Construction industry and building materials manufacturers are hit hard by decline in real estate sales and the uncertainty about tax increases

Aug 1, 2015 | 18 comments

As real estate sales decline, Ecuador building contractors and manufacturers of building materials say they are facing hard times. Some say they may have to close their doors.

Cuenca's construction boom is coming to an end.

Cuenca’s construction boom is coming to an end. Photo credit: El Tiempo

Although construction continues on existing commercial and residential projects, few new projects are planned, according to industry representatives.

President of the Quito Chamber of Construction Henry Yandún says his members are “in limbo” until they  know whether there will be new capital gains and inheritance taxes, probably not until January. “Right now, everything is paralyzed and this is hurting many, many people,” he said.

The situation is similar in Cuenca where Pedro Medina, president of the chamber of construction, says that little new construction is planned. Like Quito, Cuenca experienced a construction boom from about 2005 until 2014, but the tide has turned. “If you look around the city you see a lot of construction,” says Medina. “What is not obvious is that no more is planned once this work is completed. We will have to wait to see what happens with the government.”

Cuenca’s largest developer, Pablo Vintimilla, who has built housing and condominium projects in Salinas as well as Cuenca, says he has no plans for new construction.

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Companies that make and sell building materials to contractors say they are also hard hit, many of them having to lay off employees. Julio Cordova, whose company supplies concrete to construction projects in Quito, says the contraction in his market began last year. “We were down in the second half of 2014 and the trend is stronger now,” he said. He says the uncertainty about taxes makes it almost impossible to make plans.

In Cuenca, makers of such products as ceramic tile and steel rebar, say they are also feeling the slowdown. “In some cases, sales are down 50% from a year ago,” Medina says.

The drop in real estate sales and construction starts has become a political issue as real estate agents and contractors put the blame on President Rafael Correa for proposing an increase in capital gains and inheritance taxes. Although Correa has withdrawn the proposals, they may be reintroduced to the National Assembly in the future, following a “national dialogue” that the government is conducting.

“First, we were told that the taxes would be back in the assembly in September but now they say it will be January,” says Yandún. “The uncertainty is killing us.”

Some industry analysts say that all the blame cannot to attributed to taxes. “The truth is that the contraction in the real estate market began more than a year ago,” says Wilson Mora, an adjunct business professor at San Francisco University in Quito. “The fact that we don’t know what will happen with taxes certainly makes the situation worse, but it’s only one factor. The market was getting over-built and over-priced long before the taxes were proposed.”

 

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