Monday, August 5, 2013

Ecuador in the future may not be one of the most affordable places to retire

Ecuador has subsidized gasoline since 2006 freezing the price at $1.48 a gallon, but by 2016 this may change and a gallon of gas could cost whatever the international market calls for

President Rafael Correa announced Saturday that the government will end subsidies for LP gas by 2016, when new hydro electric projects go online. He said that consumers will be encouraged to replace gas hot water heaters, stoves, clothes dryers and other gas appliances with electric models.

“This will save the country hundreds of millions of dollars and reduce pollution at the same time,” Correa said in his weekly television broadcast. During the 2012 presidential campaign, Correa said he hoped to end all fuel subsidies by the end of his second term in office in 2017. "We will be like the rest of the world with energy costs being determined by the market," he said.

He also said that plans are also being developed to eliminate the subsidy for gasoline with details to be announced soon. According to Correa, the LP gas and gasoline subsidies cost the government $3.8 billion annually, with $700 million of that covering LP gas. “We can build 1,000 new schools with that money and have more left over to invest in other public services.”

With the current gas subsidy, the government says, consumers pay only about 8% of the international market rate. The subsidized cost for a 15-kilogram domestic gas tank refill is $1.60, not counting delivery charges. The same refill costs $24.25 in the U.S., $25.87 in Colombia and $19.68 in Peru. The huge price differential has led to a thriving gas black market across Ecuador’s borders with Colombia and Peru, which has sometime disrupted supplies at home.

Correa has long maintained that the subsidy benefited much of the population that doesn’t need it. “Why should the government pay for people in Quito and Cuenca to heat their swimming pools?” he asked.

Correa said that eight new and expanded hydro electric plants will provide more than enough electricty for the country’s needs, and still leave a surplus to be sold to Colombia and Peru. Among the plants under construction are Coca-Codo Sinclair in Napo, Toachi-Pilatón in Santo Domingo, and Delsintanisagua in Morona Santiago. Two Paute generation plants east of Cuenca, which currently supply almost half of the country’s electricity, are being being expanded.

The government is already in talks with domestic makers of gas burning appliances about switching production to electric models. Appliance factories, including Indurama in Cuenca, say they will phase out gas models as the date for the elimination of the gas subsidy approaches.

The government says that consumers will pay the market rate for electriciy but that the government will cover the first 60 kilowatts of household usage per month. A typical three bedroom, two bath home in Ecuador currently uses about 250 kilowatts a month, according to the census office.

Correa said that there will be no prohibition on those who want to continue using gas. “This will be their choice. They will just be paying the same prices that people in the rest of the world pay,” he said.

The government has been in contact with the National Federation of LPG Distributors, the trade association of gas distributors. A spokesman for the association says that the elimination of the subsidy will mean at least 50% fewer jobs. The government says it will work with distributors to find new employment for those affected.

Talks are underway at several government agencies regarding the elimination of subsidies for gasoline, which currently costs 30% to 40% of the international market rate. The government said that some subsidy will continue for private vehicles based on a quota system, but this would be a temporary arrangement. Gasoline subsidies for public transportation vehicles would continue.

Electricity in Ecuador is very reasonable at this time with the average bill being $30 a month.

Propane. being used for gas stove, gas water heater and gas dryer the average monthly bill runs around $3.60. 

If Ecuador changes to all electric appliances the cost could be higher than using gas appliances but less considering the cost that gas goes up to.

Purchasing a car here is much higher than the states and with a higher cost of gas it could get expensive to drive here. 

Photo caption: Correa addressing a crowd during his Saturday television

Ecuador real estate market is cooling off; in Cuenca, gringos move to rentals; historic district opportunities

Posted By Admin | Published: October 15, 2013 00:06
Ecuador’s hot real estate market is cooling down.

Following more than six years of eight percent annual appreciation nationwide and double-digit appreciation in some markets, including Cuenca, real estate developers and agents say they are seeing a slowdown in both the rate of appreciation as well as number of sales.

Although most real estate experts don’t see a bubble similar to the one that burst in the U.S. in 2008, they say they are seeing a market top.

“We are beginning to see an oversupply of housing for middle- and upper-middle-class buyers,” says Roberto Vega, general manager of Smart Research in Quito. Vega describes middle- and upper-middle-class housing as that costing more than $80,000. “We are seeing this in the more active markets, such as Quito, Guayaquil and Cuenca, although there are other markets where there is still a shortage of housing and good demand.”

A Crowded Market, Declining Sales
Jaime Rumbea, director of the Ecuador Real Estate Association, says that there is a record number of properties for sale in most areas of the country and properties are taking longer to sell. “Eventually, this will stabilize prices and could even bring them down in some cases.” Rumbea also reports that the overall number of sales is declining nationwide and says this is a classic sign of a market top.

Real estate agents in Cuenca agree, and say that many properties on the market today could sit for a year or two before selling. 

Ramiro Gonzalez, director of Banco del Instituto Ecuatoriano de Seguridad Social, or BIESS, which provides more than half of the mortgage money to the country’s reasl estate buyers, believes that speculators in the larger markets are partly responsible for driving up prices. “I worry that they are killing the hen that laid the golden egg,” he said, adding, “It’s not just speculators who are responsible, however. Many home buyers have become victims of the mentality that prices will always go up and that real estate is a very lucrative investment.”

Many, including Rumbea, point out that BIESS has played a major role in driving the market. BIESS was established to use social security funds to finance housing, particularly for lower income families, and has financed tens of thousands of home purchases since 2009. 

Vega says that price increases in the last six years are not simply the result of speculation and expectations of long-term profit. “There has been an enormous run-up in the costs of materials, especially since 2006. Such things as concrete and steel have gone up almost 150% and this is a major factor in prices. Labor is also much more expensive.”

Another factor pointing to a market top is the reduction in mortgage money available. “In 2010 and 2011, the number of mortgages written by commercial banks was increased by 10% and 12% a year. In 2012 the increase was only 2% and it’s possible that we will see a decline in 2013.” He also predicts that BIESS will reduce the number of loans it is making.

The Cuenca Market
Although there are as many as 30 large condominium projects in various stages of construction in Cuenca, the number is down from 40 or 45 in 2011. The Cuenca Chamber of Construction reports that fewer building permits were issued in 2012 and it expects the number to decline further for 2013.

Both builders and real estate agents report a decline in the number of sales to Ecuadorians living or returning from overseas, particularly from the U.S. and Spain. “This group has been
 the real force behind condominium sales in Cuenca,” says real estate agent Juan Rodriguez. “Now we are seeing fewer sales and I think the trend will continue.” Rodriquez says that in 2010 and 2011, as much of 35% of all sales in Cuenca were to this group and those sales today have dropped by 30% to 40%.  Rodriguez says that is difficult to figure an accurate number of purchases by Ecuadorians living overseas because many of them are made by family members living in Cuenca.

Rodriguez says that sales to North American expats have also dropped. “In 2010, we estimated that 1.5% of sales were to extranjeros but the number is probably less than 1% today.” He says that foreign buyers were not a factor in rising prices and they won’t be one if prices level out. “A friend from the U.S. tells me that gringos have an attitude that ‘it’s all about us’ and that they think they have a big impact on everything in Cuenca, especially real estate prices. I’m glad they feel self-important but they don’t have the impact they think they do.”

Gringos Shift to Rentals
One of the most dramatic changes in the gringo market is the shift away from buying real estate to renting.

Rodriguez believes that the growth in rentals for expats is due to two factors. “First, since Cuenca is considered a place for foreigners to retire, many of the people moving here are older and they’re not interested in buying. Second, I think many foreigners come here for the low cost of living and a lot of them cannot afford to buy.”

The increase in the numbe
r of Cuenca rental units available to foreigners has been dramatic. “Four years ago, I managed eight or nine apartments for foreigners and two or three of them were usually vacant," says Graciela Quinde, manager of Rentals Cuenca, which specializes in renting to North Americans and Europeans. "Now, I have almost 50 and I'm fully booked much of the time."

Quinde's units are mostly furnished, short-term rentals with all utilities included in the rent. "I rent to people who are here to study, teach or to check out Cuenca as a place to live," she says. "They need a turn-key situation where everything is provided and most of them understand they will pay more than for a regular rental. What we rent would be called holiday or vacation rentals in the U.S." She adds: “We also provide full management services which is important because many of our clients are not fluent in Spanish.”

Monthly rentals for turn-key units range from $400 to $1,500 a month, with the average coming in at about $850.

Quinde says that unfurnished rentals with one- or two-year leases make more sense for people planning to stay in Cuenca for longer periods. "You can find nice unfurnished rentals for $300 and $400 a month. If you do the legwork, there are some real deals out there," she says. 
New Opportunities in Cuenca
Rodriguez sees a bright spot in the Cuenca market. “There are some great opportunities in the historic district and buyers are starting to take advantage of them. When the new train starts operating and when they rehab more par
ks and plazas and reduce bus traffic, I think prices will go up considerably. In five or ten years, El Centro will be transformed.”

He adds that several impressive projects are already being planned in the historic district. “An investor from Hawaii is renovating a building on Sucre, two blocks from Parque Calderon, and plans to build high-end rentals. These will be five-star apartments, built around a high-end coffee and wine bar, something that doesn’t exist in Cuenca now.”

In another case, a Cuencano who has lived in the U.S. for most of his life is beginning a rehab project on a large Calle Larga property. “He plans to have shops, rental apartments and a bar for the older crowd,” says Rodriguez. “I’ve seen the plans and I’m impressed.”

 Why No Bubble?
The experts seem to agree that Ecuador’s real estate market will not suffer the same fate as the U.S. market in 2008 and 2009. “There are several reasons why,” says Vega. “We have never had mortgages here with 0% or 5% down payments. The standard down payment is 30% down and even more in some cases. Another factor is that most property owners own their property outright. This means you don’t have as many people desperate to sell.” 

There are other factors as well. Rumbea says that real estate prices in Ecuador were flat for years following the banking crisis of 1999 and 2000. “In some markets, prices actually went down. So what we have seen since 2007or 2008 is the market playing catch-up.”

Rumbea adds: “Overall, I’m optimistic but I am also realistic. The appreciation will go down and it will take longer to sell properties but ultimately this will be good for the market.”
Photo captions: Although there is still plenty of condo construction going on in Cuenca, the pace is slackening; Rentals have become a hot market; Improvements to the historic disrict, including the new light rail system, could make the area a good investment.

Ecuador's plan to freeze oil production in the Amazon failed due to the lack of International funds

By Jim Wyss

Waving away a cloud of gnats, biologist Phyllis “Lissy” Coley scours the Amazonian underbrush for inga shrubs, whose young leaves are loaded with powerful toxins and chemicals that might be useful in medical research.

Coley and her team from the University of Utah have spent almost two years in the Amazon of Guyana, Peru and Brazil researching the plant — but this patch of Ecuador was delivering surprises. In a single week, Coley’s team found 60 species of inga, 40 of which were unknown to them — and likely unknown to science. They also found a carnivorous caterpillar. While flesh-eating caterpillars exist in Asia, they’ve never been recorded in the New World.

The mysteries of this forest, which scientists like Coley are still discovering, could be at risk after this South American nation quietly began considering pulling the plug on one of the most innovative and ambitious conservation plans ever attempted.

The Yasuní-ITT Initiative was designed to leave more than 846 million barrels of crude oil untouched, in perpetuity, beneath Yasuní National Park — rioting with unknown species and tribes living in voluntary isolation.

In exchange, the government asked the world to cover just half of the crude’s $7.2 billion market price.

Environmental groups praised the plan as a novel way to slash greenhouse gases. In 2010, the United Nations threw its support behind the project, setting up a trust fund to receive and manage donations. There were hopes that crowd-sourcing conservation might be a model for other developing nations.

But six years after its launch, those goals are proving elusive. The plan has raised less than 10 percent of the $3.6 billion it’s seeking. Ecuador’s government says it has received $116.7 million and has pledges for an additional $220 million — some of it in non-cash cooperation. The United Nations trust fund has just $9.8 million in the bank.

The shortfall is driving speculation that Ecuador might be forced to drill for crude in the ITT oil block (short for Ishpingo, Tambococha, Tiputini), which it says holds 20 percent of the nation’s reserves.

“We want to keep 400 million tons of CO2 out of the atmosphere,” President Rafael Correa told a crowd in April. “But if the international community doesn’t help share the responsibility, we have to make the best decision for the Ecuadorean people.”

Correa and his cabinet held a meeting about the fate of the project in June and are expecting to meet again in coming weeks. Officials say drilling the ITT is on the table.

In the balance is one of the most biodiverse spots on the planet. The ITT block is among the most isolated areas of Yasuní National Park, a 2.4 million-acre U.N. biosphere reserve, which holds about one-third of all of the Amazon’s amphibian species, even though it represents just a small fraction of the total area. In any given two-and-a-half acre plot of the Yasuní — roughly the size of a soccer pitch — there are more species of trees than in the United States and Canada combined.

“As a biologist, nothing makes me more awestruck than to work in an incredibly diverse and pristine area where every day you discover something that you couldn’t even imagine or anticipate,” Coley said.

Even so, she understands the financial pressure Ecuador is facing.

“You can’t expect countries just to save rainforest because they’re amazing places and we would, as humans, like to keep them around,” she said. “Given the potential to make oil money from here, I think it’s a remarkably generous offer to say to the rest of the world ‘Can you contribute and we won’t develop this area.’ ”

Ecuador needs the money. One of the poorest nations in South America, oil represents more than half of its export earnings and is the country’s top source of revenue.

Keeping oil underground is like “a very poor family trying to protect the family jewels, in the meantime most of the people are starving to death,” said David Romo, one of the directors of the University of San Francisco de Quito’s Tiputini Biodiversity Station, which borders the park and where Coley was doing her research. “So how do you do the trade-off here? The initiative gives us an option for that.”

Ivonne Baki is the former Ecuadorean ambassador to the United States, a one-time presidential candidate who speaks six languages. Now, she’s traveling the world on behalf of the government, marshaling resources for the project.

While the initiative has seen a groundswell of popular support, she admits the financing has been disappointing. The government is considering “Plan B,” which includes tapping the oil in the ITT block in a “conscientious” way. But keeping the oil underground is still the administration’s priority, she said.

“We believe in conserving and we have done it before,” she said. Twenty-five percent of Ecuador’s territory is in a national park or protected area, including the world-renowned Galapagos Islands. By contrast, 12 percent of the United States is under protection, according to the World Database on Protected Areas.

The Yasuní-ITT Initiative is “an environmental service we are providing to the world, not just Ecuador,” Baki said.

But the world seems deaf to the plea. While countries like Italy, Germany, Spain, Turkey and Luxembourg have supported the effort, the United States — Ecuador’s largest oil buyer and which has a long and troubled history of polluting the Amazon — has not contributed to the effort. Neither have gas guzzling nations like China, Japan or India.

Baki speculated that crude-consuming nations fear the model might be replicated and push fuel prices higher.

But critics say the country also has a credibility issue. The socialist-leaning Correa administration has broken pledges in the past, defaulting on the national debt in 2008, and unilaterally forcing oil companies to renegotiate their contracts.

And while the country touts the initiative, it’s already exploring for oil in Yasuní National Park and has begun building a road in oil block 31, adjacent to the ITT area. It’s also building a massive new refinery that’s designed to process more oil than the country is currently producing.

“It might seem like the government is operating in bad faith,” said Ivonne Yánez, one of the founders of the Acción Ecológica environmental group. “On one hand, they seem to be pushing Plan B, which is to extract the petroleum, and on the other hand there is Plan A that Ms. Baki is promoting.”

Yánez said the government’s mixed messages are likely hurting international support for the initiative.

But Baki said powerful business interests are also undermining the project. In particular, oil companies don’t like its implications.

“They don’t want to accept that oil contaminates,” she said. “They say they have the best technologies and that the technology works. We saw what happened in the Gulf of Mexico with British Petroleum.”

Ecuador doesn’t have to look as far afield as the 2010 Gulf oil spill for cautionary tales. Beginning in the 1960s, Texaco and the state-run oil company began punching into the Amazon looking for crude. Critics accuse the company of using obsolete technology and pumping millions of gallons of wastewater into open pits and rivers.

Last year, an Ecuador appellate court ordered Texaco’s successor Chevron to pay $18 billion to clean up the mess and reward local communities. The company is fighting the judgment and is suing Ecuador’s legal team on racketeering charges.

But even cutting-edge oil exploration can have unintended consequences. In 1993, Maxus Ecuador built a 112-mile road that cuts through the northern boundary of Yasuní National Park. Only 19-feet wide, it was designed to disappear in a decade after the crude it targeted ran dry. The company also guarded the route to keep colonizers from moving in.

Twenty years later, the crude is still flowing and the road has the marks of permanence. A handful of Huaorani and Quichua communities have sprung up along the gravel route. Most of the proto-villages are just a few wooden shacks, but others have cinderblock schools and concrete volleyball courts.

For the last two decades, Terry Erwin, one of the world’s top entomologists who works at the Smithsonian Museum of Natural History, has been studying the environmental impact of the road. While the construction has had virtually no effect on the insects that he monitors, the same is not true for larger creatures. When Erwin began studying the area, the forests alongside were home to five monkey species.

“By the end of three years, there were no monkeys left,” he said. “Everything was out of there — gone.”

The Huaorani, who have ancestral rights to the land, had eradicated all the game animals for about one mile on either side of it, he said.

Some of the species are making a comeback, Erwin said, but that is largely because of changing Huaorani lifestyles — they are giving up their nomadic hunting ways for more permanent agriculture.

In theory, there are ways to responsibly extract oil from the ITT, Erwin said, “but even with the best ideas possible to start out with, if you let a person in there it’s gone.”

In some ways, the Yasuní-ITT project is already a success. Yánez, with Acción Ecológica, said that before the initiative was launched few in Ecuador were aware of the area. Now polls show that more than 80 percent of Ecuadoreans don’t want the country to exploit the oil in the ITT, even if the international funds don’t materialize. If Correa lifts the drilling ban, he’s likely to face a public backlash, she said.

One of the risks of tapping the ITT is that no one is sure what it holds. Researchers recently discovered a fungus near the area with intriguing commercial potential: it consumes plastic. Erwin says 85 percent of all the insects his team collects are unknown to science.

Damaging the forest before it gives up its secrets is analogous to the burning of the legendary library of Alexandria, Egypt in 600 B.C., said Romo with the university research station.

“There are so many wonders and so much information that Yasuní is holding that will be beneficial to humans,” he said. “We just don’t know it because we haven’t had the chance to explore it.”

Credit: By Jim Wyss, the Miami Herald,; photo captions: scenes from Yasuni

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  1. Gary,
    Thanks for the very interesting and informative post. My question upon hearing this initially was, how this will affect the indigenous poor? The folks that don't have 220 electric in their homes. The petro increase will greatly hamper many of their lively hoods that depend on motorized vehicles. Taxi fares will be dramatically increased. Added to that, the influx of foreigners will decrease, as those very incentives for a more reasonable cost of living will be greatly diminished, making it not as desirable of a place to re locate to. And, the foreign dollar has created many new jobs, and brought much new added dollars into the country.
    Again, just my 2 cents... and worth every penny. < grin >
    Stay Well,

    1. I know when the Government stopped subsidizing the local airlines the fares doubled! Although lately I have noticed specials due to lack of use I suppose.
      The government will continue subsidizing schools, hospitals, public transportation etc.; It will effect to rich of course and those who drive cars. One problem will be the cost of food unless the government subsidizes the farmers and food transportation. It will be interesting to see what happens here.

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