Nicaragua Real Estate is a Great ValueNicaragua was on the verge of being heralded widely -- globally -- as the “next Costa Rica” and the “next Panama” in the world press before Daniel Ortega's presidential victory earlier this year.
As real estate prices continue to escalate in both Costa Rica and Panama and Ortega approaches the end of his five-year presidential term, that'll happen again. Ortega 2.0 can't be Ortega 1.0 -- if he wanted to. He has even less support now -- including less support among his own Sandinistas -- then he did after the election, and he was elected as a minority president to begin with. He faces a hostile legislature that has opposed him on a number of significant issues. Nicaragua is more dependent financially than it has ever been on the U.S. and the European Union. It will never receive as much support from Chavez, Iran or Cuba as it does from the U.S. and the European Union in both government aid and private investment -- and most Nicaraguans know this.
It is our view that apprehension created by Ortega's minority government has opened a window of opportunity for smart, forward-looking investors with a five- to ten-year time horizon to get in “before the herd” -- before the end of Ortega's term and before what we anticipate will be the resumption of the real estate investment boom that preceded Ortega's presidential election victory.
We have seen estimates from global real estate analyses earlier this year that Nicaragua as a whole may be as much as 68% undervalued, given its level of economic freedom and its business climate (as measured by the Wall Street Journal Index of Economic Freedom). In other words, adjusting statistically for what Nicaragua offers investors compared to other countries – as far as property rights, tax burden, transparency, government spending (as a share of the economy), inflation, trade, labor, financial and business regulation policy -- Nicaragua is only 32% of the average cost of countries offering similar business climate characteristics.
This isn't to take anything away from what you've said. We are not apologizing for Ortega. We're only providing broader long-term perspective. We only wish to point out that Nicaragua now may represent the same investment opportunity that Mexico in 1994, Argentina in 2001 and Eastern Europe in the early 1990's represented -- that Nicaragua itself represented in the early 1990's -- during and after political and financial crises in those regions. Those crises eventually gave way to fantastic real estate booms.
And the political risk in Nicaragua now may be far less than it was back in the early 1980's. Ortega just doesn't have as much support now as he did back then -- nowhere near it. Wishful thinking on our part? Maybe. Just some food for thought. For all the political heartburn, it's still a beautiful country with a beautiful people -- a great place to live with enormous untapped investment potential.
