Ecuador’s property market is now slowing
May 19, 2014
In Quito, the country’s capital city, rich in cultural traditions and architectural heritage, the average prices of apartments and houses was stable in October 2013 from a year earlier, according to the latest research conducted by the Global Property Guide.
In October 2013:
- Apartments located in Quito were priced around US$900-US$1,000 per square metre (sq. m.) or US$80-US$95 per square foot.
- Houses were priced around US$700 to US$820 per sq. m., or US$65 to US$75 per square foot.
In Cuenca, the country’s third largest city and the economic hub of the southern Sierra, house prices continue to rise. Cuenca saw average increase in house prices of about 8% to 12% annually in the past five years, according to Cuenca Real Estate. Newer condominium units even registered house price rises of 10% to 12%. However in 2013 house price increases decelerated to single-digits. In early 2013, the average purchase price of new condos range from US$975 to US$1,250 per square meter (sq. m.).
- In Cuenca, the average price of new two-bedroom apartments with tile and wood finishings stood between US$75,000 and US$90,000.
- The average price of new three-bedroom apartments with 2-bath unit and spectacular view ranged from US$95,000 to US$120,000.
- In the large home market, a 3,000 to 5,000 square foot houses in Cuenca’s posh neighbourhoods are priced about US$275,000.
Ecuador’s house price rises in the past several years are mainly driven by:
- economic growth, as the country is enjoying a rapid development
- urbanization programs
- increasing flows of migrants returning home
- American expatriates choosing to settle in places such as Quito and Cuenca
- relatively low interest rates
However “We are beginning to see an oversupply of housing for middle- and upper-middle-class buyers,” said Roberto Vega, general manager of Smart Research in Quito. “We are seeing this in the more active markets, such as Quito, Guayaquil and Cuenca, although there are other markets where there is still a shortage of housing and good demand.”
There were more than 30 large condominium projects under construction in Cuenca during the first half of 2013, a slowdown from the 40 to 45 projects seen in 2011. In addition, fewer building permits were issued in 2013 compared to the previous year, according to the Cuenca Chamber of Construction.
There has also been a decline in mortgage loans. “In 2010 and 2011, the number of mortgages written by commercial banks increased by 10% and 12% a year. In 2012 the increase was only 2% and it’s possible that we will see a decline in 2013,” said Vega.
As of April 2014, the effective lending rate for purchasing dwellings stood at 10.64%, unchanged on the previous two years, according to the Banco Central del Ecuador.
“Overall, I’m optimistic but I am also realistic. The appreciation will go down and it will take longer to sell properties but ultimately this will be good for the market,” said Jaime Rumbea, director of the Ecuador Real Estate Association.
Property prices in Ecuador are usually quoted in US dollars. The US dollar has been the official currency of Ecuador since 2000.
Ecuador’s property market is mainly driven by Ecuadorians, both local homebuyers and those returning from the United States and Spain, according to Cuenca Real Estate. In recent years, returning Ecuadorians accounted from about 30% of all local sales while North Americans and Europeans account for just about 1.5%. Foreign buyers usually buy condominiums located near the city centre or just outside the historic district.
The government of Ecuador grants real estate visas to foreigners who purchase homes in the country worth at least US$25,000. In addition, the country also grants pensioners visas to foreigners with retirement income of not less than US$800 per month.
Quito, Ecuador: Low prices, good yields of 9%
Apartments and houses in Quito, Ecuador both tend to cost around US$900-US$1,000 per square metre (sq. m.) or US$80-US$95 per square foot. (The US$ has been the official currency of Ecuador since the year 2000).
Gross rental yields of apartments in prime districts tend to range from 8% to 9% Houses have similar yields, or perhaps half a per cent less.
Round trip transaction costs are not high in Ecuador. See our Ecuador residential property transaction costs analysis and Residential property transaction costs in Ecuador compared to the continent.
Rental income tax is high in Ecuador
Rental Income: Nonresident foreigners are subject to a flat tax rate of 22% on gross income generated from within the country. It is withheld by the tenant.
Capital Gains: Capital gains realized by individuals on the occasional sale of real property are exempt from income tax.
Inheritance: Inheritances and gifts are taxed at progressive rates.
Residents: Residents are taxed on their worldwide income at progressive rates, from 5% to 35%.
Total transaction costs are low in Ecuador
The total roundtrip transactions costs, i.e., the cost of buying and selling a property, are at 6.31% to 10.31%. This includes the 4% to 6% agent's fee.
Rent control, automatic contract renewal in Ecuador
Ecuador's rental market is pro-tenant.
Rent Control: The Registry of Rents in each city sets the maximum chargeable annual rent at 10% of the property value. Rents can normally be adjusted only after two years.
Tenant Security: The minimum contract is two years, which is automatically renewed if notice has been given. Settlement of disputes through the courts can take anything between 6 months to one year and a half.
Ecuador’s thriving economyEcuador is the smallest member of the Organization of the Petroleum Exporting Countries (OPEC) with an estimated population of 14.8 million, and a GDP per capita of US$6,154 in 2013, according to the International Monetary Fund (IMF). Ecuador has an array of vibrant indigenous cultures, well-preserved colonial architecture, volcanic landscapes and dense rainforest.
Despite efforts by the government to limit its dependence on crude oil by diversifying the economy, the Ecuadorian economy remains dependent on oil prices. The country is also the world’s top exporter of bananas, and a big exporter of shrimp, coffee and cocoa.
From 1996 to present, Ecuador had seven presidents, one of whom only lasted three days. During the past decade, no president ever lasted to serve full term. In1999 Ecuador experienced a financial crisis, a banking sector collapse, and a 400% currency devaluation against the US dollar. Inflation jumped from 36.1% in 1998 to 96.1% in 2000. In an effort to salvage the situation, Ecuador adopted the US dollar in place of the Ecuador Sucre in 2000.
Left-leaning Rafael Correa was inaugurated as president of Ecuador in January 2007. But Correa seems to be lasting well. Driving across Ecuador or watching TV, one is likely to notice the government slogan "La revoluciòn ciudadana avanza!" (the citizen’s revolution moves forward!).
Despite the populist mood, this slogan is appropriate. The leftist president is bringing in many political and economic reforms, and perhaps surprisingly, the country is nevertheless enjoying some prosperity. People are moving towards big urban centers such as Quito and Guayaquil. There is a rush to the Pacific coast, and the eco-tourism boom in the Andean and Amazonian regions. There is also a clear political will to provide better housing conditions for Ecuadorian households.
In 2013, the economy was estimated to have expanded by 4%, from annual average growth rates of 5.1% in 2012, 7.8% in 2011, and 2.9% in 2010, according to the IMF. The economy is expected to grow between 4.5% and 5.1% in 2014, based on government estimates.
Ecuador’s overall inflation rate fell by 2.7% in 2013, far below the inflation rates of 4.16% in 2012 and 5.41% in 2011 and the lowest level in the past eight years, according to the National Institute of Statistics and Censuses (INEC). This is also below the government’s inflation target of 3.93%. In March 2014, the annual inflation rate increased to 3.11%, according to Banco Central del Ecuador.
The average family income in Ecuador reached US$593.60 per month in 2013, with an average of 1.6 earners per household, according to INEC.
In the fourth quarter of 2013, the country’s overall unemployment rate rose to 4.86%, up from 4.6% the previous quarter, according to the Banco Central del Ecuador - far lower than the average unemployment rate of 9.7% from 2000 to 2010, according to the IMF.
As of September 2013, Ecuador’s foreign debt was equivalent to 13.9% of GDP.