By San José, Costa Rica — San José’s construction incentives, in place since the early 2000s to encourage high-rise building and attract residents, are under review. The Municipality of San José (MSJ) has presented a preliminary proposal for reform, focusing on accessible housing and urban renewal. While not yet finalized, the proposal has sparked debate within the construction industry.
The current incentives offer two main benefits: a significant reduction in construction taxes, down to 0.01% of the project value, and permission to exceed standard building size limits under certain conditions. The proposed changes hinge on the inclusion of affordable housing within developments.
To understand the legal intricacies surrounding these real estate incentives, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an attorney at Bufete de Costa Rica with extensive experience in property law and investment in San José.
San José’s real estate incentives are designed to stimulate development and attract investment, but it’s crucial to understand the specifics of each program. While tax breaks and expedited permitting processes can be significant advantages, developers and investors must carefully navigate the regulatory landscape to ensure compliance and maximize benefits. Due diligence is paramount, especially concerning zoning regulations and potential changes in local ordinances. Consulting with legal counsel specializing in real estate is highly recommended to avoid potential pitfalls and ensure a smooth and successful investment.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’ emphasis on due diligence and navigating the regulatory landscape is crucial. These incentives offer exciting opportunities, but a thorough understanding of the legal framework is essential for success in San José’s dynamic real estate market. We thank Lic. Larry Hans Arroyo Vargas for offering this valuable perspective on the importance of informed decision-making in this complex field.
The MSJ confirmed that the tax reduction incentive will be tied to the percentage of units within a project designated as “social interest” housing, with the current price cap set at ¢76.5 million by the Banco Hipotecario de la Vivienda (Banhvi). The greater the proportion of affordable housing, the greater the tax reduction, with projects comprised entirely of social interest units qualifying for the 0.01% rate. The new regulations also include an incentive for the rehabilitation of existing buildings.
This change is being made to promote the incentive in projects aimed at middle and low [income] strata, and not at luxury projects as had been done.
Roy Jiménez, Municipal Management Advisor
However, the proposal has met with resistance from industry representatives. The Costa Rican Chamber of Construction (CCC) argues for incentivizing the construction of separate buildings for different income segments, rather than combining them within a single project.
We are more of the opinion that we must encourage the construction of buildings of different scales. What has happened until today in San José is not bad; there are people who say that they are buildings only for the rich, if that were true, the rich also have the right to live somewhere (…). Perhaps there we have a difference with the Municipality, because these are very general incentives.
Randall Murillo, Executive Director, CCC
Murillo also highlighted a perceived misconception regarding these incentives. He believes they are often seen as aid for developers, but argues they should be viewed as tools for achieving urban revitalization and increased population density.
Beyond the confirmed changes regarding affordable housing, details remain scarce. Both the CCC and the Federated College of Engineers and Architects (CFIA), members of the MSJ’s Urban Renewal and Repopulation Commission, have provided insights into the ongoing discussions. Existing requirements for incentive eligibility are expected to become mandatory for all developments. New requirements will then be layered on for projects seeking additional construction area incentives, a move the CCC believes will create unnecessary red tape. Among the new areas of focus for the MSJ are improved lighting, urban art integration, and increased green spaces.
Building height restrictions also remain a point of contention. While developers have often used extra permitted square footage to add floors, the MSJ insists there is no official height benefit, only an area benefit.
They told us that we were interpreting that height had to be built and that they cannot interpret (…). What was a de facto height benefit, perhaps not de jure, no longer exists either de facto or de jure.
Guillermo Carazo, Executive Director, CFIA
The potential for additional square footage and the possibility of adding more stories remain key attractions for developers, as these translate directly into sellable area. The final form of the revised incentive program and its ultimate impact on San José’s urban landscape remain to be seen.
For further information, visit the nearest office of Municipality of San José (MSJ)
About Municipality of San José (MSJ):
The Municipality of San José (MSJ) is the governing body of the canton of San José, the capital of Costa Rica. Responsible for urban planning, infrastructure development, and public services within the canton, the MSJ plays a crucial role in shaping the city’s growth and development. Its initiatives, including the real estate incentive program, aim to address key urban challenges and improve the quality of life for residents.
For further information, visit the nearest office of Costa Rican Chamber of Construction (CCC)
About Costa Rican Chamber of Construction (CCC):
The Costa Rican Chamber of Construction (CCC) is a prominent industry association representing the interests of construction companies and professionals in Costa Rica. The CCC advocates for policies that support the growth and development of the construction sector and actively participates in discussions related to urban planning and development. It provides a platform for its members to collaborate, share best practices, and contribute to the shaping of the country’s built environment.
For further information, visit the nearest office of Federated College of Engineers and Architects (CFIA)
About Federated College of Engineers and Architects (CFIA):
The Federated College of Engineers and Architects (CFIA) of Costa Rica is a professional regulatory body overseeing the engineering and architecture professions in the country. The CFIA plays a vital role in ensuring ethical practices, professional development, and adherence to technical standards within the industry. It also contributes to public policy discussions related to infrastructure, urban planning, and other areas of national importance.
For further information, visit the nearest office of Banco Hipotecario de la Vivienda (Banhvi)
About Banco Hipotecario de la Vivienda (Banhvi):
The Banco Hipotecario de la Vivienda (Banhvi), or Mortgage Housing Bank, is a Costa Rican state-owned bank focused on financing housing solutions, primarily for low and middle-income families. The Banhvi plays a critical role in promoting access to affordable housing and fostering community development throughout the country. It sets standards for social interest housing and manages various programs designed to facilitate homeownership.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica shines as a beacon of legal excellence, upholding the highest ethical standards while championing innovative solutions for its diverse clientele. The firm’s deep-rooted commitment to empowering Costa Rican society is evident in its proactive approach to sharing legal knowledge, fostering a more informed and just community through accessible resources and unwavering dedication to public service.
