In a recent interview, the Minister of Urban Development and Housing, Darío Herrera, spoke about the management of his State portfolio in the first 100 days of Government, and the Ministry’s plans to bring real estate investors into Ecuador.
In the first 100 days of the Government, the Ministry of Urban Development and Housing (Miduvi) focused on simplifying the regulations that blocked the approval of projects and, with this, Herrera believes that private investment will be boosted.
“Through two ministerial agreements we simplified regulations, which has led to 390 new real estate projects, which represent $218 million in private investments for the construction of 3,200 homes,” explained Herrera.
Herrera says that the goal of this State portfolio is to address the housing deficit, of about 2.7 million units, and turn the country into a real estate investment destination. The Minister agreed to be interviewed to outline the new approach that the Ministry is taking to solving Ecuador’s housing crisis and the lack of external investment.
Ecuador has a housing deficit of 2.7 million units. How do you plan to solve this problem?
[Although there are 4.7 million homes built in Ecuador, more than 2.7 million homes suffer from a “housing deficit,” which is an indicator that measures the deficiencies in housing and the conditions in which the population lives. The Government’s diagnosis, which was endorsed by the Inter-American Development Bank (IDB), says that of the total housing deficit, some 2,078,513 houses are recoverable, that is, they need improvement. While another 665,612 are unrecoverable, which means they need a total rebuild.]
It is a very large deficit, accumulated over 20 years, in which there were 18 housing Ministers. I say this because the construction cycles are medium and long term and with that number of authorities it is not possible to create public policy to solve the problems.
In that context, we have decided to be transparent with what we find, beyond the deficit. We found a disjointed institution, with the wrong role.
The Ministry of Housing should be the institution that generates regulations and public policy, and in the country, there is no organic law on habitat and housing, worse, of social interest. We are working on that.
We also found a ministry that is unrelated to the decentralized autonomous governments (GAD), which have urban development as their competence. That is why we want to approach the municipalities, to work on the simplification of procedures and the digitization of the processes.
What is the Ministry going to do to reduce the housing deficit?
There are 4.7 million homes in the country. The deficit is 2.7 million units, of which 75% correspond to a qualitative deficit, that is, they are homes that need improvement (or to be rebuilt).
If the greatest deficit is the qualitative one, why not redirect the approach to solve this problem? Building a new home requires a lot of investment. If the qualitative deficit is addressed, much can be done with fewer resources.
Now we are talking about suitable habitat solutions, which include new housing, incentives for housing construction, financial incentives for access to credit, expansion kits, remodeling, safe water, and sanitation; and provision of communication in rural areas, that is, connectivity.
For example, the expansion kit, which includes loans, seeks to address the problem of ‘rods of hope’, which are those metallic rods that people leave on the roofs of houses with the illusion of building a second floor, when have the money to do it.
In numbers, how many houses are going to be restored and how many are going to be built?
We are targeting 400,630 suitable habitat solutions, including new housing, repair, and extension kits, as well as title deeds.
Many Ecuadorians, for 10 or 15 years, have had a house, a light meter, a water meter, but no title to their property. They need a solution to regulate the securitization of that property. At that time the person already has an estate.
Former President Lenín Moreno said that 125,000 homes were built during his administration, but your review of that number does not add up.
When projects are long-term, it should be said how many are started and not how many are built.
From the information we collect, the previous government began the construction of 35,000 homes, of which about 9,600 were completely finished, with state money, and 6,000 were finished with a subsidy rate. The rest are under construction.
I’m being honest, the works that are still under construction present a myriad of problems, such as paralyzed projects and questioned companies. I don’t accuse anyone. We have decided to take care of the matter because we are responsible.
The Ministry also inherited $1 billion of private investments hampered by bureaucratic processes. Was it solved?
Totally. In recent years, 1,900 projects of social interest and priority interest were submitted by the builders. Only 806 were approved. What happened to the rest? They were bogged down by issues of roles and requirements.
On May 25th, the first day we arrived, the registration deadline for 252 projects expired. To renew them we had to issue the first ministerial agreement on May 28th.
Almost a month later, we issued another two agreements to replace six legal instruments, with the aim of simplifying procedures in the qualification process for housing projects.
The sum of the new projects and those that have been unlocked results in nearly $1 billion in investment. Those resources were waiting for favorable conditions to be able to register.
In the remainder of 2021, how many projects do you plan to register?
Until the end of the year, 5% of the new housing plan will be fulfilled. The bulk of the construction, of the work, will be in the second half of 2022 and, above all, in 2023.
How are the projects of the new administration progressing?
Today (September 9th) ends a first round of dissemination and alignment with the French Agency for Development. It is a new project, which involves an investment of $18 million, with which 760 homes will be built.
Where does the investment for the development of projects in the Ministry come from?
Multilateral credit organizations such as the Inter-American Development Bank, the Development Bank of Latin America (CAF) and the French Development Agency are eager to invest with us. We have also had approaches from European banks.
The focus of the ministry is to serve social housing, but it is also to turn Ecuador into a real estate investment destination.
How can you turn the country into a real estate investment destination?
From a real estate point of view, the country is not on the radar, we are not known even though we have something interesting, that is the dollar, so there is no exchange risk. Why is the investment not coming? Due to the lack of clear rules and legal security.
That is why we are working on transparency, on legal instruments that generate incentives, and we are approaching all State agencies to simplify procedures.
I have met with the representatives of the notaries, with the National Competencies Council, so that the municipalities speak the same language. The investor arrives in the country and has different rules depending on the province and the canton.
What percentage of the budget is going to go to urban development areas, or habitats?
About 15% of the budget will go to public spaces. It may seem like a small number, but it is not. We aspire to have at least 320 projects in the country, that is, almost more than one per canton.
The most important thing Ecuador will need to do in order to attract real estate investors will be to improve construction quality by A LOT. Construction quality here is extremely bad, nobody with experience in real estate investing is going to sink a lot of money into a project knowing the construction stinks.
So if a person has money that could be brought into the country for investment purposes how could they invest in this urban development initiative? it seems the investment opportunities are limited in Ecuador. Maybe under the current regime there will be more to invest in. Maybe more has to be done to inform people to the investment opportunities here.
Estimado Sr. Herrera:
I purchased two condominiums – one in Cuenca and one in Loja – last year… sight-unseen! I concluded both transactions with architects and builders over the phone from the US without any prior knowledge of the country, cities, properties, or the people with whom I was dealing. Both units are now complete and ready for occupancy. I plan to return permanently to Ecuador in about one month, at which time I will start building a house of my own design on a lot I purchased from my local attorney in Cuenca, who has become a very good friend of mine. I found doing business in Ecuador to be straightforward and the people honest and hard-working. I look forward to continue to develop properties in Ecuador in the future using my own design company. If you wish to contact me please write to email@example.com.
The most important step to promote Ecuador as real estate investment destination is to remove the 5 % tax on international wire transfer outside Ecuador.
Finally a government official who knows it necessary to cut Ecuador’s
world famous red tape first in order to its residents a chance to invest in construction of affordable housing. As a real estate investor from USA add several times visitor to Ecuador I wish you well with these housing reforms and look forward to checking out the status of new and rehab residential projects—will be waiting for more information on the progress of these governmental initiatives
Ecuador lover from Boston USA