Real Estate In Ecuador: an Overview
We are often asked what is needed for foreigners buying real estate in Ecuador. In some ways it is a very straightforward process, in some ways less so.
First and foremost, outside of a simple and easy to get permission to own beachfront and properties bordering other countries, foreigners have the same property rights as Ecuadorian nationals. You can own property outright without being a citizen or resident of Ecuador. All you need to complete a purchase is your passport.
Purchasing a property with an assessed value of $25,000 or more also makes you eligible for a residency Visa.
Although it is a fairly straightforward, there are several major differences in the purchase process when compared with other markets.
Although gaining traction, Multiple Listing Service and online listings are not the norm. As a result it is difficult to get a reliable sense of the market from distance.
Foreigners who are buying their first property in Ecuador are locked out of the domestic mortgage market. If you are planning to purchase property in Ecuador, plan on paying cash or looking for the occasional seller who is willing to hold a debt note.
There is no Title Insurance in Ecuador.Ensuring that the property is free and clear involves researching the title at the property register in the applicable Canton.
Deposits on properties are often given directly to the owner as opposed to being held in escrow.
As a result of these differences the onus is on you to do your due diligence.This can be a challenge in a foreign country, potentially in a second language where you don’t know the landscape and have the personal connections to ensure a successful outcome.
Due to these challenges, we highly recommend hiring a bi-lingual real estate attorney or a buyer’s agent (in the event that the property is for sale by owner) to protect your interests. We stand at the ready to assist you in these processes.
The Ecuadorian real estate market is not as heavily leveraged as some other markets with more developed financial products. Up until several years ago, it was almost entirely a cash market. That has several implications. The most important of which is that distressed sales are not as common as they are in other places.
As a result, the greater the length of time a property has been on the market does not necessarily signify an opportunity to negotiate a more favorable price.
Unless there is an urgent need to sell many sellers are willing to sit on a property until they get their desired price.
Starting in 2006 mortgage financing did become more prevalent creating an environment in which more property owners felt pressure to meet their debt obligations – this resulted in an increase of properties coming on the market with more room to negotiate.
There is no place to view aggregated statistics on comparables in Ecuador – meaning price discovery can be a challenge if you’re not intimately familiar with the local real estate market and property valuation.
In urban areas, there are more sales, less variables and prices are more clearly understood– making the spread between asking price and sales price tighter.
In rural areas, prices are all over the map. The same large piece of land with similar characteristics in the same area could have wildly different asking prices.
This is a result of sellers coming up with their own valuation metrics and/or pricing the property based on their particular financial circumstances.
Property Valuation in Ecuador
Urban: in cities, town centers and sought after residential neighborhoods there are generally rules of thumb for price per square meter of land, apartments and homes. The variables are simple; location, quality of construction, level of luxury and amenities. Checking out several properties that have the characteristics you are looking for will go a long way in getting a sense of the local market.
Rural: Valuation for rural properties is less straightforward. Things such as; accessibility, location, proximity to population centers, year round water (both drinking and irrigation), amount of flat land, electricity hookups, agricultural potential and any other infrastructure/amenities all factor in to the price.
Once an offer is accepted and the terms agreed upon – the equivalent of a purchase and sales agreement (Promesa de Compraventa) is signed by both parties and notarized to be legally binding.
The Promesa has all the particulars of the agreement, including but not limited to; the sale price, amount of deposit, closing date, penalty for breach and a breakdown of the closing costs (i.e. who pays what).
Although everything is subject to negotiation, traditionally closing costs are the responsibility of the buyer – including; legal fees, notary fees, transfer tax and Property Register fees. The seller is typically responsible for any commissions or Capital Gains tax incurred.
Once the Promesa is signed, the lawyer representing the buyer initiates the transfer of dominion (ownership) of the property at the applicable Municipality. This process takes approximately 10 business days barring objections.
In the event that you are planning to close immediately, you can skip the Promesa and go directly to signing the “Escrituras de Compraventa”. This will save both time and money, as you will not be charged twice by the notary (a significant cost).
The final step is signing the deed in front of a Notary and subsequently inscribing the new Title at the Property Register. To legally participate in this Notary process you must be fluent in Spanish and understand the procedures. If you do not speak Spanish, Ecuadorian law requires you to bring a translator for your protection. Most notaries will provide this service for you but if you’ve hired a bi-lingual attorney (highly recommended) he/she can also serve as your translator.
At this point the final payment is made and you take ownership of your new property.
Outside of legal fees, Property Register fees and Notary fees, which run on a scale based on the assessed value of the property, the bulk of closing costs are the transfer tax (Acabala Tax), which equate to 1.1% of the assessed value.
Property taxes in Ecuador are some of the lowest in Latin America. Taxes are assessed at a rate of .1% or $1 per $1000 of the assessed value.
For Example a property valued at $50,000 would have a property tax bill of about $50 a year under the current property tax regime. The higher the appraised value, the higher the tax bill.