Nicaragua’s Property Values Plummet, Few Buyers

By Mabel Calero (La Prensa)

HAVANA TIMES – The economic crisis sparked by the pandemic, plus political instability and the suspension of commercial flights, have hit Nicaragua hard. One of the worst-affected areas is the Nicaraguan real estate market. In 2020, there was nearly a 70 percent drop in demand as compared to 2017, before the political crisis. Expectations continue to be low for this new year, now due to uncertainty over the approaching elections.

Prior to 2018, the real estate business in Nicaragua was growing, right alongside tourism and national and foreign investment. The political crisis triggered reverses in all these areas. First, the land takeovers generated great uncertainty. This in turn drove property sales, especially properties belonging to foreigners. At the same time, buyer demand was sharply curtailed.

Mosies Urtecho, manager of “Pinoleros Real Estate”, spoke of the impact his company has faced. In 2020, they experienced a drop in sales of nearly 70%, compared to 2017. This occurred despite the fact that properties were being offered at prices 30-40% lower than before the political crisis.

“In 2020, the drop wasn’t just a product of the pandemic. We were also dragging the weight of the 2018 events. The crisis caused a lot of foreign capital to leave the country. At the same time, those who had wanted to come and invest in the country stopped looking towards Nicaragua. We did observe some, though, who took advantage of the situation. Despite the uncertainty, they bought properties at below-market prices,” Urtecho explained.

Urtecho, who began in the business four years ago, commented that the sector has seen no improvement. It’s been in crisis since 2018, even though property values have never been as accessible as right now. 

Situation in 2020 ever more dire

“There’s still no recovery in sight [for the real estate market]. Some slight movement had just begun to be felt when the pandemic hit. That made the situation far worse, because then there was no way to show the properties. It was harder to get in contact with interested parties, and there was no economic movement. In other words, the effects of 2018 were then compounded by the pandemic,” lamented Urtecho.

He noted another problem the sector faced: the banks stopped financing the purchase of properties. This sharpened the crisis yet more.

“The banks increased their demands. The premium went from 10 to 20 percent. There were people who maybe wanted to buy a house worth US $50,000, but they didn’t have the 20%, or $10,000. So, it was going pretty badly. However, sales didn’t stop completely, especially of small properties belonging to Nicaraguans or foreigners living in the country.” Urtecho explained that foreigners usually buy properties with their own resources, while Nicaraguans opt for financing.

A report issued last year by the Nicaraguan Foundation for Economic and Social Development (Funides) quantified the sector’s decline. Funides estimated that the first half of 2020 brought a 55% drop in real estate demand. This tendency could possibly continue through the rest of the year, according to the organization.   

The Funides report indicated that the drop in demand was principally due to fears of being infected with COVID-19. That meant that properties weren’t being shown. Secondly, they felt, it stemmed from the fact that no tourists were entering the country. Tourists are among the principal buyers of property. This view coincided with that of Urtecho.

The Funides report was entitled “Situation and Perspectives of the Commercial and Service Sector”. In addition to the aforementioned factors, the report postulated that the economic contraction was forcing families to save their money. They were renting smaller properties, and families had returned to more multi-generational living arrangements. In other words, the children had returned to live with their parents.

Projections for this year

Urtecho felt that there was no prospect for improvement this year, due to the great uncertainty over the elections. In addition, the real estate sector depends on international trade and the general evolution of the economy.

“Lamentably, right now there’s great uncertainty related to the elections. In addition, we depend on the economy and on the airlines resuming operations. Only then could the sector enter a process of recovery. Even that doesn’t mean that we’d immediately begin growing,” stated Urtecho.

The appraiser estimated that the industry will take at least five years to return to the high point it reached in 2017. Such a recuperation can’t even begin until the necessary conditions are created for reactivating consumer confidence.

Urtecho notes, “It’s the moment to buy, but not to sell. Unfortunately, however, many have to sell, because maybe they have debts and their family finances have deteriorated with the crisis. Right now, those who have the possibility of buying shouldn’t think twice about it. We’re never going to have prices as accessible as right this moment.”

Economist Luis Murillo emphasized that – like other economic sectors – real estate, which is tied to investments in movable assets, was hard hit.

“The sector has been very depressed due to the crisis we’ve been through. Right now, many who own property would like to sell it, but there aren’t any buyers. Nonetheless, anyone who wants to invest for the future should buy. They’re not doing so, because there’s so much uncertainty,” Murillo stated, echoing Urtecho.

In 2020, Murillo explained, the quantity of real estate being offered continued to increase. At the same time, demand remained frozen. “There’s plenty of offer, but demand is low, so that affects the prices. I’m concerned that people could use this channel for money laundering,” he warned.

Tourism sank along with the real estate business

Leonardo Torres, president of the Nicaraguan Chamber of Micro, Small and Medium Businesses emphasized the link between tourism and the real estate business. Real estate agencies depend on tourism. When it collapsed, there was a boom in tourist properties for sale at bargain basement prices.

“The majority of the tourist properties, (..) the ones worth most because of their location, fell 30% [in price, compared to 2017]. Who were the ones selling in the tourist zones? It was the tourists themselves, who wanted their money so they could leave. The Nicaraguans held onto their properties,” stated Torres.

Bank restrictions also affects the business of selling properties in tourist areas, Torres pointed out.

“The banks aren’t putting resources into purchases of fixed assets. They’re too conservative to finance those. I can tell you, because we’ve tried to find financing for some investments. (…) Imagine, there are super expensive properties that right now are practically selling for nothing.  But nobody buys them. The problem is, there aren’t any good prospects, because tourism has fallen off,” explained Torres.

In fact, data from the Superintendence of the Bank and Other Financial Institutions support his observations. Until September 2020, the National Financial System had 19,811 active mortgages, compared to 20,599 at the end of 2019. The accumulation from last year is equally distant from the 22,228 that were active until March 2018. That was one month before the sociopolitical crisis exploded.

Michael Healy, president of the Superior Council of Private Enterprise (Cosep), mentioned another aspect of the political uncertainty factor. On January 20, he denounced that over 29 properties are still being occupied by allies of the regime. The figure includes some belonging to foreigners. Together, they represent over 8,635 manzanas (14,936 acres) invaded by squatters.

Healy stated that the return of these properties was key to sending a positive signal to outsiders. Such a signal was needed so that international investors would once more be willing to bet on Nicaragua. On the contrary, the local economy will continue feeling the negative effects.

Read more from Nicaragua here on Havana Times.