However this year's house price rises were lower than in the past five years, due to the slowdown of the economy in 2014-5, larger caused by plunging copper prices:
- In 2010, residential property prices rose by 15.18% y-o-y (12.83% in real terms);
- In 2011, residential property prices rose by 17.89% y-o-y (12.56% in real terms);
- In 2012, residential property prices rose by 18.13% y-o-y (15.09% in real terms);
- In 2013, residential property prices rose by 15.49% y-o-y (12.28% in real terms);
- In 2014, residential property prices rose by 12.03% y-o-y (8.53% in real terms).
- In 2015, residential property prices rose by 9.08% y-o-y (4.58% in real terms).
In 2016, housing prices in Lima are predicted to rise between 2.5% and 5%, according to the Peruvian Chamber of Construction's (Capeco) President, Ricardo Arbulķ.
More housing sales
Though housing price rises moderated in 2015, sales increased. Home sales in Lima and Callao rose by 15% y-o-y in 2015 with around 12,708 houses sold, according to the Ministry of Housing, Construction and Sanitation (MVCS).
Sales increases affected all socioeconomic strata, according to MVCS head Francisco Dumler, with construction companies apparently correctly adapting supply to demand. Dumler predicts a 7% increase in home sales in 2016, with around 13,500 new home sales. Around 65% of companies surveyed by Capeco expect sales to rise in 2016, and 47% of promoters expect that investments in new projects this year will rise by more than 10%.
The† housing market is likely to be stimulated by a change in the Pension Fund Administrators' Law (AFP Law), which now allows AFP members to withdraw 25% of their fund to finance their first property.
Foreign residents and nonresidents alike may buy Peruvian property. Investment in Peruvian property does not require government approval, except if such property is close to Peruís frontiers. Foreigners cannot own property near government installations and military bases.
Analysis of Peru Residential Property Market »
Smaller apartment sizes typically cost around US$1,900 per square metre, with larger apartments US$2,000 per square metre.
How much can you earn?† Rental yields in Lima are much less good than they used to be. Yields on smaller apartments have fallen over several years from an amazing 13% to around 6% for 120 square metre (sq. m.) apartments.† By regional standards house price to rent ratios in Peru are comparatively high.† 6% is not a bad yield, however. †Smaller apartments are likely to yield more.
The currency risk. In currency terms, Peruís Sol has somewhat depreciated over the last four years, but by less than the Chilean Peso, Brazilean Real, let alone (heaven forbid!) by as much as the Argentinian Peso.
Round trip transaction costs are moderate in Peru. See our† property transaction costs analysis for Peru and property transaction costs in Peru, compared to the rest of Latin America.
Additionally, leasing real estate in Peru is subject to VAT at 18%. VAT is imposed when legal entities (individuals and corporations), resident or not, rent out Peruvian properties.
Capital Gains: Gains earned by nonresidents selling Peruvian property are taxed at a flat rate of 30%.
Inheritance: There are no inheritance or gift taxes in Peru.
Residents: Residents are taxed on their worldwide income at progressive rates, from 15% to 30%.
Tenant Eviction: Legal proceedings to evict the tenant can be burdensome and highly time-consuming (even tedious).
2014's 2.4% GDP growth was Peruís weakest since 2009 (1% GDP growth) due to declining investment and weak external demand for copper. Prior to that, the country had enjoyed strong growth: 8.5% in 2010; 6.5% in 2011; 6% in 2012; and 5.9% in 2013, according to the IMF.
The central bank expects economic growth of 4% in 2016.
"Because of the increase in mining we are expecting the biggest contribution to growth next year will be coming from exports," said Central Reserve Bank of Peru governor Julio Velarde. The mining industry accounted for around 14% of Peru's GDP in 2014. Mineral exports amounted to US$ 16 billion during the same year.
"Looking ahead, we expect economic activity to continue picking up in 2016. Mining output should continue to increase as a number of new mines become fully operational and ongoing government infrastructure projects should eventually provide some support to the beleaguered construction sector. Whatís more, we expect monetary policy to remain fairly accommodative as interest rates are hiked only gradually over the course of this year," says Capital Economics.
In June 2016, inflation was around 3.3%, the lowest inflation rate since April 2015. Unemployment was 6.7% in June 2016, according to the Central†Reserve†Bank†of†Peru (BCRP), down from 7.6% the previous month, but still higher than 5.4% in June 2015.