Today’s Photo: Changing of the Guard, Presidential Palace in Quito
What Aren’t You Being Told About Moving to Ecuador? – Part II
By Dr. Lee Dubs
Continued from Part I
Is property really a good buy? That depends who you ask. Indeed, there are some excellent bargains available, but you have to be cautious. Some who bought real estate will say it was a good decision, while others will say it was not. If you find what you want at a good price (by Ecuadorian standards) and you plan to live there at least a few years, buying it may be right for you, but take your time. Some real estate agents and organizations will try to convince you that you are a fool not to buy quickly, that prices are surging, and that choices are limited. First ask yourself this question: Am I able to think objectively about real estate, or am I a slave to the North American cultural drive to “own?” Agents want you to compare prices here to those in your home country, not to normal prices in this location. Ignore the pressure and learn to think differently in another country. Dorothy is not in Kansas anymore.
There are currently two major groups moving into Ecuador from abroad: foreigners and Ecuadorians returning primarily from Spain and the U.S. As a consequence, there has been a construction glut of high rises in some areas, and more and more apartments (or “condos,” as North Americans prefer to call them) sit empty. Some have been purchased by soon-to-return Ecuadorians, but that does not account for so many that are unoccupied. There are indications that prices have peaked in Cuenca and may be dropping, but most property sellers trumpet the very subjective news that spaces are filling fast and that available apartments and houses are few and need to be grabbed quickly – at inflated prices, of course. Remember, just because it’s a lot cheaper than in the U.S. or Canada or Europe does not mean it’s a good buy.
Ecuadorians who are returning from abroad – not North Americans – currently make up the largest group of buyers, and they are savvier about the true value of real estate. They are not subject to the “gringo tax” that is often added when the buyer is a foreigner. Desperate sellers and landlords are usually willing to negotiate, as construction continues almost unabated and there are outstanding permits for buildings yet to be started. What was once the “charm” of some areas is now being swallowed up in a forest of multi-story buildings.
While the locals blame foreigners for the inflated real estate prices, some expats blame the Ecuadorian sellers themselves. You must keep in mind that it is a custom in almost all sales in Latin America – from the fruit and vegetable markets to real estate – to ask a higher price than the seller expects to get, and the negotiating begins. Paying the asking price reflects ignorance of customs; but paying it and then blaming the seller for asking too much is like blaming the knife for the cut you gave yourself.
The property owner may not always be the culprit for inflated real estate prices. There are unscrupulous realtors who add thousands of dollars to the seller’s asking price and then keep the difference. Comparison shopping is possible. A Canadian couple reported seeing a piece of property listed by one firm exactly $30,000 higher than through a smaller agency. How do they get away with it? Regulations are often vague and rarely enforced, but the biggest reason is the innocence and ignorance of foreigners who only compare prices to those in their home country, rather than take the time to learn more about true prices in the new country. Those who believe all the hype and hurry down to announce, “I have to buy property quickly,” are among those responsible for the inflation. They are the favorite clients of realtors.
The people who try to take advantage of your lack of knowledge are not always Ecuadorians. An expat recently heard an American in a restaurant boasting (loudly) into his cell phone that he expected to be a millionaire in no time by buying condos at X dollars per square foot and selling them to newcomers for more than double.
Is it okay to buy property online? If you are determined to buy real estate as soon as possible in spite of all the warnings, do not buy without first seeing it yourself. Need a good example of why? One North American woman bought a house online from a local realtor, based on the photos she saw and assurances that it was in a nice location. When she arrived in Cuenca in the early evening and showed the address to a taxi driver, he responded that taxis avoid that area after dark. The next day, when she saw her purchase, it only vaguely resembled the photos, and a neighbor told her that she could expect to be robbed when she wasn’t at home.
Is it better to buy or rent? Almost everyone agrees that renting is the smart move, and new arrivals who rent far outnumber buyers, as the warnings about rushing to buy are being heeded. In a recent article in U.S. News and World Report, Kathleen Peddicord, the founder of Live and Invest Overseas, bluntly states that buying property overseas is often a big mistake, and she urges people moving abroad to rent, not buy property, at least until they completely understand local laws and regulations, or possibly never at all. She lists several reasons for her very sound recommendation. Check out her excellent article on why renting abroad makes more sense.
In Ecuador, too, there are strong reasons not to hurry to buy. Renting gives new arrivals time to become familiar with the area and normal prices and to decide if this is the place for them. Some expats who rushed to buy their property at what sounded like a wonderful price, later decided to leave but could not sell what they had overpaid for. One couple finally took the best prices they could get and then held an auction for the rest before they left the country. Renting also avoids the pressure and hustle from sellers, who slow down when they hear, “I want to rent, not buy.” One aggressive realtor in Cuenca has been known to angrily turn and walk away when hearing those words. Ignore the stale pitch that “buying is a great investment” and that you are “throwing away your money” when you rent. Remember that you are in a different country where different rules apply.
Foreigners sometimes learn the hard way that title searches may not even take place. There have been reports of expats buying a home or apartment (condo), only to get a knock on the door from relatives of the seller, claiming partial ownership. A legal nightmare ensues.
Zoning laws and other restrictions do not always apply in some countries. The construction frenzy in Cuenca has sometimes resulted in expats who found their “perfect condo” also soon found an equally high building going up right next to them, sometimes only a few feet from their building. Their “beautiful view” of the mountains is now a view of someone else’s windows. Just because there are only houses next to your building does not mean you are safe, either. Developers throw enough money at the residents that they sell out, making room for yet another high rise. There are woeful tales of retirees who have seen a dream turn sour. As one couple also learned, building a house near your property line does not stop a large house or building from going up right next to you on the other guy’s property line. They went back to the U.S.
Rent or buy? The sage advice from seasoned expats is simple: Rent for at least the first year.
Are those pricey seminars worth the money? Reactions are mixed. People who have attended them have reported that while they do provide useful information, most are heavy on real estate and investment pitches. One couple stated that in a seminar they attended in their home country, the sponsors tried to first convince attendees that the economic sky will soon fall in the U.S. and Europe and that they needed to evacuate fast; and, by the way, the sponsors had some great real estate in South America to show everyone. Is the purpose of a seminar to help you? Why do some want to put you in one of the most expensive hotels in the city — when their stated goal is to help you save money — and there are far less expensive hotels right down the street? Is the purpose of a tour to show you the country or to shill real estate? If you do want to examine real estate “opportunities” mixed in with some useful information about living in Ecuador, attending one of the seminars or tours may be for you. If you want sound and objective information without paying for a high-priced gathering, simply come down for a few weeks and talk with expats who have lived in the country for at least a year and who have nothing to gain from your arrival.
Are Ecuadorians friendly? They are among the friendliest of people anywhere in the world. However, we are seeing some conflicts between locals and a growing number of arrogant, ignorant, and loud expats who do not approve of life in Ecuador. One long-time expat resident used a bit of hyperbole to describe the situation in a couple of Ecuadorian towns as “war zones.” That is exaggerated, of course, but Ecuadorians do have a limit to their tolerance. As increasing numbers of expats seek to isolate themselves in walled communities and high rises – whether for security or to stick with fellow expats — locals feel offended and even make fun of certain areas by referring to them as “Gringolandia,” a term that foreign residents often repeat without realizing it is local sarcasm. Foreigners who yell at government officials, bank tellers, and waiters because they are too slow or because they do not speak English are fomenting a gradual backlash that has been seen in some areas. We hope Ecuadorians will not paint us all with the same brush.
Who are the worst offenders? They are those who believed everything they read or heard from individuals and groups who hold the golden goose. They are those who came down here for one and only one reason: it’s cheaper. They did not expect things to be so different from “back home.” They do not see themselves as guests in someone else’s country. It isn’t what they expected or wanted, and they don’t like it here, even if it is cheaper. They take out their frustrations on the Ecuadorians instead of on those who misled them in the first place.
Is it safe to live in Ecuador? No country in the world is safe at all times. There is less violent crime in Ecuador than in many countries, but crime in Ecuador is increasing, and foreigners are frequent targets. Normal precautions are one’s best defense, but there have been some violent attacks. Most crime involves petty theft without violence, but guns, knives, and even screwdrivers have been used in holdups. Wearing flashy jewelry or getting into the wrong taxi often turns into a robbery. Read the U.S. warning to travelers for more information on crime in Ecuador.
Do I need to Know Spanish? It is not necessary to be fluent, but some basic communication skills are very helpful. Contrary to misleading articles, most Ecuadorians do not speak English. Why should they? But they are quick to warm up to the foreigner who at least tries to use their language, even if it is not good Spanish. There are capable language schools in most cities, and one can develop basic communication skills in a few weeks. Some independent English speakers may offer cheaper classes, but quality of instruction varies.
Can I make money in Ecuador? The initial waves of expat retirees in Ecuador were primarily people seeking little more than a quiet life. More and more of the latest arrivals, however, are looking for ways to increase their income. Businesses, investments, and real estate are the top choices. Be wary of any get-rich-quick schemes that you would have been suspicious of in your home country. Trust your instincts. There is a new breed of carpetbaggers from the north who, along with some locals, prey on the ignorance of newcomers, especially in real estate transactions and investment “opportunities.” There are profit seekers who move from one business venture to another, trying to attract gringo dollars. While there are legitimate opportunities out there, let the buyer (or investor) beware. That smiling, friendly fellow expat may not be your friend at all.
A recent trend is what can be called cottage industries, small businesses whereby expats sell fruits and vegetables that they grow, goods that they bake, or other products that they create. Such small businesses provide income, while the sellers are doing what they enjoy anyway.
Most businesses run by expats are new in Cuenca, while others have existed for years. If you want to start a business in Ecuador, first talk with the foreigners who have a business. They will help you with the do’s and do not’s, as well as the requirements and paperwork. Failure to do it right can shut you down. Get expert advice. Beginning in 2011, the national tax agency (SRI) began a crack-down on “business” and “professional” visas where there was no business – a gimmick some lawyers used to get money from newcomers with promises of an “easy visa.” One expat from the U.S. got such a visa and was told by her lawyer, “If anyone asks about your business, tell them you work with me.” It was reported that a number of gullible expats were deported for obtaining visas under false pretenses. Several lawyers are still being investigated and face loss of license.
Putting money into banks and cooperatives without doing your homework can be risky, as some are backed by insurance and some either are not or are under-protected. Simply going for the highest interest rate on savings or a CD can carry risks. Why do you think they offer the highest rates? In 2012 there was a temporary nation-wide run on one cooperative because of a false rumor that started in one city. Ecuadorians are familiar with their history of sudden closures, and they can cause one just by storming a financial institution and its cash machines. Choose your bank or co-op with care. How much of your money is guaranteed by insurance and how long would it take to recover it?
There are gringo residents who like to tell you which bank, co-op, lawyer, realtor, etc., to go to, but they sometimes ignore the bad experiences of others or they may even be getting commissions by steering you toward certain services. Free advice is often worth what you pay for it. Always check several sources of information and compare.
Some expats buy real estate and then rent it to newcomers. That is legal and is a source of income, too. It may be an opportunity for those who want to rent, but it is always wise to shop around and compare prices. You can find some bargains, but there is no need to overpay just because the owner is a fellow countryman.
What should I do? First, if you are considering moving to Ecuador, do not believe everything you are told by organizations and paid writers with a self-serving agenda – especially their understated costs of living and push to buy real estate. Proceed with caution. Anyone who urges you to come see him for all the answers probably has an angle and is unlikely to provide a balanced picture. Second, do your own research before you head south, learning all you can about the country from various objective sources. Third, make an exploratory trip on your own. If you cannot afford an exploratory trip, you probably cannot afford to live in Ecuador at all. Fourth, communicate with helpful expats who know the country well but have no hidden agenda. They can tell you which realtors, lawyers, relocation services, etc. to use and which to avoid. Finally, come without a chip on your shoulder. If you consider yourself a “political refugee” trying to get away from something, leave your anger and frustrations behind you. Don’t spend your time (and that of others) railing about how terrible your home country has become. Prepare to adjust to an exciting new life where you can be happy. And remember that Ecuador is not going to change for you, nor should it. It is a wonderful country full of delightful people. Most expats love it here.
Addendum. Several foreign residents who have written articles and offered other comments online in which they issued warnings about misinformation have been themselves routinely and swiftly attacked and accused of being liars. Consider the reasons for such reactions.
Lee Dubs first visited Cuenca in the early 1960s and has been a full-time resident for the past nine years. A retired language professor from North Carolina, he and his wife, Carol, are the owners of Carolina Bookstore on Calle Hermano Miguel at Calle Larga. Lee can be reached by email at email@example.com.