It's easy for expats to be lured to Cuenca by the affordability of property and land prices. Of course, the price varies depending on various factors, including location, slope & quality. Aside from price, there's a lot of other factors to consider before taking the plunge.
We are in the early stages of looking for some land where we can have a small hobby farm and space for our kids to roam, explore and hurt themselves (just a little bit).
We've consulted numerous property experts and are using a real property development close to Cuenca as a case study to illustrate key points. Our hope is that after reading this guide, you'll be able to safely and confidently purchase land in Cuenca.
Let's do this!
Mirador de Challuabamba - Our Case Study
Visiting Mirador de Challuabamba
We've chosen a local property development project to use as a case study. Why have we chosen Mirador de Challuabamba?
Because it's a real purchasing opportunity that we can use to better explain the process
It's a large development that is close to Cuenca and close to our home in Challuabamba, meaning it's easy for us to access & take pictures etc.
You deal directly with the owners, which is a common scenario in Ecuador
We think this particular parcel of land has potential and may be of interest to our readers as a buying opportunity
The risks of buying land
Given the emotions and excitement that often surround land purchases, it can be easy to overlook or even purposefully diminish the potential downsides of purchasing land.
So, we like to focus on the risks first, just to make sure these are always front of mind.
1. Reselling
Trying to make a quick buck by flipping land here? Best of luck to you. Whilst not impossible, this is a very different property market than you're used to and you are an outsider. Unless you really know the local property market, our suggestion is to skip any thoughts of a quick flip.
It's not uncommon for a property to take years to sell. There's no local MLS and regulation is weak. Rather than sell at a loss, locals will generally prefer just to hold on to the land.
Culturally, many Ecuadorians prefer to have their life savings in property rather than other investments such as banks or stocks. And, land taxes in Ecuador are ridiculously low. This also means that holding costs are also low with little incentive to sell unless their price expectations are met.
2. Land measurements
Obviously, you want to receive the same sized parcel of land that you've purchased. Sometimes this is easier said than done, especially if the boundaries haven't been marked up over the past 10 years or so where GPS technology has significantly improved land boundary accuracy.
But, having the boundaries property referenced by a professional costs money, so there is the temptation to try and sell land without. If you agree to this path, you're opening yourself up to future border disputes with your neighbors.
These disputes can turn ugly, quickly. But, even if they don't, you may find yourself being taken advantage of by neighbors that encroach on your land just because they know you have no proper defense as you can't prove the boundary. In this instance, one option would be to have the geo-coordinates survey completed by a professional (at your cost).
What developers say
We asked Mirador Challuabamba how they ensure the property sold is the same the buyer receives:
"Currently, when buying a plot of land, a "georeferenciado" (geo-referenced) plan is enclosed, where the geographic coordinates of each vertex of the land have been noted. This makes it difficult for any party to dispute boundaries in the future.
These plans are prepared by the developer and approved by the municipality, so it is rare that they contain errors. Even so, you could, with this plan and a little geometry, calculate the area and compare it with the offered area.
All this data (including the approved plans) are provided with the "Escritura de compra-venta notarized". At the time of signing, the notary will read in front of all attendees the dimensions of the land, indicating the area in square meters as well as the length of each segment. This allows both the buyer and seller to validate these details. These georeferenced plans are part of the public deed and form part of the contract of sale.
In the case of Mirador de Challuabamba, every lot is also delimited with cement post boundaries.
You should keep in mind, especially in rural areas, that you may end up conceding one or two meters of land to the municipality at some point if they decide to build sidewalks and access roads. This is particularly true in rural or any area that doesn't yet have these built.
Wrong (restrictive) title type
One of the easiest ways for expats to get caught up in a contractual mess is not properly understanding the full ramifications attached to each title type, and how this affects their individual property.
Remember, there is no title insurance in Ecuador, so the onus is on you to complete all the required due diligence.
The three most common title types you'll likely come across are:
Escrituras Publicas: This is generally considered the 'safest' title as you have the most rights.
Acciones y Derechos: A little riskier because there are potential caveats attached to what you can do with the property such as sub-dividing. Be prepared to do a lot more due diligence on this title type.
Communa: As a foreigner, we suggest staying away from this type of land unless you really know what you're doing. And, if you're reading this guide, chances are you're still coming to terms with Ecuadorian property, so let's just leave this option off the table for now.
Lots for sale at Mirador de Challuabamba (click for full-size image)
Scams and overpaying
Buying property anywhere has risks. But, when you don't speak the language, aren't versed in the purchasing process, and don't have the same cultural background, you are more susceptible to overpaying or even scams.
Some expats do arrive with the perception that every local vendor is out to 'gringo gouge' them. In my experience, this is far from the case. But, I'd also be lying if I said I hadn't experienced some 'opportunistic price enhancement' when it became clear I wasn't from around here.
If it makes you feel any better, Michelle is from Quito, and she also experiences this from time to time. But, negotiating is part of the culture, and once you accept this, you'll likely feel less like a victim and more like just another citizen trying to get by in this crazy world.
Your best weapon against scams or overpaying is to complete due diligence on:
The title: Your lawyer can complete this for you and raise any red flags
Geomechanics: Is the land stable to build on? An engineer should be consulted if in doubt.
Basic services: Is electricity and water currently available? If not, how will these be provided in the future and who is paying for it?
Access: What access is currently available and/or planned for the future? The more remote the property, the more important this becomes.
Lots, access roads and Andean landscapes of Mirador de Challuabamba
The property buying purchase
Whilst the purchase process isn't overly complicated (especially compared to registering a car...), you do need to ensure you've covered yourself with the proper use of contracts throughout the process. This will inevitably involve visit(s) to a notary to ensure everything is legal.
Sidenote - notaries are very important in Ecuador. You'll use them for many legal processes. Think of them as lawyers with additional training. It used to be a very lucrative profession as notaries could set their own prices. The government has since regulated the prices, so you shouldn't find too much discrepancy between various offices - although there's still enough gray area that prices may not be identical.
What property developers say
The legal process is the same when purchasing land with or without a house. The steps are:
Deposit (earnest money)
Contract: promise to purchase
Pay Installments
Contract: purchase
Delivery
1. Deposit
A small amount that commits the parties verbally. Once the deposit or earnest money is received, the developer will not sell the land to anyone else. An amount of $500 is common. This is delivered to the developer via bank transfer, cash, or check. Sometimes a receipt is issued - with the bank transaction records being used as proof of payment (if needed).
2. Promise to Purchase-Sell (Promesa de Compra-Venta)
This contract involves the developer promising a date when the house/apartment/land will be ready for delivery and when it is ready, it will be sold to the buyer.
There is also normally a substantial down payment made (8% is common but does vary) along with monthly installments until 30% of the total has been paid to the developer. Be sure to note any penalties for non-compliance which can be 5% of the total value.
This Promesa de Compra-Venta is executed at a notary where the client usually bears the cost. The clauses of the Promesa de Compra-Venta usually specify how the down payment is made, including the payment method (check, certified check, or cashier's check).
We suggest not using cash so you don't have to worry about security when carrying large sums of money around. A cheque will also provide evidence of the transaction, which can be more difficult if paying with cash.
Note, if you have the cash and you're ready to close the sale right now, you can skip the Promesa and just go straight to the Contrato de Compra Venta (below).
3. Installments
Now you need to start making the installment payments you agreed to in the Promesa de Compra-Venta. These are generally paid monthly, but you may be able to renegotiate once or twice without penalty.
4. Contract of Purchase & Sale (Contrato de Compra Venta)
Only once the property is ready for transfer, the parties can sign the Contrato de Compra Venta. This will also specify the payment method. This is also executed at the Notary. If you don't speak Spanish, you are legally obligated to have an interpreter present (for your protection).
Notary fees
The approximate notary costs, depending on the sale price generally range from $250 to $450.
Can I get a mortgage?
Foreigners find it very difficult to obtain a mortgage as they generally don't have sufficient history (credit & employment etc). Even if you could obtain a mortgage, the interest rates are very high at around 10%, making a cash purchase much more attractive.
But, the high-interest rates work the other way too. 9-10% interest is available for Certificates of Deposits (CDs) at cooperativas, with banks offering around half this.
Views are always better with friends
Zoning & Timing Considerations
It's also helpful to understand distinctions in the following:
Urban vs Rural Zoning
This is going to affect your building permits and taxes. As a general rule, rural areas are easier and cheaper than urban. Property in rural areas is often acquired for family holidays homes, hobby farms, or retirement homes.
Immediate vs future delivery
When is the property available for delivery? The longer you need to wait to take delivery, the more risk you're taking on and this increased risk should be reflected in the price.
Pay particular attention to the plans for providing access to the property as some subdivisions can take years to build vehicle access. The other common time blowout can be during the process of legalizing the plans so they can be sold.
Private vs independent development
Some expats seek private gated communities for various reasons such as increased security & relative freedom it affords for kids to run around without constant supervision. But, others (like our family) prefer to have an independent house where we have full autonomy over our property and don't need to adhere to any community rules we don't agree with.
It really comes down to personal preference and how much flexibility you need.
What Mirador Challuabamba offers
El Mirador de Challuabamba is currently classified as:
Zona Rural
It's very close to what is known as the "Zona de Expansión Urbana". This area belongs to the rural parish of Nulti in the canton of Cuenca. In addition to entrances to Cuenca, there are also access roads leading to Gualaceo, Paute & towards the jungle.
Ready for Delivery
Property is available to be purchased and built upon right away
Independent
Whilst each owner has full authority over their property, the lots have been designed to have harmony between them.
Land size & price
The lots offered are large, which means the price per square meter is generally cheaper than other land available in the area.
Buying from owner vs agent
Like in many countries, buyers can choose to use a real estate agent to help sell land on their behalf. But, there are some key differences to how agents work compared to other markets:
1) No exclusivity
It's pretty rare for owners to sign exclusively with one agent. This puts agents in a pretty tough position as they can do a lot of work, only to have another agent swoop in and take the sale from them. For this reason, competition amongst agents can be fierce.
2) Low commissions
The standard commission paid to agents by the seller is 3%. This is relatively low compared to other Latin American countries (7.5% in Brazil, 5% in Argentina).
The combination of no exclusivity and low commissions puts the seller in a great position. They can have many agents working to sell the property for relatively minor commissions.
So, theoretically, if you buy direct from the owner they will save this 3% commission and you could definitely use this to your advantage during price negotiations.
3) No buyers agents
Are you starting to see a common theme? The property market in Ecuador is still very basic. One ramification is that buyers agents are not yet common.
So like real estate agents anywhere, they have a vested interest to sell the property for the highest price. They certainly have no incentive to negotiate on your behalf to get the lowest price.
What Property Developers say
Mirador Challuabamba does not have a preference. We work with agents and direct with buyers. Good agents can be very helpful in facilitating the sales process which can ultimately benefit both the buyer and the seller.
But, we don't just work with any agent. We only work with agents we're confident we can trust, that have the right attitude and are punctual.
Taxes
When talking about property prices, it's important to understand there can be significant differences between the actual sale price and the price used for tax purposes.
Assessed value for tax purposes
This can be much less than the actual sales price. How much? One-third less is not uncommon. This is the reported value that the owner pays tax on so there is an incentive to keep this as low as possible.
The problem with this approach is that over time, the gap between the two values can continue to widen, potentially leaving the new owner with higher tax obligations if they choose to declare the actual sale value.