I am a Canadian who has been to Ecuador 4 times in the last 5 years, and am contemplating moving there in the next year. Needless to say, the current economic situation in Canada has thrown a bit of a twist into the decision, especially as it relates to buying property in Ecuador.
In the past few years, the CDN$ has gone from near parity with the US Dollar, to being worth 69 cents. A place in Ecuador that was listed for 200K US 4 years ago is still about the same price now...but in Canadian Dollars, it is actually $300K. That changes the game for me. I could just suck it up, and buy anyway, but there is something about the current economic situation that is not making sense to me.
The thing is, if you look at the economy of Ecuador vs Canada, the two are very similar. They are both dependant on resource extraction and agriculture, especially oil. The biggest export market for both is the US. If you compare them side by side, Ecuador seems that it should actually be more fragile than Canada, as it is more reliant on oil revenues for both GDP and for government tax revenues.
So the thing I am uneasy about is this: Basically, as a Canadian, I have lost 40% of my net worth from a US and Ecuadorian perspective, due to devalued currency. Ecuador doesn't seem to have experienced a matching pain. Real estate has slowed and softened bit, but it has not declined by anywhere near 40%. The reason why appears to be that Ecuador is using the US dollar. I think, if Ecuador had its own currency, it would have devalued as much or more than the Canadian dollar has. I really can't see any sector of the Ecuadorian economy, except household and government debt, that makes Ecuador look stronger than Canada.
Clearly, if Ecuador is on the US dollar, the currency cannot be devalued in the same way that the Canadian dollar has been. But it seems pretty clear that if it is not vulnerable to currency exchange rates, something else has to give in order to correct to at least the same level that Canada has. Being on the US dollar should not have that much effect on the actual net value of the country. The value of actual currency in circulation and being held as reserve by the government/banks is minor in comparison to the total assets of the country. Granted, wealthier Ecuadorians probably have a lot of their personal wealth invested in US based securities...but many Canadians have done the same (unfortunately, I ain't one of them!).
The big difference between Canada and Ecuador is that for Canada, there are a bunch of currency traders sitting in New York that can detect a problem, and adjust the currency value literally overnight. There is no such mechanism in Ecuador. Instead of overnight, it could take as much as a year or two for things to work through the system.
I would think that if the currency cannot adjust, the actual value of the hard assets in the country is the only thing that could. With fewer US dollars coming in to the country due to reduced exports, there should be an impending cash shortage. With less cash available in the system, I would expect the real estate market to be slowing down dramatically, and prices dropping pretty significantly over the next 12 to 24 months.
But as always, with investment and economics, the question is not really about what is going to happen...its about when it is going to happen, and how much... Obviously, I don't relish the prospect of losing 40% of my money and then turning around and investing in Ecuadorian property , only to lose another 40%.....it has the makings of a very bad habit! So, I have pretty well made up my mind that I am going to hold up and rent on the coast for at least a year, and more likley two, until things have settled down, and either the Canadian dollar has risen or the Ecuadorian situation has shaken out.
I am interested in hearing from people that think I am wrong, and that my fears are illogical and unfounded. I am hoping they are....even if I have already lost some net worth, I would dearly like to see Ecuador dodge the bullet and not have to go through the same thing.....Canadians can afford to take a beating, but Ecuadorians can't!
So...what do people out there think?
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