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Tuesday, October 2, 2012

Ecuador Real Estate Report - Cuenca. October 2012.

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Part one

from Hector G. Quintana
Cuenca Sell
I just referred to Vilcabamba as likely the second most relatively overpriced real estate market in Ecuador. Welcome to #1, with a bullet! Let’s get the platitudes out of the way. Cuenca is a visually stunning city, with a colonial charm, beautiful rivers, a reasonably diverse social/cultural scene (With respect, one which may be somewhat exaggerated by some) and the largest per capita expat population in Ecuador. No one is questioning that the charms of Cuenca beckon.

Before we get to the central issue as to why Cuenca remains a sell for the third straight year and counting, let us not be amiss in pointing out some of charming Cuenca’s notable warts. The surge of new inhabitants, many of them expats, has left the city much more notably crowded, polluted and has created a defined division between some of the locals and the incoming expats. happens everywhere, but nowhere have I seen this conflict more obvious and well-defined than in Cuenca. Additionally, Cuenca competes with Manta for second place honors (Quito “wins” this category hands down), for having one of the more difficult traffic congestion problems to resolve. What, someone familiar with Ecuador might say? Have you forgotten Guayaquil? No, I have not. The Guayaquil problem may be worse, at present, but with money it can be resolved. Not the case in Cuenca...or Manta for that fact. Problem is that both of these cities need some streets widened to improve increased traffic flow. Problem for both cities is that they way they are designed did not account for the streets being widened...unless...of do not mind consuming 10 feet of storefront space, along commercial establishments. Note...I did not say “sidewalk”, I am talking actually absorbing in use commercial space. Trust me, having served on a USA Planning Commission for 4 years...this is ugly business. Lastly, please do not let anyone sell you on the “Spring-like weather year round” story. Bull-hockey! Cuenca can be cold...bitingly cold. Despite the fact that a dear friend of mine there struts about in a t-shirt in 35 degree can get cold. And, yes...the rain is “occasional”, if by “occasional”, you mean falls like clockwork, at designated times throughout the day...almost daily.

Against the many charms and several warts that Cuenca shows, there is the real estate pricing issue. I get it. In fact, I preach it all the time. Supply and demand. However, no matter how many times the nice real estate agent chants this mantra, there is nothing in the history of Ecuador, or global real estate market trends, to suggest that it is “sustainable” to have prices in Cuenca exceed those of coastal Ecuador (Ocean trumps mountains every time) or even...ready for this...Quito!

It has gotten to the point that if I am a smart shopper, I can get a better deal for a similar quality, similarly located real estate asset in Quito than I can in Cuenca. Folks, Quito is the capitol of Ecuador. It is underpinned by, as much as it pains me to say, the government economic complex. Governments do not tend to get smaller over time, hence, Quito has the steady drumbeat of an increasing population serving the government monolith. It has a core economic basis to sustain the population trend that can drive real estate demand higher. Quito is everything Cuenca is...only more. Greater historical significance...more diverse cultural activities...better shopping...more restaurants...larger city...same sierra setting...and, yes, an even worse traffic problem. Still, added altogether, Quito should show significantly higher prices than Cuenca. It does not. For years, I have made the comparison of Cuenca vs. the coast, so this year I thought of looking at it from a Cuenca vs. Quito perspective. Still not good news for Cuenca.

In short, Cuenca has seen global hype like no other city in Ecuador. I suspect that many future Expats are still considering this locale on their short list. The prices do not warrant the investment. The current real estate price surge is simply not supported by economic fundamentals or global/Ecuadorian historical real estate trends. A mania is a mania, no matter how enticing it may seem for a while. Tulips, anyone? Think Holland. Circa 1630. The populace was willing to pay, at its peak, more than 10 times the annual income of a skilled craftsman, for a single tulip bulb. Please, don’t ask me why. Read does the mind good. It happened. People paid those prices. There was no fundamentally good reason behind this...then the bottom fell out. Happens with manias all the time, no matter how temporarily “real” they seem. Fundamentals are a pesky thing and will ultimately reinsert themselves. If you want to buy Cuenca, wait until the eventual return of fundamentals. Until then, use every bit of mania hype news as an excuse to sell...sell...sell. Your wallet will thank you later.