Interview with Housing Minister Dario Herrera: Ecuador as a Real Estate Investment Destination
Marcos: Thank you for agreeing to talk with us Minister Herrera about the real estate potential for North American investors in Ecuador. HiExpat was born with the purpose of inspiring and informing the expat community about the great potential that Ecuador has as a destination for North American retirees and investors. As previous General Manager of the Montecristi Golf Real Estate Project in the Province of Manabí, you are probably one of the most qualified people to speak on the topic of real estate in Ecuador. Ecuador has been ranked as the second favorite country by North American retirees to live in according to International Living magazine in 2022. What can we expect in the coming months in terms of North American foreign investment?
Dario: The national government has begun implementing the attraction law, which will mark a significant shift in real estate investment. The investment attraction law is still being debated in the assembly and consists of three important points for the development of real estate investments. These include:
The ability to make public and private associations, with respect to land and hotel buildings, through the delegated management secretariat, which allows managing some state assets.
Simplification of notarial procedures, which will allow buying and selling real estate telematically from anywhere in the world, which will speed up countless transactions from the United States.
The formation of real estate investment trusts, which will allow us to implement real estate stock certificates, so that people can become investors and can generate income through this real estate project, certificates that can be obtained in Stock Exchange Values.
In the following months, countries such as the United States, Chile, and Mexico plan to make investments in Ecuador in different branches, but some of these countries will make real estate investments.
Marcos: Minister Herrera, you recently presented on the topic of,“Ecuador as a Real Estate Investment Destination” at the Ecuador Open For Business forum, in which you mentioned that the construction sector accounts for 8.4% of the GDP. This section directly relates to many others and includes 27 economic activities and sub-activities. Of these, Ecuador’s demand of raw material and supplies are equal to USD 8 billion. These are complemented by specialized financing, regulatory improvement, and competitive advantages. How does Ecuador plan to propose public policies to reach this goal of being a real estate investment destination, hand in hand with the privileged ranking that places Ecuador No. 2 in the world as a destination for North American expatriates?
Dario: Within our mandate we aim to turn Ecuador into a destination for national and international real estate investment. In order to do this we are going to need a magic formula which includes transparency, which then generates trust, and then uses that trust to attract investment. One of our objectives is to try to simplify the procedures in the municipalities and in the national government so that the real estate process is uniform. Completing the registries at the national level and using all of the information of the registries helps us to make intelligent decisions about the use of the land. We hope that the information will be transparent and easily accessible for all citizens so they are able to have information on the legality of the land, zoning and value thereof. When there is transparency and simplification of procedures we can be sure that the trust in our processes will attract investments.
Marcos: There are several attractive cities for North American expatriates such as Cuenca, Vilcabamba, Cotacachi, and Manta just to mention a few. Unfortunately, one of the drawbacks that exists in the real estate sector is the housing deficit. Ecuador today needs to focus more than ever on real estate investment. One of the objectives of the ministry in charge of this is to standardize processes with local governments on real estate development issues. Can you please explain a little more about the progress of this project?
Dario: In order to counteract the housing deficit we must first simplify processes. The municipalities must adopt the appropriate administrative model. It was stated in the organic law signed in 2019 that administrative procedures must be optimized for efficiency according to a statement of responsibility. Meaning, once procedures are entered, they are approved immediately in order to speed up the processes of generating housing projects, whether they are municipal or private.
In the City of Guayaquil, Daule was used as a pilot plan, which uses this statement of responsibility on construction projects of 300 square meters. In the city of Daule the procedures are more agile for the approval of urbanizations, from four weeks to six months. We are also using the declaration of responsibility to massify different municipalities and cities so that it can be replicated.
Marcos: Minister, in your public statements, we have heard you talk about planned cities, resort towns, and leasing with the option to purchase. The real estate business at an international level is definitely moving in this direction as well. Can you explain to us a little more about this and about the planned city that is projected to develop on 1000 hectares in Montecristi, as a mega project of national and foreign investment? What should we expect in relation to services, especially healthcare, connectivity, telecommunications, and security? (Essentials for the success of this project)
Dario: Indeed, there is more and more talk of planned cities or planned communities. Planned cities are groups of planned communities. They can all be different but they are interconnected with a single management model and a single concept. They are concepts that are tied to something referred to as the "hypermixture" of land use and "polycentrism." People are looking at these types of options more and more because we have cities that are a bit messy, with urban growth that is not completely regulated, and people preferring to buy large plots of land to build their dream homes…that is why these planned cities are born. One of these projects, in fact the largest in the country and which already has a master plan, is Montecristi. This community expects to be able to offer all services such as healthcare, connectivity, telecommunications, security, and entertainment for all people who are going to live there. The idea here is to reinvent the famous concept developed by the mayor of Paris. This was known as the 15-minute city, meaning that any service that one needed was no more than a 15 minute walk away. This is important, and that's why it goes hand in hand with the urban regeneration of cities. This will allow people to stop going to the city to work and returning to dormitory towns and suburbs at night, and allow infrastructure to grow alongside the city.
Marcos: In your speech at the Ecuador Open For Business forum, you mentioned the following, “the real estate industry [in Ecuador] has plenty to do, we are developing.” For our readers who are interested in investing in Ecuador, what would you say to motivate them to come and invest in our wonderful country? Is now the right time to invest in Ecuador?
Dario: It is definitely the time to invest in Ecuador due to a series of factors. On a world scale, real estate works on a cycle of eight to 10 years, going up and down. When Ecuador adopted the dollar in 2000 our cycle was up, but from 2001 to 2012 we had several setbacks that cycled us downwards because of political reasons, earthquakes, and an unstable economy. In 2019 we began to recover and that was expected to continue in 2020 until the pandemic hit. Now that we are starting to move into the next phase and out of COVID-19 due to vaccination status, and the fact that it has been 10 years since our previous real estate down, I think now is the time to invest. We hope to catch the beginning of the curve again and ride this wave for the next six to eight years. Now, add to this a government that generates a lot of trust, add to this a government that is making the right decisions, add to this a government that only for its announcement caused the "country risk" to be lowered by 400 points. Each 100 points of country risk represents one point in the interest rate. So if an investor started with a 12% return on their interest rate they would see an 8% or 9% risk-free rate with a drop of 400 points. Now is the time, because of everything that is happening and because we have everything we need to make significant change. But, above all because we have something fundamental: we do not have exchange risk, because we have the dollar. The first risk that an investor sees when they invest abroad is the foreign exchange risk and we are free of that risk.
Marcos: In your opinion, how are we going to become a tourism real estate cluster? And what final message do you have for our readers who are interested in coming to our country and being part of this project?
Dario: This question also has to do with the actions that, inter-institutionally, we are carrying out with the Ministry of Tourism and the MIDUVI (Ministry of Urban Development and Housing). The MIDUVI is dedicated to providing housing for the most vulnerable, but also dedicated to real estate development and the orderly growth of cities. Real estate tourism clusters go hand in hand with this because apart from general tourism, tourism always brings a great demand for labor in service sectors, so the service sector needs people to perform this labor. The workforce needs a place to live. So a cluster is generated when we have different types of services and we also have low-income housing for people who go to work in these places. This creates an entire ecosystem, a cluster of real estate tourism. The way it works is there cannot be isolated social housing, nor can there be completely isolated resorts and tourist themes. If there is no housing for middle class and lower middle class people around, then there will not be services either.
My last message to investors who are interested in Ecuador: The country is doing all the right things to be able to attract 30 billion dollars of foreign investment in four years, that is our goal. We no longer want it to be just hydrocarbons, infrastructure, and mining. We are targeting tourism projects, real estate projects, especially low-income housing projects, which can be rented with the option to buy, among others. This is an invitation for you to trust this government, a serious government, a government that when it says something, it does it, and when it promises something, it fulfills it. We want to build trust with investors by creating the conditions of transparency that generate confidence, so that investing in Ecuador becomes a no-brainer and provides good returns. As a government, we are ready to provide all the necessary guarantees for that investment to come.