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Is it Time to Join in Ecuador’s Property Market Boom?

Article Summary:

Cheap money is boosting property investment in Ecuador. The country is the midst of enjoying an economic boom that is triggering new real estate development throughout the nation. Despite jitters in the wider global economy, Ecuador shows no sign of slowing down and is ripe for the picking, say experts.

Photo Credit: World Property Channe

Original Article Text From World Property Channel:

Cheaper Money Boosting Investment in Ecuador’s Growing Property Market

Ecuador, a comparatively small, 110,000-square-mile western South America republic with miles and miles of glittering empty sandy beaches, is enjoying an economic boom that is triggering new real estate development throughout the nation.

But don’t expect to fly there and try to get a piece of the action right now.

Bordering the Pacific Ocean at the Equator, between Colombia and Peru, Ecuador is no Asian tiger. The political landscape is turbulent.

The Doing Business Report 2012 (World Bank) ranks Ecuador 130 out of 183. In another indicator called Starting a Business, Ecuador ranks 164.

Alejandro Espinosa-Wang of the World Bank cautions an entrepreneur in Ecuador’s capital, Quito, for example, he would need to complete 12 procedures, wait 56 days and pay the equivalent of 28.8% of the gross national income (GNI) per capita to start a business.”

In contrast, “the average number of procedures needed in the Latin American and the Caribbean region is nine. And in the Organization for Economic Co-operation and Development (OECD) high-income economies, only five. The average time to start a business in Ecuador is 54 days, and 12 days, respectively.

Still, Ecuador has some impressive numbers to entice investors, according to observations from the London-based Global Property Guide, the International Monetary Fund, Ecuador’s National Bureau of Statistics, the Central Bank of Ecuador, the World Bank and author David Morrill,

Among those pluses are:

Cheaper money is boosting investment.

Natives are moving towards big urban centers like Quito and Guayaquil.
Since 1990, the urban population has increased at an average annual rate of 2.7%. By 2010, 67% of the population lived in towns.

There is a rush to the Pacific coast and the eco-tourism boom in the Andean and Amazonian regions.

A clear political will to provide better housing conditions for Ecuadorian households.

American expatriates are choosing to settle in places like Quito and Cuenca where investment interest rates are relatively low.

The U.S. dollar is legal tender in Ecuador.

The annual appreciation of property, nation-wide, has been running between 8% and 12% since 2007.

Growth was 5.78% in 2011 (provisional), after 3.58% in 2010. The economy is predicted to grow by 5.4% in 2012.
Public debt is expected to increase moderately from 20.7% of gross domestic product (GDP) in 2010, to 25% of GDP in 2015.

The current account deficit is forecast to stay stable at around 3.5% until 2015.

Unemployment is expected to stay stable at around 7.5% from 2012 to 2015.

The general index of building permits rose from a value of 166.6 in 2000 to 350.6 in 2006, the last year Ecuador’s Bureau of Indexes collected the data.

Ecuador’s general construction price index fell from 229.54 in August 2008 to 210.79 in May 2009, in the aftermath of the international financial crisis. But since then, construction prices have reached a historical peak of 234.569 in January 2012. Construction prices rose by 6.88% in 2011 (+2.18% in real terms), after 1.95% rise in 2010 (-0.53% in real terms)

Ecuador’s severe financial crisis in the late 1990s led to economic hardship, and social and political tensions. Banks defaulted. Emigration rates skyrocketed. After losing 67% of its foreign exchange value during 1999, the Sucre was replaced by the U.S. dollar in March 2000.

Despite jitters in the wider global economy, Ecuador shows no sign of slowing, according to the International Monetary Fund.

The combination of lower interest rates, a stable exchange rate and a growing banking system have been crucial in boosting investment in real estate projects. The Ministry of Finance says inflation is expected to reach 5.1% this year

“Besides construction in Quito and Guayaquil, Cuenca and Manta are also experiencing building booms,” according to author David Morrill. “In the residential market, Ecuadorians returning from overseas, to live or invest, mostly from the U.S. and Spain, are a major factor.”

Adds Ecuadorian architect Dayuma Roman Jauch: “In the last 10 years, households have had easier access to mortgages to buy flats in urban centers. Also, big firms help to their workers to buy homes close the place of work.”

On the political side, President Rafael Correa, an economist educated in the US, has been quoted as saying he likes to define Ecuador as an anti-Imperialist country and to define its politics as “revolutionary”.

Yet despite Correa’s personal friendship with Venezuela President Hugo Chavez, and some tensions with the US over economic policy, Correa’s foreign policy is less confrontational than Venezuela´s, according to some analysts.

At home, Correa’s political strategy appears to be a mixture of Latin social democratic tradition and an autocratic left-wing political attitude. He is taking steps to protect the environment and promote social housing, as well as shaking hands with Iran´s diplomats.

The government also is tackling poverty and inequality by increasing the share of oil revenues used for pro-poor spending programs.

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From World Property Channel

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