Arbitrage: the practice of taking advantage of a price differential between two or more markets…Arbitrage has the effect of causing prices in different markets to converge. Wikipedia.
I got back to Costa Rica last week after spending over three weeks in Virginia, New York and Florida, and had the chance to look at some familiar things afresh. I’ve been thinking about these things for some time, but never quite got them where I wanted them in my head.
News item from the Costa Rican papers. General price inflation over the last 12 months is 10%. This appears to be continuing. Since January 1, the U.S. dollar is unchanged against the Costa Rican currency, the colon, meaning that inflation also is 10% in terms of U.S. dollars. Of course, in terms of Canadian dollars, pounds sterling and Euros, there is price deflation. But for the moment, I’m concerned with prices in U.S. dollars.
In construction, things that are bought in the U.S., or on the world market, such as appliances, have inflated much less than 10%. But, the cost of labor, and things purchased locally, such as cement, iron rebar, concrete blocks, the basic local materials, oh yeah.
In Florida, the real estate market looks pretty bad. (Slow would be an exaggeration.) South Florida condos are being offered at $600 a square foot, but prices are frozen or going down. The New York market looks a little better, certainly higher priced.
In Costa Rica, the market varies by region, but on the booming Pacific coast, $300 a square foot should get you an ocean view, at least if you shop around, and $200 a square foot should get you good construction and amenities. And yes, prices are rising, by at least 10%.
Aside from price, Costa Rica real estate taxes are one-quarter of 1%, say $1,000 on a $400,000 condo in Costa Rica. In Florida, more like a little under 2%, or $7,000. Long term interest rates are 4%, so if you capitalize the tax differential at 4%, you get a value difference, at the same price, of $150,000 (25 x $6,000). Capital gains taxes don’t exist in Costa Rica; 15% in Florida, higher in New York.
Does anyone else see the arbitrage? Say for a second home or investment property? Arbitrage: the practice of taking advantage of a price differential between two or more markets…Arbitrage has the effect of causing prices in different markets to converge. Wikipedia.
I got back to Costa Rica last week after spending over three weeks in Virginia, New York and Florida, and had the chance to look at some familiar things afresh. I’ve been thinking about these things for some time, but never quite got them where I wanted them in my head.
News item from the Costa Rican papers. General price inflation over the last 12 months is 10%. This appears to be continuing. Since January 1, the U.S. dollar is unchanged against the Costa Rican currency, the colon, meaning that inflation also is 10% in terms of U.S. dollars. Of course, in terms of Canadian dollars, pounds sterling and Euros, there is price deflation. But for the moment, I’m concerned with prices in U.S. dollars.
In construction, things that are bought in the U.S., or on the world market, such as appliances, have inflated much less than 10%. But, the cost of labor, and things purchased locally, such as cement, iron rebar, concrete blocks, the basic local materials, oh yeah.
In Florida, the real estate market looks pretty bad. (Slow would be an exaggeration.) South Florida condos are being offered at $600 a square foot, but prices are frozen or going down. The New York market looks a little better, certainly higher priced.
In Costa Rica, the market varies by region, but on the booming Pacific coast, $300 a square foot should get you an ocean view, at least if you shop around, and $200 a square foot should get you good construction and amenities. And yes, prices are rising, by at least 10%.
Aside from price, Costa Rica real estate taxes are one-quarter of 1%, say $1,000 on a $400,000 condo in Costa Rica. In Florida, more like a little under 2%, or $7,000. Long term interest rates are 4%, so if you capitalize the tax differential at 4%, you get a value difference, at the same price, of $150,000 (25 x $6,000). Capital gains taxes don’t exist in Costa Rica; 15% in Florida, higher in New York.
Does anyone else see the arbitrage? Say for a second home or investment property? Arbitrage: the practice of taking advantage of a price differential between two or more markets…Arbitrage has the effect of causing prices in different markets to converge. Wikipedia.
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