansive Pacific views. I'm extremely excited about that. She's working on a new phase of Ocean View Lots that where again we get a Rita members only deal and it will be launched to us before being opened to the to the general to the general market. So again, where we bring our our bulk buying power to to hold. So I'm extremely excited about what's coming down the track in terms of new opportunities from this developer. Again, it's it's interesting. Every single time I go to the I go to the Southern Zone, I meet a bunch of of other developers, I look at a bunch of other of other stuff, and no other developer or project has has ever cut muster for us at Rita in the in in in the southern zone. And again, that comes down to these huge barriers to huge barriers to to entry. And you know, I saw that as I traveled north, you know, I just saw these these issues around um around lack of around lack of supply. Now, admittedly, I was I was there in in in high season, so of course I was seeing, and I generally don't like to travel in high season, but I was seeing the the most acute end of the oversupply. But you know, traveling north around around Hacko, you know, I just couldn't find anywhere I wanted to stay. I wound up staying in in Los Sueños, which is the big um the big marina and marriage resort there. You know, it's nice, it's fine, but for for what they charge, I mean it's it's so overpriced relative to everywhere else I stay on my on on my scouting on my scouting beat you know maybe if it was maybe if it was priced at 40% of what I paid I would have considered it a a decent experience and the whole experience was fine don't don't don't get me wrong it was it was just for me overpriced and then from there I went on to the the Liberia area and again even the even the airport hotel was was was full and what I found in you know in general just to kind of give my my honest sense um in general I'm not a big fan of of northern costa rica so I my my views on Costa Rica on on a couple of fronts are um I love the southern zone I love it as a place to be a place to spend time I love the opportunity that we have there thanks to the the path of progress and these supply constraints I really like the the Arenal area that's the the mountain and lake area where it's lush and green and you've got you've got cool cool breezes and you've got the towering volcano and you you've hot springs it's a it's a fabulous and and different experience. The northwest of of Costa Rica you know that developed very heavily in that developed very heavily in in the 80s and the 90s a lot of it was was uncontrolled development and it created a lot of water issues there's some unsightly development and you know it just doesn't do to be perfectly honest it just doesn't do anything for me on on on any level it doesn't do anything for me in terms of investment opportunity that moment has passed and from the the aesthetics you know I'd prefer to be across the border in Nicaragua any day for a a third of the price so I guess liberia was my was my jumping off point um that's the point that I I flew from from from there to from there to to to Nicaragua and um I guess yes the next time we will pick it up with what I found once I got off the the the the the plane in in Nicaragua but in summary Costa Rica Southern zone visit see it for yourself it's fabulous and stay tuned for the the next Rita members only opportunity it's a place where you can have a have a fabulous home and generate strong income but do be mindful that Costa Rica is you know is not bargain basement by any means Costa Rica is not a low low cost low cost place. Thanks talk soon