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Nicaragua was badly hurt by Hurricane Mitch in 1998, but not as badly as Honduras, the most adversely affected country in the region. The Nicaraguan economy incurred US$1.0 billion in losses from the storm, but economic growth in 1998 was still 3.8%, and predicted to slow only to 3.4% in 1999. As in Honduras, the construction industry in Nicaragua has had a great deal of reconstruction work to do in the wake of the storm. Although the storm was a terrible event, the country will end up with a vastly improved national infrastructure in roads, bridges, power, housing and telecommunications.1 In real estate, many see the beginning of a boom in the vacation home market in Nicaragua. The Central American resort home market began its growth in Costa Rica in the 1970s, expanded to Belize in the 1980s, and developed in Honduras in the 1990s. The Pacific coastline and the shores of Lake Nicaragua are seen as the areas with strong vacation market development possibilities.2
All leaders in Central America are currently evaluated in relation to the 1998 hurricane crisis. President Aleman of Nicaragua has been judged to have performed well. On one of the other issues still troublesome for the country, property rights (see below), the president has been working to address the problem. Its successful resolution is crucial to maintaining the achieved political peace in the country. He has engaged the Sandinistas in dialogue over both outstanding land ownership questions and about further electoral reform. Progress must be made on both of these issues for the continuation of social peace and economic growth. Another political and economic success for Nicaragua was President Aleman's renegotiation of the country's external debt burden with the so-called "Paris Club" of lenders. This will help the government with its ongoing task of lowering its overall debt burden, among the highest in the world.3
There is increasing foreign investment in second homes in Nicaragua by foreigners (mainly US & Canada), especially in the Pacific coastal areas. The amount of foreigners purchasing real estate in tourism areas is expected to multiply in the coming years, due to its proximity to other second home "hotspots" such as Costa Rica and the current low cost of real estate in coastal areas relative to neighboring countries.
Real estate practice and supporting institutions are still underdeveloped in Nicaragua. Most purchases are cash transactions with the buyer and seller directly negotiating. It is also difficult to judge market values, as information for price comparisons is not formally available in such a new market.4
In the post-Sandinista era, contentious land title issues remained unresolved. Specifically, determining who exactly is the owner of a property is a source of continuing social discontent. The source of the current problem lies back in Sandinista land reforms. The Sandinistas made land reform a priority, which is not surprising in a country, actually an entire region, with a long history of vastly unequal distribution of land. During their time in power in the 1980s, the Sandinistas distributed meager land parcels to 200,000 poor families, mainly 15 by 30-foot plots (4.5 by 9 meters) now covered by simple shacks. Not all, but a good deal of the land redistributed belonged to Nicaraguans who had decided to leave the country during Sandinista rule.
Since the fall of the Sandinistas from power, and the election of Violeta Chamorro as president in 1990, many former landowners began to seek the return of their land. Many of them are now U.S. citizens and have sought the aid of the U.S. government in their fight to get their land back. The government of Nicaragua has rejected returning the land as an option. It has judged that taking small allotments of land from hundreds of thousands of poor citizens would negatively impact social peace. Removing the only possession of any notable economic worth from this section of the poor is also seen as a bad recipe for growing domestic economic strength. In fact, the government is carrying out an essential task that the Sandinistas had failed to accomplish on any notable scale: granting title to the redistributed plots. The Nicaraguan government had given out 51,000 titles as of 1997, and hoped to complete the land-titling project by 1998.
However, the question of compensation for former landowners remains open in many cases. Some resolution was found through a government scheme to issue 15-year bonds pegged to the U.S. dollar, to raise the US$600 million that it is estimated the landowner compensation scheme will finally cost. It is doubtful that all compensation cases will ever be fully resolved. Cases where the properties are furnished houses occupied by former Sandinista soldiers are difficult to conclude, as are compensation or land reclamation claims by the family of the former dictator Somoza.5
Regarding real property investment, Nicaragua's focus is on attracting foreign retirees to buy and then move to Nicaragua full-time for their retirement. The government has passed specific laws stating that participants in the scheme will pay no taxes on their foreign income, and can bring in US$10,000 of household goods, plus a car, duty free. 6,000 Canadians and Americans had relocated to Nicaragua as of 1999.6 Foreign investors should remember to check carefully the land title of any property they consider purchasing. The Sandinistas did manage to issue some land titles during their time in power, and some properties can therefore have more than one title on them, let alone more than one claim to the title.
The Embassy of the United States in Managua has a web site that provides trade and economic information on Nicaragua, www.usia.gov/abtusia/posts/NU1/wwwhcom.html
- Founded in 1997, CNCBR (Camara Nicaraguense de Corredores de Bienes Raices - The Nicaragua Real Estate Chamber) is the leading national association of Nicaragua representing over 15 major companies throughout the nation.
- CNCBR is headquartered in Managua and they are affiliated with the Central America Real Estate Network (FECEPAC).
bienesraicesdenicaragua.com
Endnotes
1 - Lasaga, Manuel, "Central America today," Business Economics, vol. 34, no. 3, pp. 22-29, July 1999.
2 - Castillo, Ricardo, "Nicaragua turning into real estate bonanza," Star Tribune (Minneapolis, MN), Travel section, p. 11G, August 29, 1999.
3 - See endnote 1.
4 - See endnote 2.
5 - Hartman, Carol, "Who owns Nicaragua? UW-Madison's Land Tenure Center helps Nicaraguans resolve thorny land title disputes brought on by the return of former property owners," Wisconsin State Journal, p. 1B, March 16, 1997; Cearley, Anna, "Nicaragua remains a land divided as ownership struggle continues," The San Diego Union-Tribune, p. A-24, October 12, 1996; "Nicaragua regulations: New property rights law to boost investment," EIU ViewsWire, The Economist Intelligence Unit, December 10, 1997;"Nicaragua. Land reform reformed," The Economist, The Americas section, p. 31, December 20, 1997.
6 - See endnote 2.
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