New national rules for condominium and housing project development draw criticism from developers

New national rules for condominium and housing development have sparked a firestorm of protest from developers of large real estate projects.

On Thursday, Ecuador’s Superintendency of Companies said that developers would be required to have all financing and permitting in place before they will be allowed to sell condominiums and houses. Currently, according to the Superintendency, some developers take a “pay as you go” approach, often accepting money from buyers before they have ownership of the land they plan to build on.

The rules appear to be a response to several large project failures in Quito and Guayaquil that remain unresolved. In May, Unión Constructora said it would not be able to complete a housing project east of Quito even though it had pre-sold hundreds of units and received $45 million from buyers.

Developers say that the fallout from a few failed projects should not result in a wholesale overhaul of how projects and financed.

Jaime Rumbea, director of the Real Estate Housing Association of Ecuador, says that the new rules will impose a huge burden on developers and could lead to a shortage of new housing across the country. He warns that the new rules could increase construction costs by as much as 10% and add months to project construction time.

“We do not understand how the rules imposed by Superintendency of Companies will solve the problem of a few projects that did not operate under existing rules,” Rumbea said. “The new rules are extreme.”

Rumbea called an emergency meeting of association members Thursday night to discuss the consequences of the new rules.

According to the Superintendency, the new rules are intended to protect home buyers. “With these standards, the public will have more security in the development process and will know that their investment is safe,”  the Superintendency said in a press release. It added: “Currently, developers make up their own rules and often depend on sales to finance construction. This is not fair to buyers.”

In addition to prohibiting developers from selling housing units before ownership of property is proven and all building permits are secured, the Superintendency is prohibiting occupancy of new condominiums or housing projects until they fully complete and have received government sign-off, requiring that deeds to individual properties will be available when sales are final. Currently, according to the Superintendency, some owners must wait month, sometimes more than a year, to receive a final deed.

“All proofs of ownership, financing and permiting must be approved by the Superintendency before the developer can legally receive money from buyers,” the new rules say.

In addition to the rules announced yesterday by Superintendency of Companies, developers have also complained about new rules adopted in September by the Consejo Nacional de Valores that govern fideicomisos, limit liability trusteeships. The new fideicomiso rules require developers to have 100% of financing before a real estate project can begin, while the previous rules required only 60%.

Photo caption: Developers say that new rules could stop the construction of new condominiums and housing projects.