45% Tax Increase in Ecuador Affects Real Estate

by | Mar 16, 2015 | Archives

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45% increase in Ecuador and the effect it will have on real estate.

As of March 11,  a tax increase on imported goods will go into effect in Ecuador.  This tax covers an incredibly wide gauntlet of items, including construction materials, home furnishings and appliances.

The tax increase is due to the drop in oil prices and the trade deficit impact. In order to fix the deficit, Correa is implementing heavy taxation on imports.

Based on our opinions…

What does this mean for real estate?

1) Projects that are currently in construction will likely either have to stomach the impact or increase their prices to their clients.  This is no small impact. You will see projects on the coast either suffer, try to wait it out or increase uniformly.

2) Building a home on raw land will cost more over the next year and a half than last year.

3) Already existing projects and finished homes will likely see a 30% increase in their value for sales occurring over the next two years.  Essentially, existing homes will have a 45% increase in their value as a limit.  Leaving margin between that to incentivize the buyer still means existing homeowners will be able to see dramatic increases for sales.

It is worth noting that the government predicts this to be a 1.5 year increase.  For those of you who may own property but are waiting to build with a 3 – 5 year plan, this may “potentially” have no effect. That answer will be dependent on the oil price and trade deficit results.

Why are we sending this out?

1) This is primarily an informative message to provide a “heads up” on increases we see to be expected between pricing estimates and budgeting for prior years vs. the 2015/16.

2) If you are currently considering a purchase, now is the time to do it!  It will likely take 30 – 60 days for the impacts to be seen and home values to increase. Once that happens though, even if the deficit issues are resolved, the market will likely not drop back down if sales weren’t impacted. From a speculative standpoint, we see this as incentive.

To provide an example of how this have an effect on construction:

We have been recently planning to add an excavator to our list of machinery. Today, it will cost us $160K. Tomorrow it will cost us $250K. Our representative at CATERPILLAR called us to put in order in immediately.

As always, feel free to contact us directly in regards to any questions you may have.

Here is an image taken from today’s newspaper explaining the items and increases.

https://dl.dropboxusercontent.com/u/3427932/pr04de100315photo01.jpg

All the best,
Sean Kelly
PuertoCayo.com Family owned and operated Realty & Development
From the USA: (310) 584 – 7221
From within Ecuador: 0994-436-094

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