Costa Rica Land Investment: What Lenders Look At

Land looks like the simplest thing a lender could take as security. No roof to leak, no tenant to chase, no plumbing. In practice raw land is the hardest collateral to judge in this country, and the files that work are the ones where somebody has asked awkward questions early.

This is what those questions are.

Can it be sold, and to whom?

Every loan comes back to one thing: if it had to be sold, who buys it and how long does that take? A house has a queue of potential buyers. A parcel often has a handful, and sometimes only the neighbour.

Ten hectares an hour from a paved road is not the same asset as a titled lot inside an established development, even where the appraisals land in the same neighbourhood. The second one has a market; the first one has a price somebody once mentioned.

Title, and the thing that is not title

Most land in the interior is properly titled and registered, and checking it is routine work. The complication is that not all Costa Rican land is held that way. Some coastal ground sits under concession rather than freehold ownership, and rights of that kind behave very differently as security.

This is not a reason to avoid coastal files — plenty are excellent. It is a reason the tenure has to be established at the start rather than assumed, which is the sort of thing we settle before a file ever reaches a lender.

Access that exists on the ground, not just on paper

A parcel reached across a neighbour’s field on a handshake is a parcel with a problem, however friendly the neighbour is today. Registered access, in writing, is what turns a piece of ground into something a future buyer can finance. Roads matter too, in the practical sense of whether one exists in October as well as in February.

Water, and whether the answer is a document

In much of the country the question of whether a parcel can be built on comes down to water availability, and the answer needs to be a document rather than an assurance. Land that cannot demonstrate water is land a buyer cannot build on, which shows up immediately in what it is worth to the next person.

Zoning, permits and what is actually allowed

Municipal planning varies enormously between cantons, and what a seller believes can be built is not always what the plan permits. Setbacks, environmental designations and protected zones all bear on value. The gap between “you could put twelve units here” and what the paperwork supports is where land valuations go wrong.

How the file is priced

Because land carries these extra unknowns and takes longer to sell, it is normally lent against more conservatively than a finished home — a wider gap between the loan and the value, which is the cushion doing its job. Rates run across the usual 9% to 16%, and land does not automatically sit at the top of it: a titled lot with registered access, water and a straightforward exit can price low. What raises a rate is uncertainty, not the category.

Our range opens at 9%, and the reason the bottom of it is worth caring about is competitive rather than moral: owners with the tidiest files can shop, and they do. Lenders who will consider 9% therefore see the strongest land files first. Indicating you would look there commits you to nothing — after we have examined the parcel, the same file may come back at 12%. See what interest rate a private lender should expect.

When land becomes a development file

Often the borrower does not want to hold ground — they want to build on it. That is a different animal, and it is one we handle: project funding and commercial loans, structured with drawdowns so money is released in stages against milestones rather than handed over at the start. For a lender it means the exposure grows as the work does. See project financing in Costa Rica.

Where the money behind these loans comes from

Most of the capital funding land files belongs to individuals rather than institutions, and a great many of them got here by the same route: a property sold back home, in Canada, the United States or Europe, leaving a sum that needed a job. Some have moved to Costa Rica and want an income without taking on a business; others have never visited and simply prefer a secured loan to another year of market weather.

The appeal is knowing the terms in advance. Rate and maturity are fixed before funding, with a mortgage registered behind them — you are not waiting to discover how the quarter went. That is not a guarantee of payment, and land carries the particular risks set out above, but the arrangement itself is settled and written down.

Who borrows against land

The same people who borrow against everything else here, and for the same structural reason. A foreigner living in Costa Rica generally cannot borrow from a bank until they hold permanent residency, a minimum of four years off for a recent arrival, so owners with real assets and no local credit record come to private capital instead. Costa Rican owners come because bank timelines do not fit a build season.

What we settle before you see it

Tenure, registered title, liens, access, water where it matters, municipal standing, and a realistic view of what the parcel would fetch. All of that is done on our side of the table, right through to the closing; afterwards we stay contactable. Once closed, the borrower pays the lender directly.

Questions

Is land riskier than a house?

Different rather than uniformly worse. The added risk is time to sell and a narrower buyer pool, which is handled through a more conservative loan to value.

Can I fund a land file from abroad?

Yes, and many do. Lending here carries no residency requirement and no obligation to be in the country. Lenders in Canada, the United States and Europe hold registered mortgages over Costa Rican land without ever standing on it.

Do you lend on farms and agricultural parcels?

Files vary. Tell us the parcel and we will tell you honestly whether it is something lenders here would look at.

What if the borrower stops paying?

Your security is the registered mortgage over the parcel and you may pursue foreclosure. Formally our part concluded at closing, though lenders generally call and we assist from what we know. What happens in a foreclosure in Costa Rica covers it.

Look at a parcel with us

If land files are of interest, see the current lending opportunities or contact GAP Investments. You decide on every file, and nothing is promised.

Coastal areas are where the largest files tend to appear, and where the gap between an asking price and a defensible valuation is widest. This worked example of an $880,000 loan in one of those neighbourhoods shows how the cushion is set when the comparable sales are thin and the buyer pool is small.

This article is for general information only and is not investment, legal, or tax advice. All lending and investment decisions should be made based on independent due diligence and with qualified professional guidance.

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)