Ecuador Real Estate Is Cheap, But Is It A Buy?
When I first visited Ecuador in 1999, the place was an unadulterated mess. The country was suffering high rates of inflation and on its fourth president in three years. Real estate prices were cheap, but I didn’t see any compelling reason at the time to believe they’d become anything but cheap anytime soon.
The economic problems helped to force out president number four. With yet another new president came a new currency. Ecuador dollarized its economy in early 2000. The country’s economy stabilized slowly, but three more presidents over the next six years kept Ecuador from making any real economic progress.
Ecuador’s current president, Correa, has been in office now for longer than his three predecessors combined. Finally, as a result, Ecuador seems to be moving ahead with improved infrastructure, economic growth, and, finally, after a decade of no real increase in real estate pricing, appreciating property values.
Even with this recent appreciation, real estate in most parts of this country remains an absolute bargain. Does it make sense, therefore, to invest in Ecuador real estate today? Maybe.
If you want to live, retire, or spend time in Ecuador, prices couldn’t be more attractive, and I’d suggest you consider buying. Quaint-looking brick houses can be found in Cuenca for less than US$100,000. One- and two-bedroom apartments in this colonial city start at less than US$50,000. Even in the capital, Quito, you can buy a place to live in a decent area for less than US$100,000 (if you really want to live in Quito…I don’t recommend it). If country living is your thing, you could get a whole lot more house for that budget in Cotacachi or Vilcabamba.
As an investor, putting the modest recent appreciation aside, I still don’t see any compelling reason to believe that real estate in this country will grow in value anytime soon. Don’t buy for growth. Should you buy for rental return? I’ve heard rental yields projected in the 8% range, but this is before the 25% tax imposed on non-resident foreign investors earning rental income. Nevertheless, with prices so low on a global scale (that is, less than US$1,000 per square meter across much of the country), it’s tempting to take a punt. Especially if your agenda is a comfortable retirement residence.
In fact, I know a few investors who have recently purchased in Ecuador. One bought in Cuenca, a vacation home that he plans to rent out when he’s not using it. He’s not expecting big rental yields, but he’ll see a bit of cash flow to help off-set the cost of his regular visits to this city, a place where he wants to spend time anyway. Another investor bought a small house in Cotacachi…again as a place to spend time himself and to rent out when he’s not there.
This middle-of-the-road kind of purchase is probably what makes most sense in Ecuador. I wouldn’t recommend buying for pure investment in this country, though I’m keeping an open mind on this point in advance of my return visit over the week of our Live and Invest in Ecuador Conference taking place Feb. 13-15, 2013.
Remember, though, that buying for personal purposes can (and often should) be completely separate from any investor agenda. And buying for personal purposes with the expectation of generating some cash flow along the way is an ideal agenda in the context of Ecuador right now.
If you are looking at Ecuador from the point of view of an investor-buyer, focus your attention in areas with proven local markets. This is good advice generally, but, in Ecuador, where, yes, expat and retiree communities are establishing themselves and growing, the potential foreign buyer universe isn’t big enough to count on when it comes time to resell your investment.