Published by the CIPS Network of the National Association of REALTORS®
Third Quarter 2003
El Salvador: The Waking Little Giant
By Carlos Fuentes, CIPS
My recent visit to El Salvador in Central America was truly an eyeopener. It consisted of meetings with young, dynamic government and private sector representatives, most of them schooled in the U.S. and fluent in English. The Camara Salvadoreña de Bienes Raíces (CSBR) hosted my visit as NAR President’s Liaison to El Salvador.
Doing business in El Salvador can be a comfortable experience. There is an excellent telecommunications and roadway infrastructure in place. Telephone rates are among the lowest in the region as a result of four companies with a presence in the country and a fifth considering entry into the marketplace. The stable democratic government adds to the desirability of economic involvement in this country. The national currency is the U.S. dollar, thus eliminating most foreign currency-related risks.
A Favorable Housing Climate
The housing industry is very strong, with ample product in low cost housing and upper income levels. There exists a short supply or nonexistent supply of middle-class homes and apartments, however. It is somewhat difficult to explain the reasons behind this, as the basic elements for new development are present: reasonable land values, good infrastructure, adequate financing and strong demand.
Developers have focused their attention on the products on either end of the spectrum, but have pretty much ignored the broader middle ground. Some town home developments are in the final stages of construction, but were built in some of the more exclusive residential sections of San Salvador. This has forced developers to price them beyond the means of the average middle-class family.
A Supportive Government
Strong government financing has recently been directed towards low cost housing, currently showing a tremendous shortage even though there is a supply of already built projects found mostly in bank portfolios. One of the big issues has to do with the segment of the population that is part of the informal (underground) economy that is unable to access institutional financing to acquire homes.
A joint effort between the government and private developers has resulted in a “housing leasing” legislation proposal. This contemplates leasing a home for a period of 15 years, after which title to the home is granted to the tenant. The lease agreement requires much less documentation and proof of income than conventional financing, thus making homes available to a large, important group within the national scene. The opportunities for further development are exciting in light of this upcoming
legislation.
Flourishing Industry
The industrial sector is now showing signs of diversity. I visited an industrial park, Miramar Free Zone, which could be found Anywhere, USA. A modern, state-of-the-art facility, gated, with 24-hour security, fiber optic capabilities, and all services available on site. Construction methods for the buildings, under the build-to-suit format, are basically identical to U.S. standards. In addition, the Puebla Panama Plan—a “dry canal” consisting of a highway that traverses El Salvador from East to West connecting Panama and Mexico—is expected to generate a need for light manufacturing and distribution facilities along its route.
The supply and demand in the office market seems to be balanced at this point. In retail properties, there are two major shopping centers under development at this time in downtown San Salvador. One is nearing completion, 100% leased up on pre-construction marketing and the other is a mega mixed-use complex just coming out of the ground that includes a hotel, movie theaters, residential units, plus office and retail spaces.
Available Funding
El Salvador boasts a banking system that is a dominant player in the entire Central American region. The latest technology and financial instruments are the order of the day amongst the Salvadorian banks. Interest rates are now in the single digit range.
Another key element that is demanding the attention of all development related sectors is the $2 billion per year that reaches El Salvador from its 2.4 million nationals residing in the U.S. Currently, 92% of these funds are now being spent on consumer goods. An effort is underway to divert some of these funds into more tangible assets, particularly real estate. This represents a tremendous opportunity for REALTORS® in the U.S. to present properties located in El Salvador to Salvadorian nationals in the U.S.
Much of this can easily be accomplished through the strategic alliance NAR has created with the Salvadorian national real estate board, CSBR. A bilateral agreement is in place to facilitate the exchange of information and, thus, transactions between U.S. and Salvadorian real estate brokers.
As you can see, all the “hardware” is either in place or in the pipeline. Combine that with a dedicated, hard-working, well-educated group of leaders and what you have is a scenario for real growth and development. The Little Giant is quickly waking up.
Carlos A. Fuentes, CIPS, CCIM, of the International Commerce Center in Lutz, Florida, was born and educated in Puerto Rico before coming to the U.S. Specializing in commercial real estate, he has traveled extensively throughout the U.S., Europe, South America, and the Caribbean and is experienced in site development; rezoning submissions; negotiations; and financial, market and investment analysis. He currently serves as the NAR’s President’s Liaison to El Salvador. You can reach him at cfuentes@ccim.net or at +1.813.598.4224.
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