El Salvador was a completely unknown country until three years ago. Whenever it made headlines, it was related to its sky high crime rate. In 2019 a new president was elected, Bukele, who then proceeded to change the country. He made two key controversial reforms which transformed the image of the country and that will inevitably have an impact on the El Salvador Real Estate Market:
- He legalized Bitcoin as everyday currency / legal tender.
- He threw all supposed criminals into prison without due process, thus making El Salvador extremely safe.
El Salvador now makes headlines on a regular basis, which is impressive for such a little country. But does investing in El Salvador’s real estate market make sense?
As a full time investor, I was quite intrigued, and as there is barely any information online on that market, I booked a one way flight to El Salvador to gain on-the-ground insight on what is happening and what the opportunities are.
This report is the result of two weeks or tirelessly going around the country meeting with lawyers, realtors, local business people and expats who have made El Salvador their home.
I flew in from Cancun, took Ubers, walked around, rented a motorcycle, took the local bus, and left on a boat to Nicaragua. I got a real experience of the country.
Before going into the specifics of the El Salvador real estate market it is important to start with a macro analysis of the country.
Table of Contents
El Salvador’s Economy
A complex demographic outlook
In many countries demographics are easy to figure out. Italy and Japan are becoming old, and Egypt and Africa in general are extremely youthful.
In El Salvador’s case the situation is more nuanced.
On the one hand the demographic outlook is more than decent for the next 20 years.
On the other hand the fertility rate, at 1.82 children per woman, is relatively low for the region.
However, these numbers fail to take into account the massive emigration of Salvadorians to North America. If the thesis of investors is that Bukele will turn the country around, then emigration would theoretically slow down, potentially reverse, and the country could see inflows from other Central American countries, thus completely changing the landscape for the real estate market in El Salvador.
In spite of lofty headlines, El Salvador has demonstrated relatively lackluster growth
Bar Covid, El Salvador has been stuck in the low single digit growth figures, which is disappointing for such a poor country. The story for investing in the El Salvador real estate market is therefore a story of narrative, and whether president Bukele can turn things around or not.
President Bukele has little wiggle room
El Salvador has a persistently high government debt to GDP ratio. It might not seem much compared to countries such as the US, but El Salvador does not have the privilege to print dollars. For a country at this stage of development, it is considered a high ratio. Why is this an issue?
Because it limits what the government can get away with. It is hard for the government to borrow more on the international markets, and thus often finds itself in negotiations with multilateral organizations such as the IMF with regards to its debt repayments.
Things are getting better, but are they improving fast enough for El Salvador to be out of the woodwork? This is part of the bet that investors in El Salvador must make.
A large current account deficit driven by a very unsophisticated economy
The task of balancing budgets and external creditors becomes ever harder when running large current account deficits.
For all the talk of bitcoin and tech, the export mix of El Salvador is far from impressive
El Salvador is essentially an exporter of textile and foodstuff.
The reality is that in terms of goods, El Salvador imports more than twice as much as it exports. It’s a scary number. In terms of services it exports a bit more than it imports, the main driver being tourism which is a net positive, and growing. However, services don’t make up for such a bad balance of trade.
El Salvador lives off remittances from the US
El Salvador is entirely dependent on its diaspora sending money back home to drive the economy. Without them, the country would have gone bust a long time ago. Remittances represent an astonishing 24% of GDP.
It’s much better to have 2 million citizens working in the United States and sending money back home every month than having an extra 2 million unemployed people sitting at home.
In many ways, the El Salvador economy is highly correlated to the US job market both due to remittances and tourism from the US.
So where is the economy of El Salvador headed?
As things stand, it is far from an impressive economy. It all depends on whether president Bukele will deliver on his promises. This is the play here. Investing in the El Salvador real estate market is a play on president Bukele.
Positives for the El Salvador Economy
All of these catalysts would inherently be positive for the El Salvador real estate market.
1. Continued low crimes levels
One of the reasons El Salvador did so poorly over the past decades was its horrific record on crime. It was one of the most violent countries on earth. President Bukele instituted a state of emergency and threw tens of thousands of suspected criminals in prison.
He threw 2% of the adult population into prison. He build a massive, new prison to house many of them. The state of emergency is still in place.
The result is that violence and crime are down massively and the country has become investable once again from a security point of view.
Crucially, this has had a massive impact on the locals’ confidence in their country and economy.
2. President Bukele managing his image overseas
This purge, though effective, was hughly criticized by Western countries and international organizations due to the lack of due process that the accused went through. Inevitably, many innocent people are also sitting in jail. Though this made Bukele popular internally, and with some people overseas, his brand was toxic and large companies did not want to associate their brand with his image.
However, this is starting to change. Why? Because Bukele is increasingly popular across Latin America and has insanely high poll ratings within the country. This has resulted in Bukele being Latin America’s most popular leader. He is increasingly being mentioned as an example to follow in various political campaigns in the region.
In essence, Bukele as a brand is becoming decreasingly toxic, which should weaken this barrier to foreign investment.
3. Continued strong labor market in the US and openness to immigration
As remittances represent such a huge percentage of El Salvador’s GDP, the health of the US labor market is just as important a factor as internal matters. For now, in spite of a looming recession, the US labor market is doing just fine.
Also, the US currently has a very open policy towards migrants. The borders are quite easy to get through, and historic numbers of migrants are making it through the Mexico-US border. This is positive for El Salvador as it is an escape valve for its unemployed and underemployed people. Instead of sitting at home and doing nothing, they work in the US and send money back to the family. For El Salvador it’s essentially free money.
4. The price of Bitcoin
Let’s face it, one of the top reasons why El Salvador makes headlines is because it legalized Bitcoin as the country’s second legal tender together with the US dollar.
Bukele’s dictatorial tendencies and fight against crime also contribute to the headlines, but it it weren’t for the Bitcoin move few people would even be discussing the other matters.
El Salvador is extremely popular among the crypto crowd. It has single-handedly led to a boom in tourism as crypto fans come down to El Salvador to observe and part take in an economy that accepts Bitcoin everywhere.
The fact that El Salvador is a short flight away from the US makes it easily reachable to a massive crowd of crypto fans. As big money has been made in the crypto space, some of this money will inevitably flow down to El Salvador which has positioned itself, from a PR point of view, as the most crypto-friendly jurisdiction.
Bukele tweets about bitcoin, buys bitcoin with the country’s reserves, and meets with top US entrepreneurs to try to drive the local economy. He put many incentives in place to encourage tech workers and start ups to move to El Salvador. He also has large plans for a Bitcoin city in the east of the country (more this below).
5. Ongoing reforms and fight against corruption
The core insight emanating from El Salvador is not really about Bitcoin. It is about economic reforms and the fight against corruption. Three examples:
Reforms across the economy to make doing business easier
The Bukele government is doing everything possible to make doing business in El Salvador less bureaucratic. For example, I wanted a tax number to be able to do business in the country, and went through the process myself.
All it took was $2, a copy of my passport, and 30 minutes (15 of which was queuing).
The Bitcoin move was never really about Bitcoin
The bitcoin move was about free PR, which worked and continues to work as El Salvador constantly makes headlines around the world. More importantly, it enabled remittances in Bitcoin, which is huge for El Salvador. Why? Traditionally remittances from overseas (about 24% of GDP) had to go through companies such as Western Union which charge exorbitant fees.
Now, workers in the US can just buy Bitcoin and send it to their relatives in El Salvador. These relatives can then spend the Bitcoin freely in the country, or use one of hundreds of Bitcoin ATMs in the country which typically charge a premium of just 0.5%.
El Salvador has made significant progress in the installation of Bitcoin ATMs, ranking third globally in this regard. The country has installed over 200 ATMs to facilitate local Bitcoin transactions and conversions to U.S. dollars, following its adoption of Bitcoin as legal tender. This rapid deployment has been part of the Salvadoran government’s initiative to support Bitcoin usage, partnering with a cryptocurrency wallet provider named Chivo.
This results in more money for Salvadoreans. The foreign middle man got cut out.
The war against corruption
Corruption was a major issue but in the past year it has been significantly curtailed. It is not visible yet in international rankings such Transparency International. However, when speaking to people on the ground, it is clear that corruption has gone down dramatically. Why?
President Bukele announced a crusade against corruption, including the building of a specific prison for white collar criminals, just as he built a specific prison for gang members.
In effect, as a foreign investor, you can now do business in El Salvador without the threat of corruption. You’ll face bureaucratic hurdles as the reforms still have a long way to go, but nothing your lawyer can’t help you with.
It is already having a significant impact in the country, in a way that statistics cannot capture. For example, if before there was a government tender to build a $50 million road, then maybe only $20 million worth of road would actually be built because of so much fat being in the numbers to keep everyone happy.
But nowadays, a $50 million road contract probably means close to $50 million worth of roads being built. You can’t see this in GDP figures, but objectively this is increasing the real GDP and capacity of the economy.
El Salvador Real Estate Market Overview
Observing all these catalysts, I was naturally attracted to the El Salvador real estate market. I thus traveled around the country and met a number of real estate agents. I got my tax number for this purpose; if I found a good deal I would be able to make an offer.
Here is a map of the key areas of the El Salvador Real Estate Market that are interesting for potential catalysts.
The real estate market in la Libertad, Surf City, el Tunco, El Zonte Bitcoin Beach in El Salvador
This was the most logical market to explore. Why?
- It was the only place foreigners could go to without much danger when crime was high
- The country’s best beaches
- Close to the capital city (an hour drive) which means that local money will also pile there as the economy improves
The three main towns to invest in are:
The real estate market in La Libertad, El Salvador
It’s the first beach town coming from the capital city. It is quite ugly though the Chinese are building a big pier with restaurants, an entertainment center, etc. This city is set to improve. For now it is nothing to look at, but it is on the right path for sure. Development here is inevitable. Foreigners don’t stay here though, it is a local play.
My issue with this market is that locals are so excited with the developments, that they are pricing their homes and land as if the development had already happened.
The real estate market in El Tunco, El Salvador
El Tunco is the cutest town I saw in El Salvador. It is clean, has a ton of food and bar options and a nicer beach than average. It also happens to be where most backpackers and tourists congregate. It’s been around for a long time, but since Bukele came to power it has blossomed.
Also, as it is the nicest “beachy” resort in the country, this is where most Bitcoiners ended up buying property as it is livelier than the Bitcoin Beach nearby. Prices have already shot up a lot.
The real estate market in El Zonte aka Bitcoin Beach, El Salvador
This is the famous Bitcoin Beach with near 100% Bitcoin adoption. It is accepted everywhere. The infrastructure is very decent, and there are quite a few luxury options. It is much quieter than El Tunco. The target market here is surfers and Bitcoiners.
As for the real estate market? You guessed it, Bitcoiners bid up the prices to a point where it doesn’t make sense anymore.
Does this mean there aren’t opportunities on the coast? Of course not. There are still villages in between these three towns that are still extremely backwards and where things will inevitably improve over time, but it will take time. The reality is that even though tourism in El Salvador is “booming”, it is coming from a very low base. You just don’t see many tourists around and there is spare capacity in these three towns.
I’m patient, but not that patient.
The real estate market in the capital city of San Salvador in El Salvador
After having been a bit disappointed at the lack of obvious opportunities on this part of the coast, I decided to explore the real estate market in the capital city of El Salvador. Generally speaking the housing stock is of poor quality.
For new buildings with decent amenities in good neighborhoods you would have to pay $3,000 per m2 off-plan (or $270 per ft2). This is similar to decent neighborhoods in Panama City. I have a hard time making the case for investing at similar valuations in San Salvador.
So I also looked at the historical center of San Salvador, which before was a crime-ridden hellhole but which now is being revitalized with a 0-crime policy and a lot of infrastructure development, including a brand new public library financed by the Chinese. A new mall is also being built. I thought this would be an interesting play.
So I contacted a number of agents. Two findings:
- Nobody is serious about selling
- Those that consider selling are doing so at ridiculous prices / trying their luck
As El Salvador is mostly a cash market, few people HAVE to sell.
Speaking to my broker and lawyer in the capital city, they did mention that real estate is going through a speculative fever as people are so optimistic about the trajectory of their country.
The real estate market in Berlín and Alegría in El Salvador
Having traveled a lot around Latin America, I noticed that each country has a cute colonial town tucked away in the mountains that eventually becomes a tourism magnet for both locals and foreigners. I thus set to find El Salvador’s future cute mountain colonial town.
I settled on Berlín and Alegría as they locally have a reputation for being pretty, with great weather and views, yet not being too far away from San Salvador (about a two-hour drive). Also, Berlín is known for having strong Bitcoin adoption with a whole team of volunteers on the ground driving it.
I thus took the local bus (or rather two local buses) to get to Berlín. What I found is a cute town in its complete infancy in terms of tourism, with objectively only one restaurant which is adapted to foreigners. The town is quite derelict, but has good potential. Same thing with Alegría a 15 minute bus ride away, though much smaller.
I thus got a bit hopeful and contacted local agents and started talking to locals in shops and on the street asking what is for sale.
People just laughed at me telling me nobody is selling because prices can only go up. The agent just pitched me some horrifically overpriced, derelict real estate.
Again, the real estate market has ran ahead of itself and is pricing in the success of Bukele’s reforms.
The real estate market in La Unión
La Unión is in the far east of the country, right on the Gulf of Fonseca which unites El Salvador, Honduras and Nicaragua.
For now it is just a sleepy little town, with poor infrastructure. Its main attraction being the boat to Nicaragua which I took to go explore the real estate market there.
However, there are big plans for La Unión.
The government plans on launching a “Bitcoin City” which is expected to house tens of thousands of Bitcoin loving inhabitants. The city is to be powered by the local Volcano near La Unión. The goal is to turn it into a low-tax free zone to attract and retain talent and enterprises.
Combined with this project, for which the government is busy raising funds, a new international airport is being built in the vicinity. Construction of the new “International Airport of the Pacific” started in 2023.
There are also plans to build a railway from the west of the country up to La Unión. The designs are being worked on, and the government has already earmarked $700 million for this project. The goal is to connect the train to Guatemala’s network and even the Tren Maya in Mexico.
The ultimate goal is to develop the east of El Salvador with La Unión being the hub for trade and commerce within the Gulf of Fonseca together with Honduras and Nicaragua. Currently this Gulf is being utterly underutilized. The goal is to change this.
Overall, though I think these projects will take longer to materialize than communicated by the government, a massive transformation of this area is expected to take place over the coming decade.
This would be a good area to invest. I did not spend too much time in La Unión but there is definitely potential. I ran with the assumption that valuations had already run ahead of themselves, based on the fact that some locals told me people were angry too many foreigners came to invest and there is now an informal understanding among the locals that land should not be sold to foreigners for the time being.
This all sounds a bit too complicated and not worth my time, but I believe that if you are willing to spend a lot of time on the ground, you can probably make some decent long term investments. For example, there are absolutely zero decent hotels in town, which is a gap if all the development and construction is to take place.
Taxes in El Salvador
Here are key facts of the El Salvador real estate market and its tax implications.
- Real estate transfer tax of 3% to be paid by the buyer for any amount over $28,000.
- Income tax of 30% on rental income receive by non tax residents (high)
- No property tax (great)
- Capital gains taxes of 10% on real estate held for more than 12 months. If less than 12 months, taxed at the normal income tax rate.
Objectively, the taxes on rental income are really high
I was impressed with the economic reforms being implemented by the Bukele government, and the near-universal enthusiasm and optimism exhibited by his people. Objectively, it will be a volatile ride with inevitable setbacks but the trajectory is positive.
However, this optimism has led to real estate prices that reflect a full success of these plans, years before they are actually achieved.
The country still needs to develop the infrastructure it plans to build, address its current account deficit, and improve the education of its population.
Will I be buying property in El Salvador Real Estate Market?
As an investor and speculator, I am happy for the people, but it simply means that this market is not right for me. El Salvador is an interesting place to come and start an actual business, but as far as speculations go, a lot of the upside has been preemptively captured.
If I wanted to buy real estate in a Central American market that has similar valuations, I would rather opt for Panama which is much more developed.
If I wanted to invest in real estate in a Central American market that has more potential upside, I would rather go for Nicaragua.
Who should invest in the El Salvador Real Estate Market?
- Individuals seeking residency in El Salvador
- Crypto Investors: Simplifying Property Transactions
- Salvadoran expatriates looking to invest in their homeland.
- Long-term investors with a specific interest in El Salvador’s potential.
For more insights into global real estate markets, explore my articles on International Real Estate Markets
If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.