Country Article / Postcards

The Worst Real Estate Slump in Cuenca in 25 Years--And Why It May Be Ending

Date: 05/07/2003

Dear International Living Reader,

For the last 18 months, real estate prices here in southern Ecuador have been falling. In what continues to be International Living readers' favorite city in Ecuador, the most successful real estate office--once the site of constant activity--has become a nice quiet place to stop by, practice Spanish, and have coffee, without the distraction of any buyers. Another successful agent had to take out a bank loan to keep his office open.

It's a buyer's market.

Just outside town is a 2-acre property with a small pond and a nice view. The house has four bedrooms, plus there's a hotel-style lodging with five extra rooms with private baths. There's a conference center/restaurant on site, separated from the house by a tennis/basketball court. When the last Discovery Tour group visited, I thought it was priced fairly at $150,000. A month after the tour left, the owner dropped the price to $100,000, and two months after that he dropped it again to $75,000--half of the original asking price. And that's still only a starting point for negotiations.

Another house was partially finished, but promised to be magnificent, with solid masonry construction, large windows, a protected eucalyptus forest next door, and a dynamite view. The owner started at $97,000, dropped to $75,000, and then to $65,000.

I could go on.

The news, however, is that this cycle seems to be ending. Don't get me wrong. Prices aren't going up. But there is increased activity in the market. The real estate offices are once again busy, and properties are selling--with the sold properties setting off a chain reaction of increased buying. The offices that survived the slump (a lot of agencies closed down) are prospering again. I believe this could be the beginning of a turnaround.

Another positive sign is that the buyers are not a product of the fickle tourism or travel industry. While we enjoy a fair number of International Living readers and other investors passing through Cuenca, the people driving the market are middle-class Ecuadorians--a buying public that's not going anywhere.

There's been a lot of debate about why we experienced what's been called the worst real estate slump in 25 years...and why it seems to be ending. Personally, I attribute the upswing in buyer confidence to the fact that the new president is dealing with many tough, long-standing fiscal issues. It seems reasonable now to believe that Ecuador's dollarized and diverse economy is not going to follow the financial meltdown experienced in much of the rest of Latin America.

Here's a sampling of properties currently on offer in and around this city:

-- An apartment with three bedrooms, two baths, maid's quarters, and private parking, $26,000; tel. (7)811-172.

-- A house in the historic center, with five apartments, a garage, and two storefronts (which can rent for more than $500 per month), $127,000; tel. (7)804-001.

-- Land of 6.2 acres, with three cabins, four storage sheds, water, electricity, and phone, $70,000; tel. (7)885-435.

-- A villa, structurally complete but needing finishings (tile, paint, fixtures, etc), three stories, 3,000 square feet, $45,000; tel. (7)862-030.

On average, the difference between the selling and the asking price in the Cuenca market is running about 20%.

There are still houses in the city's most exclusive neighborhoods selling for more than $200,000, and these are what most realtors will want to show you. But the bargains are still out there if you look more closely.

Lee Harrison
for International Living in Ecuador

P.S. If you're investing rather than just looking for a place to settle, here's a word of caution: As those of you who belong to the Global Real Estate Investor have seen, one of first rules that Lief Simon advocates (and follows) is to buy quality properties in the best neighborhoods rather than the cheapest bargain you can find. I followed his advice when buying here, and have seen my home increase by 25% (based on an offer in hand) while the overall market dropped by as much as 50%...a lesson I'll remember for future investments.