REAL Cost of Construction in Costa Rica
Beware: This is a no BS Zone so be prepared for a Heavy Dose of Reality
What to Look For in both a Builder and a Home
What are prices and why?
You will learn here:
1. Examples of what “American Standards” are really about – fact not fiction.
2. Labour costs – how much and why.
3. Obscene Profit Margins – How to know if you are getting gouged.
I have had discussions with four clients over the past 5 days that have spawned the realization that I needed to write an article that zeroes in on the thorny questions of how to pick a builder and know what are reasonable prices and what are not.
Based on what several hundred visitors a month search for I know it is hardly my wild imagination that this subject is of high concern and/or rather puzzling at very least for those that visit our site and country. I would also add to that, that without question there exists more than a healthy serving of BS applied to this subject from participants within the home construction market. Hence this page is dedicated to addressing the basic issues behind construction costs that will lend some clarity to this BIG question and problems that exist. I hope I can be of help to you in your search for answers.
While having a very intense conversation with two clients this week, one from Texas and another from Phoenix, both grilled me for an answer to their simple question,
“how can construction costs possibly add up to
$120 ft2 or $1,291 m2 in Costa Rica?”
My answer was simple,
“They can’t and they don’t in the real world unless you are building the Taj Majal!”
Both advised me that they had experienced builders/developers quoting both of them $120 ft2. Both expressed suspicion that with labour costs per hour at 1/5 the USA rates (roughly the same in Canada by the way) that they were being gouged! Both could not see how it could be that a home ends up at this rate in the hands of the consumer. Also both of these clients had way above average consumer knowledge by the way and are technically competent as well as experienced in building a home in the states.
The Phoenix client informed me he can have a good quality home built there for around $80 ft2 at much higher standards than he saw in his developer’s homes hence why he was looking to us. Then just this morning another client from Michigan chimed in and informed me that he could also get the same done there. So let’s see no change in costs over a large area of USA territory in two drastically different markets. But it get’s worse lets look at what you could end up with after spending your hard earned cash. Note I go into much more detail in our videos under the menu button above as well as our 286 page ebook “How Not to Get Ripped Off.”
1. Examples of North American Standards Construction:
In my last newsletter (request to be added to our list to read such) I showed in great detail the kind of junk that one developer was pawning off on their victim while commanding $120 ft2 and having the audacity to claim on their website that USA equal standards would run $400 ft2. In reality the home under construction that I inspected would be red tagged in Canada while they figured out how to fix major deficiencies, not to mention the abject design stupidity. These statements from client experiences as to housing costs sort of blows a massive hole in what is nothing less than marketing BS that was so liberally applied by this sleazy developer. No I am not attempting to be polite but when you fill your website with lies and half truths then I feel no compulsion to be so. Here goes some empirical proof that aside from being liars they have no idea how to actually build homes.
Here is where the “master builder” has installed two ridge trusses that meet at roughly a 35′ angle. Well folks this is impossible unless you live in one of those very rare gravity free zones. This post you see they have positioned under this impossible joint is right in the middle of the entry into the second bedroom in a half million dollar home. This truss as it is is useless nothing but dead weight if there is not a support under this joint to carry the weight. Just love all those bolts sticking out of the truss too, nice cosmetic feature.
Rigid PVC water line in a house of this value in a country that has a habit of shaking around from time to time is nothing short of nuts. Beside the water line is a sink drain using sanitario grade sewer line that is just plain crap as it is sooo thin and it would not pass a code in any first world country. They also neglected to put in vent lines, have the sewer lines installed at 1% slope instead of 2% as code would dictate. They also run the lines into registers out in the garden and force all the sewer to do a 90′ turn, excellent idea if you like getting in up to your elbows in shit when this backs up! Is this the builder you want to build you a half million dollar home to “American Standards?”
Another large developer down in Ojachal charges $109 + $28 to $45 for a finishing package putting their highest package at an astronomical cost of $154 or $1,657 m2. I have not inspected their current quality standards but it sucked when I saw it over ten years ago. Now they may have advanced for horrible to mediocre. Whoop de do!
Take note I have never ever seen a lousy builder metamorphosize into a great one. Plus as a rule of thumb the larger a builder gets the worse the final product is. However it is still not impossible but highly unlikely considering my experience with the owner of this particular company that has numerous environmental offenses reported against them to MINAE.
I inspected another Canadian builder’s work up in Samara who was charging a mere $100 ft2 to build out of concrete panels (YUCK) while using inferior PVC water lines and the low grade crap sewer lines that would not pass code anywhere else in the first world and most certainly not in Vancouver where he supposedly came from. See my e-book to see what I mean.
Now these examples bring about one ugly reality with regards to expats who are in the building industry in Costa Rica. Every one of them says they build to American Standards yet when I inspect their products every time I have seen grave offenses that would have them red ticketed when inspected anywhere in North America. I simply ask how does that make it a American Standards especially when they are commanding a 50% higher price than a made in USA price???? Then to add to that they often bring design styles from Minnesota and plop them down in a tropical environment yet fail to see the folly in such.
Typically the more expensive the home the more likely it is built with A/C yet they do little to nothing about insulating or designing for such. You cannot A/C a concrete box and have anything less than horrific expenses at $.25 kwh. Your power bill will be higher than a mortgage payment when you are trying to cool down what is basically a pizza oven. You could never get away with this anywhere in North America. All homes must pass minimum energy efficiency standards yet here they cannot even spell such let alone believe that it is imperative as it is responsible.
To exemplify this prevalent insanity the one client from Texas that started this whole discussion is currently renting a $600,000 home near Coco Beach which would put its cost at a minimum of $200 ft2. Yet it has a central air system with most no opening windows or those that were are now screwed shut. It has no return air system plus the windows are screwed shut. I would like to ask the genius that did this, how is it that you can blow cold air into a sealed box? They also cannot get access to the filters because they are hidden in the floor cavity but why should that concern you much with 147 species of mold in this country? When they first moved in every time they touched the stove it shocked them. The list of faults is way to long to belabor the point here any further just lets look at real value versus cost. This same couple has lived in six different countries over the past 12 years and report this home as the worst of them all at $200+ ft2. Ya right! I would bet the realtor that owns this piece of crap tells all her clients this home is built to American Standards! What a load of crap!
So that begs the big question, how exactly is it that quality goes way down, labour costs go down yet the price goes up?
From the consumer’s perspective does that not make for really interesting math?
This is just a small sampling of 6 builders in Costa Rica that all fail miserably in delivering a value proposition for their clients. Am I being too harsh when you are considering a six figure investment and your future comfort and piece of mind? Some may think I am too critical, but I really doubt it considering the many horrors. If you think I am too harsh in my criticism I guess we will never have anything to discuss then will we, if you suggest I should be polite about a rip off.
First off with all of these builders using, as one client recently told me from his architect’s words, the tried and true methods of block and concrete. My response was, yes tried and true just like the square wheel was however we somehow discovered that after knocking the corners off of that wheel that is seems to work quite a bit better. First off if we always stuck with tried and true should we not still live in caves? This stuck in a time warp attitude irritates the hell out of me with regards to Tico builders yet I can accept their not knowing better without ever having built a thing in the First World.
What royally pisses me off though is that all of the aforementioned examples came from so called builders of North American standards yet when they arrive on these shores everything they were taught, passed exams for, assuming they actually have ANY QUALIFICATIONS or were inspected for immediately became irrelevant when they landed here. Those rules appear to no longer apply and they lower their standards and conscience to that of the Tico/Tropical standard of mediocrity then they have the audacity to state, “we build to North American Standards.” Yah right, only if the inspector has a white cane! Sorry folks BS is BS no point in sugar coating reality. At any rate onwards to what is driving costs to be what they are…
2. Labour Cost Factors:
Using the typical methods I have seen here and no one ever questioning how things are done and why makes for one incredibly inefficient system of construction hence the 1/5 hourly labour cost goes right out the window when you move from a 90 day construction cycle to more in the range of a 300+ day cycle or 365 day as the largest of these builders claims. Talk about painfully slow! So now instead of a 20% cost factor you have 66%+ of the cost of labour going into a Tico methods home. There is many processes involved in a home and dozens of ways of doing things however if you don’t use the best of tools and methods nor train employees in the application of both of these then wasted time and create work projects can skyrocket actual input costs while producing lousy to mediocre results that will bite you the home owner in the ass. No if here just when.
Now add to that the lack of attention in breaking horribly bad habits the results are rather predictable. A simple demonstration… Our Aroi Thai project (you can see in our video section) had 8 toilets for which every blessed tube was fully surrounded by concrete hence at least one man day would have to be spent chiseling out concrete to fit floor flanges to each of them. Since I am a tad simple I have not yet figured out just how you can attach a toilet to a sewer line without using such. So shall we say the process was rather predictable like A connects to B connects to C. Yet none of the genius’ running the job stopped the process to instruct that a sleeve or piece of cardboard had to be put around these tubes prior to the pouring of the floor. Now this is of course just one example but if you do this day in and day out eventually that rain drop causes a flood. Just as stupid stunts like these make homes excessively expensive in labour costs and someone is going to pay for that, being you if you are buying the end product from such operators. In essence the labour savings that should have been there are squandered away in inefficiency or lack of concern for correcting bad habits. Is it your job to be an employment agency in Costa Rica?
3. Obscene Profit Margins:
However with all of this being said there is what I believe to be a far greater culprit at play that drives this pricing versus value disparity. Greed fed by lack of competition that will gladly eat your lunch for you. I have seen builders here that we estimate are running around a 100% markup from their costs to client end price. No they would never tell you or be transparent as I know of no client I have dealt with that would not have one severe allergic reaction to seeing such numbers show up in their home costing. In most markets if you get greedy with your profit margin there is dozens of others that will come eat your lunch for you. I never ever saw any market in Canada that you could get away with such over charging for services. For whatever bizarre reasons here this is not nearly as prevalent and home buyers accept this as inevitable or reasonable. This leads to an inventory of overpriced homes that are hard as hell to sell on to others when value and performance are hard to find just as in the example of the crap home up in Coco.
This situation is further aggravated with builders who build so few homes so inefficienntly that they are trying to make their entire living and cover all their overhead costs on the back of just a couple of clients per year. It is not tough math if Jose builds two houses one of which is yours he is going to collect from you half of his costs. When we build 12 homes as an example we need 1/12 of those fixed costs to come from you.
Whose math would you prefer?
To add insult to injury I have also seen many such builders who are rarely on site as I witnessed on one project that had 13 people living off of the project hence you might have expected close supervision of their first show home. Someone has to pay for all those freeloaders and that can only be the foolish buyers? Yet out of all of these characters involved no real builder to be found on site. Hence who is there to catch mistakes and bad practices in the bud? No one! Do you think the Nica foreman is going to understand your expectations in a high quality home? Lots of luck with that one.
Let me clarify that I hardly think profit is a dirty word it is what makes the world go around however there is a point where profit moves from acceptable to usury and I definitely personally consider the norm of 50% to 100% profit as usury especially considering the actual quality of the end product that is typically delivered. It was actually a mistake that lead us to showing a client our profit built into each house price but since then it has been shown that a reasonable profit shown transparently is anything but a deterrent from acquiring great clients. This method has actually given us far more desirable clients to work with on a much more favourable relationship based on trust and respect.
Let me first preface my further comments with this, we really don’t care what the players in the Tico building industry charge as we do not set our prices based on what anyone else is doing. We could care less as we did not set out to build the cheapest home in Costa Rica hence most certainly we are not entering a price war with anyone! First off it is often a false comparison at best since the formula has a lot of moving parts that affect final costs so unless you are actually comparing apples against apples it is a pointless exercise. This comparison is further exasperated from further evaluation since I have as yet to find someone who is providing similar quality to ourselves. Go to our tab on New Home Standards to get full details as to exactly what this really means. Our prices are set by our actual material costs, labour input and OUR reasonable profit margin which are all quite irrelevant with regards to how others would come up with their figures, as we have seen.
Here is a further example for you to use as a measuring stick to fair market pricing. The typical new project in the Central Valley tends to average out around $1,000 m2 or $93 ft2 home with land included noting that all of the above prices were construction costs only. There of course is some cheaper projects as well as some massively more expensive in prestige projects where cost and price get divorced. Keep in mind that land in the Central Valley is drastically more expensive per m2 than mountain/beach property as a rule with what has been a pretty steady growth curve over my 13 years of observing such. As I have seen none of it would pass the North American Standard inspection either but then they are not trying to tell you that it does as compared to these six builders that are leading their clients down the garden path in claiming to do so but failing miserably at actually fulfilling that promise. I call that lying what do you call it?
I hope that this article has helped you get a better understanding as to what is really going on with construction costs in Costa Rica. Hopefully you now have a lot more tools to help you sort out fact from marketing BS or blatant lies. As you have seen when you add all of these factors together it is not much of a surprise when you end up with costly yet low quality homes coming out of the other end of the pipeline for the less than astute consumer that elects to accept such.
This is but a few of the brilliant results that can and do actually happen in our often bizarre version of Paradise.
Sad but true. Enough said for now.