The delay in the sale of real estate projects results in less liquidity in the construction sector, which is having a hard time recovering after the pandemic.

The time it takes for builders to sell new real estate projects in the Ecuadorian market has been extended, according to a recent study by the consulting firm MarketWatch.

Real estate in Quito remains on the market or for sale, on average, 36 months. That is equivalent to an increase of 44% compared to pre-pandemic levels in 2019.

In the case of Guayaquil, the projects are on the market for 39 months. This is an increase of 18% compared to 2019.

The extension of the time to sell real estate in the country means a lower rate of absorption of new real estate. In Quito it sits 0.75% and in Guayaquil it reaches 2.91%.

The absorption rate reflects the rate at which demand meets supply. To calculate it, the number of homes sold in a certain period of time is divided by the total number of homes available.

Market of uncertainty

New real estate projects remain on the market longer because there is not enough demand, due to five primary reasons:

• Slowdown in the country’s economic growth to 2.7% in 2022.
• Stagnation of suitable employment.
• Rise in prices and, therefore, less purchasing power of households.
• Increase in interest rates in all segments, including mortgages.
• Weakened market confidence.

“There are people who specify the plans for the purchase of real estate in plans, with a credit pre-qualification. But, the economic conditions of the clients can change due to the fall of their income or the reduction of their purchasing power, and this causes the amount of money of the loan to decrease,” says Jaime Rumbea, spokesman for the Association of Housing Real Estate Promoters of Ecuador (Apive).

That means loss of the client and a much longer time period that properties are on the market.

“There are projects that have good levels of absorption, but at a general level uncertainty is felt,” says Gonzalo Rueda, manager of MarketWatch.

He reported this during a forum on the construction sector, organized by the Mercapital brokerage house.

Less liquidity, more costs

A greater permanence of real estate projects in the market also implies maintenance and financial costs for construction companies, says Apive’s Rumbea.

“The development of real estate projects depends on access to credit, for which an annual interest rate must be paid. If the sales do not materialize, the companies cannot pay the interest, which accumulates, and that reduces their profitability,” says Rumbea.

In this situation, construction companies demand fewer loans.

The volume of credit for construction in banking was $639 million, between January and August 2022, according to the Association of Private Banks of Ecuador (Asobanca). Compared to the same period in 2021, there is a drop of 0.3%.

The lack of resources makes the builders adjust their prices upwards, although they do not have much room for maneuver; and restricts the development of new projects.

As of July 2022, there were 1,055 projects on the drawing board in Quito, according to MarketWatch. That is equivalent to a drop of 56% compared to the same month of 2021, when 2,397 were registered.