Although economic uncertainty weakened investment in the sector for most of 2015, real estate development continues to offer opportunities in Peru. Housing demand remains high, and growth rates have encouraged development of office, commercial and industrial real estate projects. “There is a lot of caution in terms of investment, caused by El Niño and elections in early 2016. These two elements have kept economic expectations down, negatively affecting the sector,” Ángel Ramos Buiza, market analyst at real estate development firm Edifica, told OBG.

Demand Grows

Years of sustained economic growth have changed the economic make-up of Peruvian society. Between 2003 and 2013, the percentage of the population in the bottom (fifth) income quintile fell from 51% to 38%. Immediately above, the percentage of people in the fourth quintile was reduced from 29% to 27%. As a result, the percentage of Peruvians in the third quintile, which makes up the lower middle class, increased from 15% to 23%. This enlargement of the country’s middle class remains one of the major drivers of housing demand. However, it also feeds into other segments of the real estate sector, such as the expansion of retail areas.

Housing Policy

Reducing the housing gap continues to be a major challenge for public housing support programmes. The prevalence of self-construction has compounded the problem, with owners building their homes gradually, resulting in quality issues and leaving them more vulnerable to decay. “Even though the real estate market has seen a decrease in 2015, the market for developed land has grown.” Sergio Ciccia, general manager at Inversiones El Pino, told OBG. “This is mainly driven by an increase in demand from customers that buy developed land to build their own houses.” The Ministry of Housing, Construction and Sanitation ( Ministerio de Vivienda, Construcción y Saneamiento, MVCS) estimates that the total housing deficit in Peru is around 2m homes. In addition to 500,000 new homes, the country needs to renovate another 1.5m to bridge the gap. Access to utilities has been a major issue in determining areas for new housing development, especially in the capital. “A clearer set of zoning regulations and further investment in water treatment are necessary conditions for Lima’s real estate market to continue growing,” Jaime Rodríguez Larraín, president of C&J Constructores y Contratistas, a real estate developer, told OBG.

All public housing programmes are overseen by the MVCS. As of October 2015, state financial support had been used to build 170,000 homes since 2011, but the goal is to increase that to 250,000 by 2016, when the current five-year term will end. Housing support is run mainly through two programmes, aimed at securing financing from the banking system.

Lending Hand

The first of these, Techo Propio (“Own Roof”) channels financing to help people in lower income brackets acquire a home using loans and subsidies. The programme covers families making less than PEN1915 ($611) a month, and can be used to buy, build or fix an existing home. Techo Propio beneficiaries are also eligible for a non-refundable subsidy ( Bono Habitacional Familiar, BHF), which families can use on the initial home payments. The BHF goes up to a maximum of PEN19,250 ($6140) to help buy a new home, PEN18,095 ($5780) to build a new one in an existing plot of land or PEN8855 ($2830) to repair an existing dwelling. As of September 2015, the Techo Propio programme had allocated a total of PEN3.3trn ($1.05trn) since its inception in 2003. To make the programme more attractive for home builders, in 2015 the government raised the maximum price for a home that can be bought under the initiative from PEN53,900 ($17,200) to PEN77,000 ($24,600).

Another programme, Mivivienda, provides loans to lower-middle and middle-income families. This instrument can be used to acquire homes costing between PEN65,450 ($20,900) and PEN192,500 ($61,400). In 2015 the authorities changed procedures to help more homebuyers afford the 10% downpayment. The Bono de Buen Pagador (Good Payer Subsidy), previously given as an incentive for people who stayed current on their mortgage payments, can now be accessed at the beginning of the purchasing process, enabling buyers to use it towards their downpayment.

The level of government subsidies decreases as the price of a home goes up, in order to allocate the greatest amount of support to the lower-income buyers. A buyer aiming to acquire a home costing PEN65,450 ($20,900) will receive a government subsidy of PEN17,000 ($5430). The maximum price-range eligible for a Mivivienda loan is PEN192,500 ($61,400), which can qualify for a subsidy of PEN12,500 ($3990). Between 2009 and 2015, the Peruvian government allocated a total of PEN9.1trn ($2.9trn) to Mivivienda subsidies, according to the MVCS.

Despite the tremendous benefit that housing programmes have brought to many Peruvians, their impact is gradually reduced by rising land prices. Authorities have been able to mitigate this by adapting loan subsidies to allow homeowners to follow market rises and be kept within market price ranges.

Home sales over the first half of 2015 continued to slow, with the Peruvian Association of Real Estate Developers pointing to a 24% reduction year-on-year. In 2014 home sales fell by 40% compared to 2013 figures, as slower economic growth caused by lower mining revenues impacted the construction and housing sectors. Overall, the housing sector remains driven by strong demand. Total demand for housing in Lima in 2014 increased to 443,500 homes, from 431,900 homes in 2013, according to BBVA figures.

Mortgage Lending

However, after several years of exponential growth, home sales have been affected by slower growth in housing credit. Between 2011 and 2013, housing credit allocation in the Peruvian market rose by 23-26% a year, according to BBVA Research, but the rising trend has since slowed significantly, reaching 15.3% in October 2014. According to information by the Peruvian Association of Banks ( Asociación de Bancos del Perú, ASBANC) the volume of mortgage loans increased by 9.1% over the first half of 2015 to reach PEN34.9bn ($11.1bn). More stringent banking regulations have reined in credit growth rates to a more manageable level, and also gradually reduced the dollarisation of housing credit to avoid exposure to currency devaluation. Housing mortgages in Peruvian soles rose from 50% of all housing loans in June 2013, to 70% as of June 2015.

The regulation has also kept non-performing loans (NPLs) to a minimum. “The rate of NPLs remains low. Part of it has to do with strict rules. In most regional markets you become non-performing after you delay payment for over 90 days. In Peru it is after 15 days,” Ramos Buiza told OBG. “Still, people prefer to stop paying for other things before they stop paying for their house.” According to ASBANC, the rate of housing NPLs in Peru was 0.74% in November 2015, down from 1.4% in 2006. The rate of NPLs in the Peruvian banking sector overall was 1.27% that month.

The low risk has allowed for a gradual fall in average interest rates, from 9.52% in December 2012 to 9.25% as of September 2015. Still, the benefits for individual house buyers depend on their overall liquidity and capacity to pay. “Interest rates on aggregate have been going down, although the lower-income home buyers generally have to deal with higher interest rates of over 10%. For higher-income home buyers rates can be as low as 7%,” Ramos Buiza told OBG.


Along with the wider availability of mortgages, smaller home sizes have made homeownership more attainable. The reduction in average home sizes has been especially visible in Lima and Callao. According to CAPECO, the average size of homes sold in Lima has seen a 7% reduction, from 92.6 sq metres in 2007 to 86.3 sq metres in 2014. The drop was an answer to market dynamics by developers, as the smaller houses became easier to sell. This decreases the prices and initial payments for a mortgage, making more buyers eligible for a home loan. Much of the low- and middle-income housing demand has shifted to less expensive homes. In 2014, 78% of total demand was for units costing below $80,000, according to BBVA Research. Overall, home prices continue to increase, albeit at a slower rate than before, because of the lower market activity and added stock of available units. According to CAPECO, the average price for the city of Lima reached a record $1502 per sq metre in 2014, a 14% increase since 2007.

A wait-and-see attitude has slowed activity, but allowed land prices to stabilise somewhat. Prices in upscale districts of Lima, such as San Isidro and Miraflores, had reached $4000-4500 per sq metre in 2013, but were down to $3500-3800 in September 2015, according to Edifica. “Before, everybody wanted to invest in real estate, so land prices were pressured up because of all the available liquidity. But with investment down, land owners have to settle for lower prices when they sell,” Ramos Buiza said. This represents an opportunity for investors wanting to secure land and prepare for an upwards swing in the real estate market once prices start picking up again.

Office Space

A more balanced growth trend is visible in the office real estate market, particularly in the capital. Although the rise in supply over recent years has put downward pressure on prices, Lima’s office space market remains dynamic, even as investment returns become less profitable. Lima has benefitted from increased investment in recent years, driven by economic growth and by the rising number of international firms procuring office space in the city. As of the second quarter of 2015, there were 693,690 sq metres of inventory in terms of prime office space in Lima, according to global property consultancy Colliers International. An additional 348,365 sq metres of inventory were present in the next-highest (B+) segment of the market in the same period.

Added supply raised vacancy rates to 14.57% for prime office space in the third quarter of 2015, compared to 6.23% over the same period in 2014. Availability has also reduced rents; the average listed rent for prime office space in Lima reached $20.10 per sq metre over the second quarter of 2015, compared to $22.07 per sq metre in 2014. Vacancy rates are expected to continue to rise, further decreasing average rent prices in the near future.

According to Colliers, there were a total of 461,752 sq metres of new prime office space under construction in the third quarter of 2015, and these are expected to enter the market by 2017. Up to 100,000 sq metres of these were scheduled to enter the market before the end of 2015. Additionally, during the same period there were an extra 343,395 sq metres planned, with construction yet to begin.

Class B

In addition to the prime office space, Lima’s office real estate market has also seen development in B+ category office space. Inventory had reached 359,428 sq metres in the third quarter of 2015, with an additional 11,634 sq metres expected to reach the market before the end of 2015, according to Colliers. Vacancy rates have been moving more conservatively in this segment, going from 6% in the third quarter of 2014 to 9% in the same period of 2015, showing signs of increased availability. Average prices in the segment reached $19.74 per sq metre per month in the third quarter of 2015, compared to $20.05 per sq metre per month over the same period of 2014, according to Colliers International.

Although the sector shows sufficient demand to sustain the current level of activity in the medium-term, the immediate impact will be a reduction in earnings for those aiming to invest in this market segment. According to Ramos Buiza, the cap rates for office space real estate investment in Lima decreased to 11% in the second quarter of 2015, compared to around 12.4% in the third quarter of 2014.

Hotel Expansion

In contrast, the market for building and expanding hotels is seeing fresh dynamism. “Hotel development is one of the areas with the highest growth potential in the coming years,” Victor Ticona, general manager at real estate developer Grupo T&C, told OBG. This is mainly driven by a healthy tourism industry, and in Lima’s case, a rising number of business travellers and meetings, incentives, conferences and events tourists. Despite this, the development of hotels is also an opportunistic response to market conditions. “Many construction firms went into the office development business. But since the business has become less profitable, some of these projects have switched to mixed projects with offices and a hotel or hotel projects alone, some of them early on in the initial planning phases, while others in later stages of development,” Gianfranco Aliaga Romero, director at Hotel & Tourism Advisors (HTA), a consultancy, told OBG. Up to 102 new hotel projects are to be established between 2014 and 2021 in Peru, according to HTA.

Industrial Scope

Renewed investment in infrastructure development to support transport and logistics is benefitting the country’s industrial real estate market. In Lima the segment is also being changed by the city’s expansion, with the urban sprawl engulfing previous industrial areas. “This has raised the demand for industrial-park spaces in the outskirts of the capital,” Jorge Zegarra Reategui, CEO at Bryson Hills, an industrial parks developer, told OBG. Accessibility to industrial areas in and around the capital has traditionally been a problem, partly caused by the city’s proximity to the Port of Callao, which feeds truck congestion across the main thoroughfares on the outskirts. On top of these structural challenges, the industrial real estate sector is reacting to a 3.28% drop in the industry sector in 2014, which is likely to slow demand for industrial space.

Prices for industrial space in Lima remain high compared to other Latin American capitals, and vary by area. In Callao, listing prices for purchase vary between $350 and $740 per sq metre, according to Colliers, with the most expensive being around the Avenida Gambetta, which links to the port and Jorge Chávez International Airport. Rents here are between $7 and $9 per sq metre per month.


Higher standards of living and rising levels of disposable income in certain segments of Peruvian society have encouraged the expansion of malls. This translated into 7.7% annual growth in retail during the 2010-15 period, according to the 2015 Global Retail Development Index, published annually by AT Kearney. The report ranked Peru 16th in the world for retail development, three spots lower than in 2014, but maintaining a strong position regionally, coming in fourth after Uruguay, Chile and Brazil. As of September 2015 there were 70 malls in Peru, according to the Peruvian Association of Shopping Malls, with that number expected to reach 80 by the end of 2016. A total of 17 new shopping malls were under construction in 2015, according to AT Kearney.

The national supply in terms of gross leasable area (GLA) has been consolidating in recent years, and reached a total of 2.47m sq metres in the third quarter of 2015, according to Colliers. This was divided between Lima, which boasted 1.5m sq metres of GLA, and the rest of the country, with 929,556 sq metres. Lima continues to be dynamic, with up to 47,000 sq metres of retail space added between the first and second quarters of 2015. Retail space outside the capital saw a similar rise, with 46,000 sq metres of new space added during the same period of 2014.

Despite the added space, the markets are responding positively, with vacancy rates decreasing slowly from 5.2% in the second quarter of 2015 to 5.1% in the third quarter, according to Colliers. Rent prices have remained stable, but depend on the type of mall. Average rents for a Super Regional Mall in Lima in the third quarter of 2015 stood at $61.25 per sq metre per month, plus a maintenance and advertising fee reaching $9.33 per sq metre per month. Over the same period, Lifestyle Shopping Malls in Lima were charging an average $60 per sq metre per month, plus an added $7.50. Rent at smaller malls can cost around $38.67 per sq metre per month, plus an additional fee of $5.67.

Jesús Blanco, CEO at InGroup, told OBG, “Decentralisation of Peru’s economy has been key to the rise of housing demand in the regions, with mining projects and exponential agriculture growth boosting regional economies and disposable incomes.” Indeed, much of the coming investment will focus on regional markets, with new retail outlets expected to open in Huancayo, Arequipa, Huaraz, Huaral and Jaén.


Real estate development in general, and housing sales in particular, were affected during 2015 by a lack of confidence. This was caused by a slower economy, but also by the cyclical impact of an election year, which tends to slow private investment and inject caution. However, structural demand remains strong in most segments. Though some balancing between supply and demand will likely reduce the short-term expansion rate of new office space, growth in industrial and commercial space as well as hotel development will likely make up for it. A stronger dynamic is likely to return after the 2016 elections.