Real Estate & Construction

From the Bottom Up

Real Estate

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From the Bottom Up

Real estate companies forecast sustainable growth in demand for housing, as the government leads programs to help low- and middle-income families gain access to credit.

This transformation has also led to an increase in the prices of real estate—15% in the last two years, according to official sources. However, prices are still inexpensive in comparison with the US and European markets. The value side of the Ecuadorean real estate market can be readily witnessed; high-end coastline real estate can be purchased for an average of $90-$100 per square foot, and the absolute top-end luxury sector of the market pushes those prices to up to $150 per square foot. Nevertheless, the national average price per square foot is set between $55 and $70.

Foreigners and Ecuadorean natives are on equal footing when it comes to real estate. It is not required to be a resident of Ecuador to own property. On the contrary, property ownership can qualify owners for residency. There are certain restrictions in the case of “National Security Areas,” which include the country’s borders, although these areas are not specifically defined by the law. In addition, there are no title or escrow companies, and sellers and buyers are required to pay their own costs outside of the sales process, such as insurance and real estate commissions. These issues are not brought to a closing, which is strictly between the buyer, seller, and the notary.

MASS HOUSING

Government involvement in the mass housing market, especially in terms of low- and middle-income earners, has seen a boost in the construction of housing units across the country. Since President Correa took office, the main area for construction sales growth has been in building homes that cost less than $35,000.

In 2011, the government of Ecuador invested $25.5 million in the construction 2,758 houses. At the same time, large urbanization programs are ongoing in the country, and the state has built homes for 30,000 families in the last five years. In addition, some 100,000 middle-class, first-time homebuyers have received a $5,000 one-time “housing subsidy” grant, which enabled them to afford down payments.

President Correa has made expanding homeownership a priority, creating a bank in October 2011 to boost lending to low-income families and to finance local development. The government of Ecuador has injected a large amount of funding into the construction business, and the benefits have been clear; according to the Ministry of Urban Development and Housing, the index for ready-to-use housing reached 53.87 million square feet in 2010, up from the 16.6 million square feet in 2000. The number of construction permits has also increased, with 39,657 permits granted in 2010, compared to 20,112 permits in 2000.

Semaica is one of the companies that expanded its residential portfolio in the last few years, after acquiring projects from the government. Esteban Sevilla, Manager of the company, told TBY that Semaica is leading a project in Guayaquil that will house 8,000 families with 49 sqm of housing per unit, which will be sold for $12,000. The company is currently developing the first stage of the project, which includes the construction of the first 2,000 units.

NEW MORTGAGE LAW

The aggressive intervention of the government as a source of credit and incentives over the last two years opened a market that was previously not receiving much attention. The government has articulated this move through the Bank of the Ecuadorean Social Security Institute (BIESS), which has played a vital role in providing credit lines to people seeking to acquire a home, especially young citizens. In 2011 alone, BIESS loaned a total of $1.2 billion in mortgages to Ecuadorean citizens, an increase of 8.5% as compared to the $1.1 billion in 2010, and an amount that represented 58% of the total mortgages in Ecuador. BIESS offers mortgages to up to 25 years at interest rates below 9%, whereas private banking offers average mortgages up to 15 years at 9.5%.

In this regard, the government is working to improve credit lines in order to provide the sector with further stability and growth. The new mortgage law that came into effect in mid-2012 aims to grant the right to housing to Ecuadorean citizens, improve accessibility, and regulate financial activities related to the mortgage market. The new law protects those who acquire or build their first house below $146,000. It also aims to reduce the risk of creating a real estate bubble in the country.

“The real estate sector has been very stable, and we haven’t been affected by any crises,” said Tommy Schwarzkopf, General Manager of Uribe & Schwarzkopf. “Now that the government is working to improve the credit lines, we believe that this stability will be maintained.”

RESIDENTIAL

The residential sector is one segment of the real estate market that has been enjoying the honeymoon the most; indicators are showing signs of significant growth across the country. In Quito, the real estate sector grew by 10% in 2011, according to the Construction Chamber of Quito, and the price per square meter in some areas of the city reached $1,300.

The new housing offering in Quito in 1H2011 reached 5,600 units, as compared to the 6,250 units for all of 2010. Demand currently exceeding available supply in Quito, registering increases of 14% in the first half of 2011. Residents required 12,500 units in 2012, up from the 9,068 in 2010.

One of the largest housing projects underway in the city is “Ciudad Jardí­n,” the only privately built complex, which is being implemented by Ferroinmobiliaria. Ciudad Jardí­n is a 34-block project that is large enough to become a city within Quito’s municipality, and 50% of the housing units were sold before the project began, Eduardo Crespo, representative of the company, explained to TBY.

In terms of housing units, Guayaquil represents around 40% of the entire country. The price per sqm by 2011, according to the Guayaquil Chamber of Construction, varied from an average $552 in the high-end ($451 in 2007), to $223 for popular housing, and $28 in the low-end segment.

Another city where the real estate sector has grown significantly in the last few years is Cuenca, which was labeled by a prestigious international travel magazine as the “World’s Best Place to Retire” in 2009. Such an award has boosted the arrival of foreigners to the city, and during the first half of 2010 alone, the Ministry of Foreign Affairs recorded 1,300 foreign citizens moving to Cuenca.

Cuenca is undergoing rapid growth, and the general rate of appreciation in the city has held constant for the past five years at 8% to 12% per year, depending on the type of property. Annual appreciation for newer condos is running at 10% to 12%. The cost for raw land in areas such as San Joaquí­n and Yunguilla has increased by as much as 15% per year.

At the moment, there are more than 35 condominium projects under construction, with more on the drawing board. In this regard, construction costs for new condos per sqm, as of April 2012, were running from about $825 to $1,100, and average price per sqm in 2011 was $343, according to the Cuenca Chamber of Construction.

COMMERCIAL

One of the most difficult markets to corner is that of the commercial segment, as there are many new developments in Grade-A office and retail construction. Guayaquil and Quito are the areas focused on building such developments. For example, there are projects for five new shopping malls and business centers in Guayaquil, which will increase the overall number of commercial areas and offices in the city to up to 171.

The real estate market has been performing very well at the national level, and players from the sector expect to maintain the growth for at least three to five years. Engineer José Macchiavello, executive president of Etinar, puts the country’s necessity for new houses “to around 1.3 million houses. The deficit is around 80,000 units a year. We are not building more than 150,000 houses a year at the moment. I think that the necessity for housing will continue for 10 or 15 years.”

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