Buying a Property in Nicaragua

Why Buy Property in Nicaragua?

The development of Central America as both a tourist destination and an investment destination of the overseas property market has been swift and exciting. The advantages of exposure to a global audience, growing economies, favourable local tax laws and now stable governments, have made the countries separating North and South America the focus of the world’s real estate investors, multinational companies and property developers.

But countries such as Nicaragua are not just for people looking to invest in major cities, be it in apartments for the newly-rich, investments in local business communities or foreign workers on secondment from their large companies, Nicaragua also offers opportunities for those who would prefer to invest in something with more of a lifestyle element to it. Property in Nicaragua is not only some of the best value in the region, but offers growth potential to rival any other destination on the planet.

The opportunities in some of the markets in this region have grown incredibly rapidly, and some have started to show signs of levelling off after the initial spurt of growth. Nicaragua shows not only lower starting points for property prices, but also the potential for significant growth in tourist numbers and the business community.

Popular property buying locations in Nicaragua

The overseas property buyer in Nicaragua has a wide range of choices from colonial properties in the old, historic city centres, to new developments in the beautiful coastal regions which are being built with all of the features and amenities that modern tourists would expect from top-class travel destinations.

Nicaragua is situated to the north of Costa Rica, one of the biggest growth markets for US tourism and expat property ownership in recent years, and to the south of Honduras. The country was originally settled as a Spanish colony from Panama in the early part of the 16th Century, and became an independent republic in 1838, following periods of occupation by both the Spanish and British Empires. It is also the largest nation in Central America following its transition from colony to republic.

The country did suffer greatly from two major events in its recent history. Firstly, the political regime of Daniel Ortega was heavily involved in one of the biggest political scandals of the Reagan presidency in the US, which involved channelling arms and funds to Iran in return for hostages being released. This damaged the country’s standing in the region and in the world, and the reputation of Nicaragua as an open political democracy did not recover until after the free and fair elections of 1990.

In December 1972, Nicaragua suffered from a devastating earthquake that destroyed much of the capital city of Managua, and forced many of the capital’s residents to flee and find refuge on the outskirts of the city. This severely damaged communications and economic structures, and up to 90 per cent of the centre of the city was flattened. As most of the 1.4 million population managed to find refuge on the edges of the city and adapted quickly to life in a different location. In addition continuing economic difficulties in the region meant that much of the central part on Managua still hasn’t been rebuilt.

This is where some of the growth in the property market for investors is beginning to gather pace, as the government has announced plans recently to rebuild the city. Much of the rebuilding work will follow the lines and styles of the previous buildings, with added green spaces. The advantage socially of redeveloping this part of the city is that the work and new property that is created will displace very few ordinary Nicaraguans.

Managua is also on the shores of Lake Managua, giving property developers the opportunity to build alongside the leisure and watersports facilities that are near to the city.

The other two major cities in Nicaragua are blessed with similar amounts of colonial-style property in their museums and municipal buildings, along with some of the grander private residences. Granada is on the shores of the biggest lake in Central America, Lake Nicaragua, and has many buildings in the Spanish colonial style. The city is also one of the biggest expat communities in the region, lending a cosmopolitan atmosphere to the area.

Léon lies to the north of the capital, and is known as the intellectual centre of Nicaragua with universities, colleges and other seats of learning dotted around the city, as well as churches and cathedrals to improve spiritual learning.

Outside of the main urban centres, the attraction of Nicaragua for tourists and property buyers alike is along the coast. Like many of its neighbouring nations, Nicaragua has coastlines on both the Pacific Ocean and the Caribbean Sea, and the landscape and development to be found along the two differs greatly.

On the Caribbean coast, most of the towns are small trading and fishing ports which are very traditional and have yet to succumb to the modern ways of life. Bluefields is one of the most important among these port towns, and from many of them it is possible to take a boat out to the coral-fringed Corn Islands (Islas del Maiz), the larger of which is a popular tourist destination for Nicaraguans.

The Pacific coastline of Nicaragua is home to numerous tourist resorts that are geared more towards the overseas visitor, and which overlook spectacular beaches and are not too far from Managua. San Juan Del Sur is the most famous of these, and attracts surfers as well as families to its wide, sandy beach. Other resorts to look out for are El Coco, Marsella and Ocotal.

Legal issues

Nicaraguan law recognizes the right of foreign citizens to buy and own property in Nicaragua without restriction. This legal provision allows for 100 per cent ownership in the country with equal legal rights as a native Nicaraguan, though there are still parts of the process to which potential buyers must pay particular attention if they are to avoid being taken for a ride.

The property market in Nicaragua is developing rapidly, and there are some fantastic opportunities for the overseas property buyer, and many properties are being snapped up by foreign investors. As well as the huge new-build projects that are emerging on the coasts and in the cities, there is a significant market for resale properties, particularly for those in the older colonial style.

While the property investment market has developed at a staggering rate in the past months and years, some of the systems and procedures governing the sale and registration of property are yet to catch up, so it is essential to make sure you have expert, independent legal advice to guide you along the path of owning property in Nicaragua.

One of the main issues with older properties, as with many emerging markets in the international property marketplace, is making sure you have clean and undisputed title to the property. This is an issue which can afflict both rural and urban properties, and stems from the fact that many properties were illegally seized by the authorities in the 1980s, and there is no longer a clear-cut way of determining the proper title for the purchase process. Buyers are advised to be very wary of this part of the process, and if there is any suggestion that things are not as they should be, to question the legality of the documents they are presented with and be prepared to walk away from the deal if things are unsatisfactory.

Also be wary of properties that appear to have had some change made legally to the title, the usage or the land permits, as these are regularly challenged in the courts. This is not to say that it is impossible to find a good resale property in Nicaragua with clean, clear title, but perhaps for the time being, until the legal and buying process catches up with the speed of development, buyers may be best advised to look at new-build properties first.

The buying process

Buying a property in Nicaragua can be a reasonably straightforward process which can be completed in a little over two months. The first stage of this system is usually for a formal offer to be accepted, and for a deposit to be paid over (non-refundable) to the seller. The processes will then be put into place for the formal registration of the sale, the searches to be carried out, and for all timings to do with the transaction to be agreed and put into place.

The lawyer will carry out the appropriate searches and will make sure the property registration for the new owner is put through the right legal and administrative channels. The seller is obliged to provide all relevant tax registration, title deeds and other paperwork to the lawyer to complete this process. At the same time, arrangements are made for the transfer of funds to the seller.

As this is going on, the lawyer is arranging for the property to be registered under the new owner’s name. This is when the buyer must also pay the government taxes that are due on the sale of property in Nicaragua (details below).

Finance

With the developments of the property market in Nicaragua, and in the rest of the Central American market, it is inevitable that some buyers are beginning to enquire about getting finance in the country itself. The mortgage market in many of the emerging markets is fledgling at best, and in many instances it can be difficult, if not impossible, to get finance clearly and at a good rate of interest.

There are signs of change in Nicaragua, however. The new financial development the country is currently undergoing is helping to boost the property ambitions of ordinary Nicaraguans, and there are now mortgage products available to residents. This is likely to indicate that there will soon be mortgage products for non-residents, particularly given the popularity of the country with buyers from the US.

In the meantime, buyers are likely to find it far easier, cheaper and more secure to raise finance from the UK on a property they already own, and then make their way to Nicaragua as cash buyers. Not only will this make it easier to negotiate with agents and developers, but they will find it easier to track interest rate changes and make payment schedules.

Fees and taxes

While the system of buying property in Nicaragua is reasonably straightforward to complete, there are a number of fees and taxes in place covering the purchase and registration of the property under new ownership. On a global scale, these fees and costs are of a moderate level, but may be above what might be expected in an emerging market.

Overall, buyers should budget to pay around seven to twelve per cent of the property price in fees and taxes, much of which is made up of the fees paid to the estate agent, totalling at least five per cent of the property price. On top of this, legal fees account for around one per cent of the transaction cost, and registering the property costs 0.5 per cent of the value.

On top of this, a fee of four per cent of the assessed value of the property is payable to the Revenue department upon registration of the property in the buyer’s name.

Other forms of fees and taxation are also in operation which can influence the income received from renting out a property in Nicaragua, and which should be considered before buying for investment particularly. Non-residents must pay income tax on all revenues earned inside Nicaragua, which operated on a sliding scale between 10 and 30 per cent, dependent on how much is earned. Only 20 per cent of the income earned from rental of property is allowed to be offset against costs, so 80 per cent of rental income is taxable.

Real estate tax is charged at a flat rate of one per cent of the cadastral value of the property (the government-assessed value of land, buildings and permanent improvements). However, due to the inefficiency and incompleteness of records of property in the country, many municipalities do not even collect this tax.

Capital gains tax is also applicable in Nicaragua, but is not separated out from other forms of income. Therefore, you could be liable to pay up to 30 per cent tax on gains made from selling real estate assets in Nicaragua on the sliding scale of taxation.

Visas, residency and work permits

The Nicaraguan government is now actively trying to attract retirees to the country, and is therefore making it very easy to gain residency. The pensionado scheme allows retirees to bring in up to US$10,000 of personal possessions into the country without paying duty on them the first time they arrive. Retirees are also allowed to import a new car duty-free every five years and are exempt from income tax on money earned abroad.

The conditions for those under retirement age to gain residency are also quite easy to meet. An individual must have real estate assets in the country that are worth more than US$40,000, or have a demonstrable monthly income of more than US$500 per month. Aside from this, there are very few qualifications to become resident, and the process takes around a year to complete.

Nicaragua Property: Investment potential

There is significant potential for investment gains in Nicaragua as the prices of property are currently low and the experiences of other countries in the region have shown that there is interest from both tourists and property investors, as well as retirees, in Central America.

Rental yields in the capital, Managua, are strong and can reach up to eight or nine per cent per year. In addition, the law is weighted in favour of landlords in order to encourage investors so it should be easy to get set up buy-to-let property in the country.

However, it has to be considered that Nicaragua has a fragile economy at present, and there are high levels of poverty among the population. Taxes and fees are high for what is an emerging market in the overseas property world, and there are issues to be confronted with the unreliable property title that afflicts much of the resale property in the country.

Health and Education

Education is universally free in Nicaragua, and is in theory available to all. However, many children in the outlying parts of the country are unable to attend due to lack of school facilities and transport to other towns’ schools. Some communities on the Caribbean coast do have access to education in their native dialects. Higher education institutions are located, for the vast majority, in Managua and Léon.

Transport

Travelling to Nicaragua is relatively simple in the context of a developing Central American country, with regular flights from Miami and taking just two and a half hours. There are also routes in place from other cites in North and Central America.

Internally, the main development is the new coastal highway that will link the Pacific resorts with the rest of the country, as well as extending across the borders to the north and south of Nicaragua.

And finally...

Nicaragua is one of the few remaining ‘emerging markets’ in the Central American region. Even though the UK overseas property market has only recently awoken to the possibilities offered by places like Panama and Belize, the US market has been buying in the region for years. Now that Costa Rican property prices have spiralled, Nicaragua is seen as the next big destination for foreign investment in the area, and with prices expected to climb rapidly, buyers would do well to get involved sooner rather than later.

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All circumstances vary. BuyAssociation provides general advice for guidance purposes only. It is strongly recommended that you seek professional advice before making any purchase.