Saturday, September 26, 2009

Nicaragua's Coastal Law

One of the most common questions I get as a real estate consultant in Nicaragua is, "is it safe to buy property in Nicaragua?" That answer is a resounding "yes", in the case that a proper due diligence has been successfully performed on the property in question. I also like to compare buying property in Nicaragua to buying fee simple titled property anywhere in the world:

Would you buy a property in the US or Canada without checking the title first?
Would you buy a car without transferring the title in your name?
...Of course not.

The same goes for buying property in Nicaragua, Costa Rica, Panama, or any other exotic country that extends equal property rights to foreigners.

That being said, there are stark differences to researching property ownership in Nicaragua compared to, say, Costa Rica, for example. Costa Rica boasts a central, digitized property registry, while Nicaragua has a separate, hard-copy registry office for each of the country's 15 main provinces. However, any property duly registered with a clean title and history can be deemed a safe buy. Of course, always check with your lawyer or real estate agent before giving a cash deposit to a Seller.

So what's the deal with beachfront property? Why is it so hard to find property one can actually buy out-right on the beaches of Central America? This is basically because most countries on the isthmus have installed measures to protect their coastal sovereignty and environmental balance. If the Central Governments of the "Big 3" (Nicaragua, Costa Rica and Panama) allowed 100% ownership to foreigners, things could get out of hand fast. Rapid development mimicking Miami Beach's coastline have created quite the challenge for the governmental agencies of these 3rd world nations. In order to retain some control, "Concession Law" has been put in place on all properties that did not already have prior registered title. This means between 3-5% of beachfront properties boast fee simple title (and a hefty price tag), while the rest of the land can be obtained for a lower land value and ownership is portrayed through paying an annual leasing fee to the local municipal government. Maybe this isn't the perfect scenario for a foreign investor, but as long as taxes are paid on-time, there should be no reason to worry about anyone encroaching on your property line. Besides, paying 1/16 of the price for the same product isn't such a bad deal, especially when the product at hand comes with white sand and a sunset.

The confusion in Nicaragua's Coastal Law was based on generations without communicating a specific beach setback for concession/title property. Some courts interpreted the law as being 20 meters from the beach, others 50 meters, and others claimed the law intended for all property within 2 kilometers to be considered beachfront concession zone. This hindered the country's real estate development for nearly 4 years while the legislation was slowly and heatedly debated, because no one knew if properties in the process of being titled would turn out as concession or title parcels.

Much to the relief of the international and local parties with interest in Nicaragua's economic future, the final version of the Coastal Law was presented to pass just days ago to the legislature, after the gesture being approved unanimously on June 4. Economic consultants, advisors, ambassadors, developers, international organizations and institutional and individual investors alike breathed a sigh of relief that their years of lobbying and planning were not in vain. The government made the right decision to support investment and interpret the law correctly, recognizing the first 50 meters from the mid high tide line as public domain, just like neighbor Costa Rica. All existing titles on property within this zone will be recognized and the hold on pending beachfront property registrations will be lifted.

Surfers Enjoying the Benefits of Nicaragua's Coastal Law

This is very promising news to the future of tourism and investment in Nicaragua, as the Tico Times/Nica Times recently reported over $1 billion in coastal development projects pending approval of the bill.

Specific text from Article 19: “The coastal zone of public domain is the area contained between the 50 meters counted from the high tide line. It is hereby established, however, that within this area all ownership rights legally acquired will be respected…”.