Many factors contribute to changing costs in construction in Costa Rica. Since September 2021 the Value Added Tax in Costa Rica adds additional construction costs for both materials and services.
Back in 2018, the legislative assembly of Costa Rica approved the project that began a value added tax charge in construction, however, it came into effect in September 2021. A tax charge of 4% IVA must be added to construction services, which are engineers, architects, topographers and civil works construction provided in projects registered or endorsed by the Federal Association of Engineers and Architects (CFIA).
In addition to the incorporation of the 4% IVA, the price of construction materials has increased considerably, therefore, this factor also increases the investment that must be made to build a property.
The total price of a construction depends on three factors: construction permits, responsible professional and construction cost. The great majority of these payments suffered an increase in each of them, only the municipal permit and the risk policy maintained their value.
Every project must have a responsible professional, either an architect or a civil engineer. In Costa Rica, engineering and architectural services are regulated by the CFIA. Which establishes minimum amounts per service as follows:
- Preliminary studies: 0.5% + IVA.
- Preliminary design: 1% + IVA
- Construction Plans 4% + IVA
- Specific Budget 1% + IVA
- Technical Direction 5% or Administration: 12% + IVA
These percentages are calculated on the value of the construction cost.
In order to build any project in Costa Rica, the construction permits must be obtained. Once the construction plans are finalized, the application can begin. These are subdivided in 2 stages: CFIA and Municipal Permits, that depends on the location of the property.
The CFIA Visa is requested by the professional digitally through the Administrator of Construction Projects (APC) and has the following costs:
- APC Administration: ¢20 000
- Digital logbook: ¢10 000
- Stamps 0.1%.
- Attendance fee: 0.15%
- Registration fee 0.015%.
The last three are percentages of the value that the CFIA calculates that the construction may cost.
Once the CFIA approval is obtained. The municipal permit is requested. Which has the following costs:
- Municipal Permit: 1% of the value appraised by the CFIA.
- INS Labor Risks Policy: (35% of the value appraised by the CFIA) * 3.54%.
Lastly, there are the direct construction costs: Labor and materials. These varies according to the infrastructure, depending on the design, construction system, location, lot, accessibility, type of finishes and other factors.
Increase in prices of construction materials
The COVID-19 sanitary crisis also had effects on the construction industry with the sustained increase in the prices of inputs and construction materials. This situation in Costa Rica and different countries have been reporting during 2020 and 2021. Guatemala, Mexico and Costa Rica lead the increase with 31.6%, 21.8% and 14.9%, respectively.
The construction products that contributed most to the increase were RTG structures and electrical installations. The construction inputs that contributed the most were copper wires and building roofing structures.
Among the inputs that have contributed the least this year to the increase in the construction price index is Portland cement, with a 1.17 cumulative variation.
In contrast to this, it is structural steel that presents an accumulated variation between January and March of 22.83% and a year-on-year variation of 33.22%.
Electrical wires have also contributed significantly to prices, with an accumulated variation of 18.18% and a year-on-year variation of 32.28%, according to INEC.
The fact that the prices of the construction services are increasing may cause people to change their mind about building a new property, preferring instead to purchase one already built. This phenomenon will increase rents and probably decrease the percentage of construction. Price increases also apply to remodeling and not only to construction from scratch.
Incorporating the 4% IVA on construction services and the constant increase in the price of materials may lead to a reduction in the purchase of brand new houses and constructions on your own. At the same time, it may increase the demand for rental and purchase of second-hand properties.