A few months ago I went to El Salvador to see whether there were any interesting investment opportunities. I met with lawyers, investors, expats, locals, agents, etc to try to get a good feel for what is happening on the ground. I even got a local tax number in El Salvador to be able to make offers.
What I found is an economy that is booming, but where the boom is not visible yet. The fundamentals are being worked on.
What I also found is a real estate market that ran ahead of itself.
This is not to say that there aren’t opportunities, but real estate is already pricing in a considerable part of the economic gains ahead.
However I must say that I was impressed with the economic and anti-corruption reforms being implemented, and by the unity of the people in El Salvador with regards to their current leadership. Only in Oman did I ever come across a people that like their leader to such an extent.
Here is a video of my key takeaways on the economy and the real estate market in El Salvador.
I also wrote a whole article on the real estate market in El Salvador.
Personally, I think the play in El Salvador is either investing with a very long term horizon, or preferably in an active business on the ground. The latter has a lot of potential.
As a pure investment/speculation, I prefer investing in real estate in Nicaragua.
In terms of overall value at relatively similar valuations, I feel that real estate in Panama has more to offer.
To a World of Opportunities,
The Wandering Investor.
Other services in El Salvador:
Article on El Salvador:
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Transcript of “Real estate market in El Salvador – overview of opportunities”
Hello, Ladislas Maurice from thewanderinginvestor.com. Today, we’ll be discussing the real estate market in El Salvador. Over the past two years or so we’ve heard a lot about El Salvador and I had quite a few of my private clients ask me about opportunities there, so I decided to go have a look. I booked a one-way flight to San Salvador without knowing how long I would stay there. I ended up staying there about two weeks, meeting with lawyers, realtors, local business people, expats, etc., to get a good grip of what’s actually happening in El Salvador and what the opportunities are.
Macro overview of El Salvador
When you take a step back, and you look at the macro picture of El Salvador, it’s actually far from impressive. The demographics are okayish. The growth has been relatively lackluster for the past few years. The country has a very large current account deficit, which is essentially driven by a very poor export profile, which is mostly comprised of textile and foodstuff. It’s a very unsophisticated economy. In 2022, it almost defaulted on its government debts. When you just look at El Salvador, you just look at the current picture, and you look at the numbers, there’s absolutely nothing impressive about the place.
Catalysts for El Salvador real estate market
The question is, essentially, what are the catalysts and what are the potential changes that could be positive for the real estate market in the long run? All right.
The first thing is, the crime is now drastically down. Before President Bukele took power, it was essentially a narco state where people just stayed at home, couldn’t really do anything, the place was just too dangerous. I remember I was taking the bus, one day in San Salvador, I was talking to a girl sitting next to me. And she was explaining that before Bukele took power, she stayed in one of the barrios, and whenever a friend or relative came to visit the family, they had to register that person, give that person’s name and ID to the local gang, essentially, so if that person caused problems or turned out to be a government informant or a police officer, then the family would essentially be held liable for this. It was really, really tyrannical.
Bukele took power, essentially cleaned everything. He put 2% of the adult male population in prison without necessarily a lot of due process, so there are quite a few innocent people that are sitting in there. But the result is that it is now one of the safest countries in the Americas. I was walking around in San Salvador at night with my iPhone, making video calls, didn’t have a single issue. Just three, four years ago, that would have been unthinkable. Going from a country that always had either civil war or massive gang problems to now being one of the safest countries in Latin America, well, this is a huge catalyst for growth going forward.
Another catalyst is that Bukele’s image is gradually improving. When he first took power, a lot of the West hated him because of the things he was saying, legalizing Bitcoin, being tough on crime, a lot of the West was not comfortable with his approach. But what’s happening now is that he’s extremely popular, not just locally, he was just recently reelected by a wide margin, over 80% of votes, but also throughout Latin America. Whenever there are elections anywhere in Latin America, nowadays, there’s always a candidate that tries to position himself as that country’s Bukele. He’s having a real impact on the whole continent. This means that now foreign companies are less wary of investing in Salvador because there’s just less stigma associated with doing so.
Bitcoin adoption in El Salvador
A third positive point is Bitcoin and the price of Bitcoin, it’s been going up, it’s been doing quite well. This attracts a lot of investment from crypto enthusiasts, specifically from North America. And it has been fantastic marketing for the country. You always see El Salvador making headlines due to Bitcoin, etc. And essentially, it’s really not costing the country much money at all but it’s massive, free publicity that has also boosted the local tourism industry, which is growing at very high double-digit rates on a yearly basis thanks to this.
Economic reforms in El Salvador
But most importantly, where the crux of the matter is, is all the economic reforms that are being put in place in El Salvador by President Bukele. Being tough on crime was just one part of the reforms, but he’s also putting all these economic reforms to make, for example, doing business a lot easier. As soon as I landed in El Salvador, my thinking was I’m sitting on cash, I’m willing to make offers if I see something interesting, but I first need a tax number to be able to do this. I just went into the local Tax Office with $2, my passport, and within 20 minutes, I had my Salvadorian tax ID, which would enable me to do any sort of business in the country.
What’s also important to note is that the whole Bitcoin move was not just clever marketing, and it’s not just about having the ability to pay for McDonald’s with Bitcoin, which you can actually do in El Salvador, or your hotel, or even the hairdresser, the biggest net positive of this move was that all the remittances coming from Salvadorians living in North America, essentially, now go through the Bitcoin system, which is a lot more affordable for people than using traditional banks, and Western Union, which are very heavy on fees, especially for small amounts.
What Bukele did was he created a whole network of Bitcoin ATMs throughout the country, approximately 200 of them. And there, you can either buy or sell Bitcoin for US dollars, with a spread of about 0.5% to 1%. When I was there, in El Salvador, I saw queues at all these ATMs, mostly from Salvadorians who were receiving money from their family members in the US sending it back through Bitcoin, and then they were cashing out US dollars. This really cut out the middlemen for transactions between Salvadorians in the US and Salvadorians in El Salvador. From that point of view is absolutely brilliant. And remittances are very important. They are between 25% and 30% of GDP in El Salvador.
US open border policy
And this brings me to another catalyst, really, for the country. And it’s the fact that the US border is completely open these days. A ton of unemployed or underemployed Salvadorians have moved to the United States, they’re now working, generally illegally, but sending money back home, which is a huge boost for consumption and construction in El Salvador. Same thing with the criminals that did not end up in prison, while they’re not staying in El Salvador because they know it’s too dangerous, so now they’re in the US, they’re committing crime, but it’s great because they’re now sending money back to El Salvador. This open border policy of the United States is actually very bullish for all of Central America.
Anti-corruption reforms in El Salvador
And to go back to the economic reforms, when I was there, my lawyer was explaining to me that the whole business culture is changing because Bukele is now starting a war on corruption. He explained to the Salvadorian people that, “I created a prison for gang members. You see, everyone’s in there. I am now creating a prison for white collar criminals. If you get convicted of corruption, you will end up in that prison.” Suddenly, the whole atmosphere in the country changed, and there is almost zero corruption anymore, because people know if they mess up, if they get caught, which is highly likely, they’ll end up straight in that prison.
Now, as a Westerner, if you do business in El Salvador, you will not be facing any corruption issues, which is huge, because generally, it’s an issue across Latin America. You’ll still be facing bureaucratic and administrative hurdles, because, again, Latin America, nothing’s too efficient, but those are issues that your lawyer can help you work through. But corruption, now finished. This is also a huge catalyst for the country. And it’s not something that you see in the numbers yet. Let’s say that, previously, if the government had a budget of $100 million to build a brand new highway, potentially, only $30 million of that, or $50 million of that would actually be spent on the highway. The other $50 million would just be going into foreign bank accounts, or overbilling, etc., but it wouldn’t necessarily appear as gone in the GDP figures. But now, when there’s a budget for $100 million dollars for a road, actually $100 million of road gets built.
Real estate in El Salvador
Now the government actually has money for infrastructure development, and they have a lot of plans for infrastructure development. Looking at all this, I thought this is relatively interesting, so let me have a look at real estate. Essentially, I traveled all over the country to look for real estate opportunities. The number one obvious destination was the coast, the Pacific coast, which is well-known for nice surfing, that is very close to the capital city. You have three main beaches, El Zante, which is called Bitcoin Beach, that whole area, everyone accepts Bitcoin in every little shop, etc. El Tunco, which is a lot of backpackers, but it’s becoming quite high-end nowadays. And then also La Libertad, which is the first beach from the capital city of San Salvador.
I went there, started looking around. And I was quite surprised, but essentially all the Bitcoin bros just bid up the prices already over the past few years. Real estate there is now essentially the same if not more expensive than beachfront property in Panama, and I just fail to see the value there at this stage. I was a little disappointed. I thought, okay, let me head out to the capital city, San Salvador, because if there’s going to be broad-based growth in the country, then a lot of it will end up in the capital city. But same thing, no one was interested in selling, and the ones who were interested in selling were extremely greedy in terms of their prices. Just going around and talking to people, lawyers, and I went to see brokers as well, etc., and people are like, “Yeah, no one’s selling, because the price of real estate goes only up.” Everyone in the country is super optimistic, and that has translated itself already into asset prices.
I thought, okay, let me go a bit farther, let me go into the mountains, because, generally, every Latin country has some cute little touristic mountain colonial towns, so that could be an interesting play. I went to two of them, one called Berlin, which is known for wide Bitcoin adoption, almost all the shops accept Bitcoin, even for small transactions, and Alegria, which is a 15-minute ride away, cute little towns in the mountains and the hills, contacted the brokers, walked around, spoke to people, who’s selling, etc. And everyone was just laughing at me and saying, “Do you think anyone will be selling now?” Literally, there is next to nothing on the market, except for some completely overpriced nonsense. I thought, cool, good for the people. Let me go to the other place that should see good growth, which is called La Union.
La Union real estate
La Union is strategically very interesting, because it’s a city that is at the entrance of the Gulf of Fonseca, which is a gulf that unites Nicaragua, Honduras, and El Salvador, which is completely undeveloped for now, but Bukele has interesting plans. One, La Union Port, he wants to redevelop, encourage trade between the three countries. He is also working on plans for whole railroad between the west of the country and the east of the country, which would end at La Union at the port. There’s also a new international airport, which is being built with local money, called the International Airport of the Pacific. This is being built with Salvadorian money. It really shows once you remove all the corruption, there’s a lot more money left to actually spend on infrastructure development. And he has plans for a whole Bitcoin city, which will be a free zone, again, with good access to the airport, to the railroad to the port, and with cheap energy from a volcano, so thermal energy directly from a volcano. He’s got a whole bunch of plans there.
I think that area would be interesting to invest in. I spent a day there, talked to people. People weren’t even really keen on talking to foreigners that wanted to buy land. Thereafter, I found out that there’s a bit of an understanding amongst the locals that people should not sell to foreigners yet, that because it should be locals that benefit from the developments in that area. It’s not a law or anything, it’s just the locals among themselves that have just kind of informally agreed to this. It doesn’t mean it’s not possible to make a deal if you can demonstrate that you’re actually going to add value. If you just want to buy land and speculate on that, that’s not welcome. But if you’re going to go there, buy land, develop warehousing, a hotel, etc., there are definitely opportunities. I mean, that whole town, there is no single half-decent hotel. Just that in itself would be an opportunity, especially if there’s going to be an airport, and a railroad, etc. There are definitely opportunities there, but for people who want to actually create businesses rather than just a speculation.
Summary
Overall, when I look at El Salvador, I see a country that is on the right track, sure, but it’s still in very, very early stages. I mean, there’s a lot to do, still. You hear a lot of people going around saying it’s the next Singapore. It’s not the next Singapore, it’ll never be the next Singapore. The reality is the level of the human capital is relatively weak at this stage, the education system is very poor. There are reforms being put in place to help improve this, but the raw reality of what’s on the ground is that the education levels are still extremely poor. And I believe it’ll take at least a few generations for things to really change from a human capital point of view. Doesn’t mean the country won’t get better, but it’s not going to turn into high-tech Singapore in just one generation. That’s absolutely not going to happen.
In terms of asset prices, they’re already pricing in a lot of the positive developments. All the catalysts I mentioned early on, asset prices are already valuing themselves as if all the positive developments had already materialized. I have a hard time recommending El Salvador as an interesting place to invest in real estate. I think it’s a great place if you want to go there and lower your tax rates, and living in an area with very little crime, and where you can actually work on a physical business locally, and actually help build the country. There are definitely opportunities for this. But just from a pure passive investment point of view, I don’t see it for now. At similar valuations, I much prefer Panama, which is obvious, it’s much more developed. And at much lower valuations, I have a strong preference for Nicaragua.
I wrote a whole article on the real estate investment market in El Salvador, talking about all these places I went to, etc. There’s a link below. Also, if you want to have more information on the real estate markets on Panama and Nicaragua, I wrote full analysis of these two markets. The links are below.
