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Ecuador News

Ecuador’s real estate and construction market is mired in a deep recession

By Liam Higgins

Editor’s note: This is the first of a two-part series. Part two, on Monday, focuses on emerging investment opportunities.

It has been a brutal two years for Ecuador’s real estate industry. Ecuador’s national real estate association reports that total sales dropped 60% between April of 2015 and April 2016. This follows a 20% drop from 2014 to 2015.

Condominium sales have fallen by 70% since 2014.
Sales of new condominiums have fallen by 70% since 2014.

“We’re really hurting,” says Jaime Rumbea, spokesman for the Association of Ecuador Real Estate. “It’s a huge drop, and the slow-down is affecting dozens of other industries,” he said.

Among those taking a hard hit are developers and building contractors, who report that they are working on less than a third of the projects they were in 2014. Building associations in the country’s major cities say that industry lay-offs amount to more than half the workforce.

In Quito and Cuenca, few projects, either commercial or resident, have broken ground in 2015 and 2016. “Developers are waiting to see what happens, to see if demands increase,” says Quito builder Xavier Maxwell, who built condo and small housing projects in the suburbs east of Quito. “It’s almost impossible to plan right now.”

With sales down as much as 85% in some markets, real estate agencies are reducing staff and, in some cases, closing their doors.

Following the April earthquake, sales on the coast have come to a virtual standstill although reconstruction promises a prolonged boom for building contractors.

The real estate recession follows a boom from 2007 to 2014 that saw annual double-digit appreciation and new construction that set records every year. “It was a golden age for real estate,” says real Guayaquil investment analyst Gustavo Calderon. “In Quito, Cuenca and the coast, you had sellers doubling their money in four or five years on condo and raw law resales. Sometimes they made more than that.”

“The boom was part of a natural business cycle,” says Calderon. “Oil prices were high, the dollar was appreciating, you had a new government investing unprecedented amounts of money in highways, airport, schools, and hospitals. There were big construction projects going on everywhere. Very quickly, Ecuador became a better place to live with all the new infrastructure, lower crime rates, rising tourism. Tens of thousands of Ecuadorians living overseas came home, people in politically unstable countries like as Venezuela and Colombia wanted a place to invest,” he says.

So what happened?

“Again, it’s the cycle, except now it’s the down side of it,” says Calderon. “The oil money began to disappear. The strong dollar began to hurt businesses that depended on exports. The government increased regulation on businesses and threatened to raise taxes on inheritances and capital gains. The number of returning Ecuadorians began to decline and the investors from Venezuela no longer had any money. There are many factors but taken together, they are just part of the other side of the cycle.”

Calderon adds: “You hear a lot of people blaming government policies, but that’s only a part of the problem.”

Calderon argues that what happened in Ecuador is not a U.S.-style housing bubble. Since most properties do not carry large mortgages, there has not been a steep decline in prices. “On average, prices on sales have dropped only about 5% since the peak of the boom,” he says. “There are a few fire sales but, for the most part, sellers seem willing to wait,” he says.

This might change, he says, as a historically high number of properties are on the market. In Cuenca, he says, there are almost twice as many properties on the market as there were in early 2014 but the number of sales have fallen 70%. “If you do the math, you get an idea of how long it takes for a sale,” he says.

When will market start to turn around?

It could start to change in two years, Calderon says, maybe sooner. “There will be a new government with new polices. We are beginning to see rising oil prices and a weakening dollar. It will take time, but it will happen.”

  • Virginia W.

    Prices for Real Estate in Cuenca were way too high.

    • Frank Penny

      My friend, you certainly have that one right! 3 years ago, I looked at condos in Gringo Land, and all over town, and they asked higher prices than They would in Northern NJ/ NYC at times. I bought a farm outside of town instead. Crazy prices= R/E bubble popping.

  • Corbin Campbell

    It’s not enough of a depression until the price bubble bursts and prices go back to a realistic level.

  • Charlie

    “On average, prices on sales have dropped only about 5% since the peak of the boom,” he says. “There are a few fire sales but, for the most part, sellers seem willing to wait,” he says.

    AND THIS IS TESTAMENT TO THE STUPIDITY OF ECUADORIANS. IT IS TRUE, THEY WILL NOT LOWER PRICES TO MEET THE MARKET DEMAND, THEY JUST SIT AND WAIT FOR THE MARKET TO CHANGE AND IF IT TAKES TEN YEARS WITH NO SALE OR NO RENTAL INCOME, THEY WILL JUST LET THE PROPERTY SIT THERE. THIS IS A MANIFESTATION OF THE CULTURE OF MACHISMO WHERE AN ECUADORIAN WILL NEVER ADMIT HE IS WRONG. THEY ALL BELIEVE THEY CAN TELL THE MARKET WHAT SOMETHING IS WORTH, NOT THE OTHER WAY AROUND. I HAVE NEVER IN MY LIFE SEEN A CULTURE THAT IS SO PROUD OF ITSELF WITH SO LITTLE TO BE PROUD OF. BECAUSE AN ECUADORIAN CAN NEVER BE WRONG, PRICES DROP 5% WHEN SALES ARE OFF 80%. THEY ARE A LAUGHING STOCK.

    This might change, he says, as a historically high number of properties are on the market. In Cuenca, he says, there are almost twice as many properties on the market as there were in early 2014 but the number of sales have fallen 70%. “If you do the math, you get an idea of how long it takes for a sale,” he says.

    YEAH, ABOUT 12 YEARS IF YOU INSIST ON ARGUING WITH THE MARKET

    It could start to change in two years, Calderon says, maybe sooner. “There will be a new government with new polices. We are beginning to see rising oil prices and a weakening dollar. It will take time, but it will happen.”

    THIS MAN IS UTTERLY STUPID. A TYPICAL ECUADORIAN. OIL PRICES HAVE TAKEN WHAT WE CALL A “DEAD CAT BOUNCE” FROM RECENT LOWS AND MAY GO RIGHT BACK DOWN TO TEST THOSE LOWS. THE NEW GOVERNMENT THIS IDIOT VIEWS AS BEING AN AGENT FOR POSITIVE CHANGE WILL ABSOLUTELY BE A CONTINUATION OF CORREAS REGIME BECAUSE HIS PARTY HOLDS A SUPERMAJORITY OF THE SEATS IN THE LEGISLATURE AND HE HAS ALREADY “NOMINATED” IS SUCCESSOR. IT WILL BE MORE OF THE SAME. WEAKENING DOLLAR? CAN THIS IDIOT EVEN READ A CHART? THE DOLLAR IS STRONGER THAN EVER AND WITH THE BREXIT DEBACLE OF THIS WEEK, IS BOUND TO GO HIGHER IN A FLIGHT TO SAFETY. I WOULD BET AGAINST EVERYTHING THIS POLLYANNA PREDICTS.

    • JR Delgado

      You Sir sound like a parrot, lost in the forest. And apparently no ZERO about the politics of Ecuador.

  • LadyLee

    Venezuela re-visited.

  • Ann

    What is wrong with you, calling Ecuadorians stupid. People will hold on to their properties as long as they can so as not to lose their investment. Only those who are in need will drop their price. Building materials have gone up, there are many factors, including the new import taxes and the increase of IVA. Prices are going up for electricity and water. Apartment buildings with aliquotas are also going up. Owners of rentals can not drop their price because maintenance fees are so high. People make an income from their rentals. And I know most would rather have them empty than not make enough money. Because many but not all rentals destroy apartments, so the owners have to spend more money, that they do not have to make repairs.

    • John G

      Ann- this man is Ken Merena, who uses maybe a dozen different “handles” when he is on these forums. He’s getting his leg chopped off, so he’s mad at the world. Don’t take his rantings seriously.

  • Ricki

    Now the rents advertised are beyond ridiculous, and why would a renter pay for the hoa fees too, which go up every year!!? That is the owners responsibility!!

  • dogoslave

    A “turn around” beginning in 2 years, or may be even sooner is wildly optimistic. Great if it happens, but highly unlikely.
    Nope! Shangri-La is going to be mired in the “other side of the cycle” for quite some time to come.

  • Kris Thompson

    Ridiculous prices in relation to the local purchasing power. After all, a banana republic on the verge from third to second world status. Get real. Prices will drop or buildings will crumble. Most likely crumble and fit right in. Expats beware, this is not an investment. Bubble, bubble, major trouble.

  • Anthony Phoenix

    When the local people make roughly $300 -$350 a month whom can these crooks take advantage of GRINGOS. There you have it. They have all overpaid and if not now very shortly will be stuck!

  • JoJo

    As a successful Realtor, licensed in the State of Florida…I have lived & worked in the Real Estate “boom” times & “bust” times. The major difference between the “boom” years in Florida and the good years of real estate appreciation in Ecuador is this…..
    Most properties involved in the U.S. real estate boom were financed,some as much as 95%. The condos, etc. in Ecuador were bought and paid for with cash closings, no mortgage.
    That essentially is the difference.
    The two(3) buying groups for these condos in Ecuador were expats, affluent locals & returning Ecuadorians. In the U.S. the majority of the buyers were speculators, who thought the prices would continue to rise…forever.
    It does surprise me that the writer indicated that prices had fallen only 5% and sales were down over 70%…these two(2) numbers don’t correlate. The numbers that I am hearing, from a friend in Cuenca…tell a different tale, in terms of List price and Sold price. *As a note…I have visited Ecuador a number of times…Quito, Cuenca, Loja, Vilcabamba, Machala; so I do have an understanding of the real estate market, In Ecuador. Tambien, hablo espanol.

  • Social Buzz

    Given this real estate market, is $400 rent for a 4 bedroom house in Tortoracocha reasonable or too expensive?