- Category: Business
- Published on Sunday, August 21 2011 01:01
- Written by Rod Hughes
- Hits: 783
Costa Rican banks, never ones to take chances, seem to be tightening the purse strings even for middle class potential home buyers with respectable incomes, possibly in reaction to economic uncertainty.
But the tight-fisted approach is not going to help the building trades and real estate markets that are still struggling to recover from the world wide economic crisis of 2008.
As reported by the news blog Top 10 Costa Rica, Franklin Solano of the housing promotion foundation FUPROVI says that even families whose monthly income is betweem 750,000 colones (about $1500) and 1,870,000 colones ($3,700) must face a high hurdle.
The banks will not finance more than 85% of the new home value. While a stiff challenge to these families, the chances for 75% of the country's families achieving this are nil. The average monthly income for them is in the $1500 range.
Another factor not reported by the blog is that the Central Bank has not lowered interest rates as a stimulus in the way that the Federal Reserve did in the United States. The prime rate in the U.S. is at near record lows.
While local banks avoid the Wall Street-style financial adventurism that touched off the 2008 worldwide recession, it acts as a brake on the economy overall. Construction companies whose bread and butter (or rice and beans, if you will) is home construction are still struggling.
The current (Aug. 19) edition of the English-language Tico Times weekly carries a story noting that construction is showing signs of recovery from the 2008 meltdown but still lags behind even the so-so figures from last year.
A July study by the University of Costa Rica's Economic Research Institute showed that 37% of construction companies expected to hire new workers during July, August and September. The study showed that the industry hoped to finish 2011 with a sales volume 54% higher.
The paper quoted Randall Murillo of the Chamber of Constructors as saying companies and groups interested in building were putting off decisions because "the problem with construction companies is that they are extremely sensitive to the smallest market moverment."
Their clients have a wary eye on the UlS. economy and stock instability, realizing that a downturn there can affect everything from export expansion to home building here.
Banks may be reacting to the same fears that make for instability in stock exchanges throughout the world during recent weeks. One CNN commentator blamed "fear and greed" for the roller coaster ride of, for example, the New York Stock Exchange (NYSE).
But once-muscular European economies such as Germany are showing predictions of zero growth or only tiny increases. Other European Market countries like Greece and Portugal are already basket cases and have have been all through the year while European stock exchanges have shown similar panic.
U.S. President Franklin D. Roosevelt famously said in the depths of the 1930s Great Depression, "The only thing we have to fear is fear itself."
Nowhere is that truer than today. There is a North American impulse to want to "do something! anything! even if it's wrong!" Despite CEOs of big U.S. corporations saying that the U.S. economy is stronger than it looks, the weaker brethren at the NYSE tend to want to dump stocks wholesale.
Unfortunately, when they stampede, they trample economies of countries like Costa Rica around the world.