Government housing support and revived interest by private developers

As the country strives to resolve a pending housing deficit, the stable growth of the economy is prompting a new dynamism in the higher segments of the market. This is supporting continued sales of new homes, as well as efforts by builders and promoters to continue to satisfy demand. But challenges remain, with rising land prices encouraging a greater concentration of homes, and available space becoming a rare commodity in Lima and other growing cities throughout Peru. Particularly associated with the housing deficit in the lower-income segments of the market, real estate development faces the obstacle of irregular urban planning and lack of amenities.

Sector Breakdown

Hand in hand with major gaps in available housing for low-income Peruvians, an influx of available liquidity is benefitting the higher-end segments. In an effort to contain speculation, the banking sector has toughened credit standards for people buying second homes. After a period of decreasing sales, the market has started to pick up again, driven by the growth of the middle class. The real estate industry in Peru also saw an increase in activity in the second quarter of 2014, after three consecutive quarters which saw the sales of homes fall. In April through June sales of new homes in Peru rose 11.6%, according to figures by Tinsa, a consultancy firm.

Demand in the Peruvian real estate market is being influenced by a shift from low-end homes to middle-income housing, following a trend set by the positive economic performance of the past few years. According to figures from the Peruvian Chamber of Construction (Cámara Peruana de la Construcción, CAPECO), the number of families in the middle, upper-middle and upper classes rose by 25,800 in 2013, meaning that there was an increase in the number of homebuyers willing to pay more for a home. This has been reflected in housing demand. A report by BBVA Bank, titled “Real Estate Outlook Peru”, found that in 2013 there was a decrease in demand for homes with prices ranging between $40,000 and $80,000, which had been a central part of the housing market during 2012. In addition to that, supply of homes, which includes the number of sold units as well as available homes, with prices between $80,000 and $150,000, rose by 25%, as developers adapted supply to the market’s increased capacity to pay, according to the report.

Housing Programme

This shift also shows how urbanisation has contributed to changes in the market. Rapid population growth and high levels of urban migration in the 1970s and 1980s combined to exacerbate Peru’s housing deficit. According to Carlos Lock, a director at the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, MVCS), the current housing deficit is close to 2m homes, which is divided between demand for 500,000 new units and 1.5m homes that require major renovation. A considerable number of homes in the country are built piecemeal by their owners, which contributes to poor conditions, but also promotes a steady market for building materials. “A huge housing deficit and low supply has stimulated self-building activity, with 40% of cement going to this segment,” said Angel Ramos, market analyst at real estate developer Edifica. “Additionally, the increase in land prices has caused many people to build their homes in unsuitable areas.”

Social housing schemes are managed by the MiVivienda Fund, which is under the purview of the MVCS, with the bulk of support channelled through two programmes. The first, Techo Propio, or Own Roof, focuses on helping low-income Peruvians buy a house, both through loans and subsidies. It can also be accessed by poor families aiming to build their own home or fix an existing one, and is designed for families earning PEN1860 ($664) a month or less. Low-income to medium earners can access MiVivienda loans, which assist buyers wanting to buy a unit costing between PEN53,200 ($18,992) and PEN266,000 ($94,962), (see analysis).

In several aspects, the MVCS’s measures have been developed to cater to specific conditions. Taking advantage of the high level of self-construction in the real estate market, authorities have come up with an instrument to ease land acquisition. Tapping into the MiVivienda Fund, and to help land buyers choose a potential plot correctly, the Mi Terreno, or My Plot of Land, programme was launched in May 2014. It finances up to PEN50,000 ($17,850) of the cost of buying a new plot of land and is aimed at families that do not own any home or property. Beneficiaries put in 30% of the cost and are able to start construction once 60% of the loan has been paid. Authorities expect to activate 3000 Mi Terreno credit lines up to the end of 2014.


Demand for homes continues to put pressure on prices in some of the capital’s more expensive neighbourhoods. Over the second quarter of 2014, prices per sq metre in areas such as Miraflores, Surco and San Isidro, which tend to be the most popular among middle-upper and higher income earners, reached between PEN4479 ($1599) and PEN5729 ($2045), according to real estate appraisal company TINSA. Sales of homes, especially at the higher end of the market, are closely linked to mining, one of Peru’s main economic activities. When prices for minerals in exports markets go down, this is generally mimicked by home sales. “The biggest capital holders have savings and stocks, and Peru’s stock market has a big presence of mining companies,” said Alfredo Rolando, general manager at real estate developer and brokerage firm Palo Alto. However, during 2014 mining prices stayed low, but a relatively solid demand for housing in the higher end market is coming back.

Office Market

The economic dynamism has been beneficial to the market for new office space as well. Part of this is linked to the fact that the market for work spaces in Lima remains one of the smallest in the region. This makes for fast absorption of new space that becomes available and is attracting investors. Domestic dynamics are also having an impact. In Lima, where the majority of business activities are located, most start-up companies typically begin out of home offices, or in a residential flat purposely rented to serve as an office. “Office space development has a lot of room to grow over the coming years. Santiago de Chile has 2m sq metres of prime office space. Lima has only 580,000 sq metres, and will probably reach 600,000 sq metres by the end of 2014,” Ramos told OBG.

The current supply of prime office space in the capital is concentrated in 49 buildings, according to real estate consultancy Colliers International. Recent additions to the market included Real Ocho, an extension to an existing network of office buildings in the same development in the San Isidro Golf neighbourhood, and Centro Empresarial Reducto in Miraflores. Both buildings combined added 28,000 sq meters to the prime segment, with an extra 13 new office buildings estimated to come onto the market before the end of 2014, according to Colliers International’s report. Prime office areas such as San Isidro, Miraflores and San Borja remain the most sought after, with Magdalena surging as a new hub for office space.

Furthermore, several new office space projects are under construction, but under the current market trend, vacancy rates, at 6.17% during the second quarter of 2014, have increased in comparison to the previous quarter, which saw vacancy rates at 5.57%, Colliers International reported. This can be the start of a trend towards oversupply in the market, although dynamism seems to be present as new office spaces are planned for the coming two to three years. “Up to 69% of office space under construction is put on the market even before construction has finished,” said Ramos. The low vacancy and relatively stable high demand make the office segment one of the most interesting for investment purposes. In terms of pricing, monthly rents for office space classified as A+ averaged $22.32 per sq metre over the second quarter of 2014, according to figures from Colliers International.

Commercial Real Estate

Following a similar trend is the demand for commercial space. Rising disposable incomes among Peruvians have led to retail sales in malls increasing by 97.6% from 2011 to 2014, according to figures by the Peruvian Association of Shopping Malls, which also stated that investment in the sector will reach $507m in 2014, divided between expansion of existing malls and the construction of new ones. InRetail, a real estate developer, recently opened the CC Real Plaza Salaverry shopping mall in Lima’s Jesús María district. A $120m investment, the mall has a gross leasable area (GLA) of 72,000 sq metres over five floors. In San Isidro, InRetail has started the first phase of a mixed-use project that will include office space, 50,000 sq metres of retail area and a supermarket.

Favourable conditions are also attracting investment from within the region. Chilean real estate developer Parque Arauco, which operates in Peru through its subsidiary Inmuebles Comerciales del Perú, has offered to acquire local operator Ekimed, owner of a 30,000-sqmetre mall in Cajamarca and a 37,000-sq-metre shopping centre in Ica, for $100m. In Cajamarca the $95m CC Real Plaza shopping mall opened in 2014, with a GLA of 70,000 sq metres. The company opened another mall under the same name further south in the tourist hotspot of Cusco, with the investment totalling PEN163m ($58.19m) for 38,000 sq metres of GLA.

Understandably, rising land prices are putting pressure on projects. “If you want to build a strip shopping mall, which is usually two floors in height, those two floors alone will most likely not make it commercially viable nowadays,” Eric Rey de Castro, Colliers International’s managing director, told OBG. To counter this, developers are adding other elements to projects, such as additional office floors on top of commercial projects. One example of this is the planned $300m Parque El Golf, intended for San Isidro in Lima. The new mall will link with the existing CC Camino Real, representing an alliance between the Parque Arauco group and Inversiones Centenario. The project, scheduled to open in early 2016, will offer 60,000 sq metres of GLA, as well an extra 30,000 sq metres for hotels and office space, according to a report by Colliers International.

On account of these developments, 2014 is expected to close with a total of 70 shopping malls operating in the country. Monthly rent for commercial spaces in Peru range from $43 per sq metre in the smaller malls to $58 per sq metre in some of the larger regional shopping malls, according to second-quarter 2014 figures from Colliers International. The country’s efforts have not gone unnoticed, and the 2014 Global Retail Development Index, published by real estate consultancy AT Kearney, ranked Peru 13th globally and 4th in Latin America in terms of retail development.


Renovation of key transport infrastructure such as roads, airports and ports is encouraging the development of new industrial plots. Over recent years, the market has been going through a transition phase, especially in Lima, where the expanding residential areas have reached industrial areas that used to be considered the outskirts of the city. This has created certain market imbalances that are now being corrected, as industries relocate away from heavily urbanised areas and the plots they occupied are sold to become high-yielding residential developments. “Around the Jorge Chavéz Airport, for example, some land plots have already had their zoning changed to residential, which means that you can now build 10-storey buildings,” Rey de Castro told OBG. “You have industries today on land that is worth $800 per sq metre. Some market distortions have been created over the years, but now they represent opportunities.”

In an effort to stay on top of new transport infrastructure and increased traffic, some new areas have been put on the market. However, according to a report on industrial real estate published by Colliers International and covering the first quarter of 2014, industrial land prices in Peru are the highest in the region, sometimes exceeding by 300% those in surrounding countries. Part of this might be explained by the proximity of the port of Callao to Lima, which means that industrial land is constantly competing with other segments. This is a much rarer occurrence in other Latin American countries where the main port infrastructure is generally farther away from the main cities.

One issue affecting a lot of industrial plots in Peru is quality of access. This is especially prevalent around Lima, where increased traffic from both cargo and non-cargo vehicles degrades access routes to industrial zones.

This problem will become worse in Lima, as work continues on the expansion of the Jorge Chavez International Airport and on Gambetta Avenue, the arterial road linking to the port of Callao. Prices for acquisition of industrial land in the central west area of the capital can vary between $385 and $580 per sq metre, depending on the location, according to Colliers International’s first-quarter 2014 figures. Rent prices also range between $2 and $6.50 per sq metre per month. Purchase prices are higher in the east of the capital, towards areas such as San Juan de Lurigancho, Cajamarquilla or Ate-Viltarte, where industrial land can cost between $540 and $1000 per sq metre.

Looking For Land

Land scarcity has also been pushing prices up, and in 2013 the price of land represented 24% of the sale value of homes in Lima, according to Edifica. This is worsened by difficulties in extending public services, such as water and electricity, to new areas, particularly on the outskirts of urban centres so private developers tend to avoid the risks involved with building in newer areas. In addition to insufficient amenities, land scarcity is due to inefficiencies. Plots can end up being blocked due to documentation-related problems, mostly because the necessary work in terms of publicly registering land is often not done. “You buy a plot of land and then the problems arise. It could be either because the title has several owners, or the plot has no zoning regulations, or lacks basic services. Our economic success has overtaken our capacity to properly organise the land,” said Rey de Castro.

Rapidly Changing Skyline

One visible consequence of this has been the gradual move towards more vertical construction. Between 2011 and 2013 the average height of buildings constructed in Lima rose by 23%, from 7.9 floors per building to 9.7 floors, according CAPECO. This reveals the extent to which densification is taking place in the capital as the market responds to growing demand.

Over the past two years, the amount of built area rose by only 3%, going from 5.79m sq metres to 5.94m sq metres. However, over the same period the construction of buildings with 15 floors or more increased by 74%, according to CAPECO. Following the advantages of densification, however, comes a pressing need to invest further in utilities and to adapt infrastructure to increased usage patterns. This will likely be one of the more important challenges of urbanisation in the capital city over the coming years.

Sedapal, the state utility managing water distribution in Lima and Callao, has been unable to reach total coverage, leaving many neighbourhoods dependant on privately owned cistern trucks, prompting a public discussion on privatising at least some part of the water utility. In recent years, water infrastructure work has focused more on already existing homes, and not enough on attracting people and construction towards new areas to generate more land for housing.

“To make land available for housing, you need to invest heavily on water infrastructure. As a country, we have made bad use of land, going into agriculture lands in the Andean valleys to increase urban areas,” Lock told OBG. “Much of Peru is a desert and there are huge amounts of available land with no water, but those are the areas we should build in, not in the valleys where the rivers feed agricultural lands.”


Although a better urbanisation strategy would do much to improve efficient use of land, changing licensing procedures could also go a long way due to the existing disconnect between the central government and local and regional authorities. Peru’s decentralisation policies have in some cases established powerful mechanisms at the local legislative level. “This a problem for the sector. Sometimes a local regulation will overweigh a national law. Furthermore, it is easier to approve norms at a municipal council with 12 people, than to pass a nationwide law that needs the approval of Congress,” said Lock.

The disconnect between central authorities and local governments is visible in other details. One aspect that usually leads to delays in construction work is the necessary licences and impact studies for new water and sewage infrastructure. In an effort to ease difficulties for investors, the government passed Law 30230 in 2014, which, among other measures, precludes the need for feasibility and impact studies for water and sewage networks on land established as residential zones. However, some municipalities still request these studies before issuing building permits.


The real estate sector has been benefitting from growing demand and a steady offer of housing stock. This is set to continue over the coming years, although pressure on prices will be alleviated only if the government takes measures to make more land for urbanisation available. One prevailing issue is the differential of homes aimed at the lower-income brackets versus those built to serve the higher-end market, and more needs to be done to make additional acreage available. Several instruments established by MiVivienda are opening up home ownership to a growing number of Peruvians. In related issues such as cleaning up irregular urbanisation, credit allocations like the Mi Terreno programme are ensuring that homes being added to the existing stock are in good condition and respect the legal framework essential to further development. While there is still much to be done to ensure that all segments of the population have access to adequate housing, existing programmes are showing promise.

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The Report: Peru 2015

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