Real Estate & Construction

Place In The Sun

Real Estate

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Place In The Sun

Foreign and expatriate migration into Ecuador has been a key factor affecting the housing market in recent years. Ecuador is a popular destination for retirees from North America and Europe, […]

Foreign and expatriate migration into Ecuador has been a key factor affecting the housing market in recent years. Ecuador is a popular destination for retirees from North America and Europe, and it ranks highly as a place to retire or as a place to have a second house. More and more non-Ecuadoreans are choosing a less expensive and more pleasant life in the country, and Sergio Torassa, CEO of real estate developer Pronobis, told TBY that: “It has been ranked number one by Forbes and International Living, and in top positions by the Financial Times. According to the UN, some areas of Ecuador have arguably the second best weather in the world, with excellent sunshine hours and attractive sunsets. The government of Ecuador grants real estate visas to foreigners who purchase homes in the country worth at least $25,000. In addition, the country also grants pensioner visas to foreigners with a retirement income of not less than $800 per month.

Yet despite its popularity as a destination, prices are lower in 2013 and 2014. This downward pressure on prices has been caused by a number of factors, primarily a large inventory of unsold properties and a slackening in the rate of Ecuadoreans returning from overseas. Despite these factors, few suggest that a US-style real estate “bubble” is forming. Access to credit is also a factor for homebuyers, and effects the market differently in different regions. As Ecuador uses the US dollar as its official currency, property prices in Ecuador are quoted in dollars, which creates another appealing factor for buyers from abroad. The US dollar has been the official currency of Ecuador since 2000. Down payment rates of 30% on mortgaged properties and the fact that more than half of all real estate in popular destinations such as Quito and Cuenca carry no mortgages, are the most frequently cited reasons developers and real estate agents are optimistic about the market. Mortgage loans were also down in 2013. In 2010 and 2011, the number of mortgages written by commercial banks increased by 10% and 12% a year. According to government figures provided by the central bank, the effective lending rate for purchasing residential housing remained at 10.64%, which is unchanged on the previous two years. During 2013 and into the first months of 2014, builders and real estate agents say that appreciation is easing slightly. The general industry consensus is that prices will increase 5% to 6% in 2014. Jaime Rumbea Dueñas, Executive Director of the Asociación de Promotores Inmobiliarios de Viviendas del Ecuador, told TBY that the real estate market not only reflects the Ecuadorean economy, but also drives it. “It is of the utmost importance, not only because it is one of the three most dynamic sectors in the economy, but also because it drives urban growth and the urban economy, which nowadays is probably the most important part of the economy, in terms of our country’s growth estimates,” Rumbea Dueñas explained. “We had growth of over 20% three years ago. Our country was growing at a rate of 7%, and now it is growing at a rate of 4%, but our sector is still helping to pull the economy up.”

QUITO, CUENCA, & BEYOND

Ecuador is a country of great natural beauty and bio-diversity; however, the most active real estate markets are found in the major cities. Quito is widely considered to be one of the world’s most culturally rich cities, and is a UNESCO World Heritage Site. From the colonial Spanish architecture of the historic Old Town, to the modern skyscrapers of the business districts, the city provides all of the modern conveniences of a major global city, alongside a quieter and often simpler pace of life—at affordable prices.

In Quito, the average price of apartments and houses was stable in October 2013. According to NuWire Investor, In October 2013, apartments located in Quito were priced around $900-$1,000 per sqm, or $80-$95 per square foot. Houses were priced around $700 to $820 per sqm, or US$65 to $75 per square foot. The average price of new three-bedroom apartments in Quito, with views, ranged from $95,000 to $120,000.

Magazine and website articles promoting Cuenca as the world’s top retirement destination are attracting record numbers of North Americans and Europeans to the city. Due to its popularity, prices have risen dramatically in recent years. Compared to the US, house prices are 60% to 75% higher than they were in early 2008, the result of dropping prices in the US and five years of appreciation in Ecuador. In the large home market, a 3,000 to 5,000 square foot houses in Cuenca’s most affluent neighborhoods are priced about $275,000, which significantly higher than the average cost of a US house in the same period.

Through the first four months of 2014, property values continued to rise steadily despite the slow economic recovery underway in much of the rest of the world. According to the Cuenca Chamber of Construction, the overall rate of appreciation in Cuenca held constant from 2007 to 2012 at 8% to 12% per year, depending on the type or property and location. Annual appreciation for newer condos was running 10% to 12% and higher.

COMMERCIAL REAL ESTATE

According to the World Property Journal, Ecuador’s general construction price index fell from 229.54 in August 2008 to 210.79 in May 2009, in the aftermath of the international financial crisis. But since then, construction prices have reached a historical peak of 234.569 in January 2012. Construction prices rose by 6.88% in 2011 (+2.18% in real terms), after 1.95% rise in 2010 (-0.53% in real terms). In Cuenca, the country’s third largest city—and, importantly the economic hub of the southern Sierra region—prices for office and commercial space continue to rise. Cuenca saw an average increase in prices of about 8% to 12% annually in the past five years, which was roughly in keeping with residential prices.

In the final analysis, Ecuador offers domestic and foreign buyers good value in 2014, in both the residential and commercial sectors, even within the context of historical rises in the past few years. Real estate is still big business in this Andean nation, and is generally set to remain a stable and sound investment.

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