In the fourth quarter of 2011, the average price of homes sold in Lima Metropolitan Area was up by 19.9% from the previous year, to PEN 262,043 (US$ 99,449), according to the consultancy Peru Tinsa.
Large demand has driven house sales up by around 27.1% to 6,990 units sold during the year to Q4 2011. Lima homebuyers are now focused on units whose value ranges from PEN 100,000 (US$ 37,736) to PEN 200,000 (US$ 75,471).
In 2010, Lima Metropolitan Area and Callao had recovered with a 12.8% home sales growth after its 2009 slump, according to the Banco Bilbao Vizcaya Argentaria (BBVA) Research. The recovery was brought by rapid economic growth, attractive financing conditions, higher consumer confidence and increased jobs.
Lima offers a wide variety of homes ranging from US$ 15,000 to US$ 2.8 million, according to the Peruvian Chamber of Construction (Capeco). The most expensive one is a 700 sq. m. apartment found in San Isidro that costs around US$ 3 million, while the cheapest costs US$ 15,429, a 45 sq. m. apartment in Carabayllo.
Capeco’s study showed that Lima’s best-selling homes are priced around $30,000 to $50,000. Districts with higher effective demand were found in San Juan de Lurigancho (10.83%) and Los Olivos (10.38%), districts that actually belong to low socioeconomic status.
Meanwhile, the districts where most projects are carried out were at Santiago de Surco – construction covers an area of 974,000 m2. It was folloed by Miraflores (681,000 m2) and San Isidro (540,000 m2).
Along with the expected moderate economic growth in 2012, the housing market is likely to surge as well. Housing sales is likely to fare better with the help of lower mortgage rates, improving public investment and Peru’s economic strength. Construction sector is also predicted to grow by 8% in 2012.
Analysis of Peru Residential Property Market »
Smaller apartment sizes typically cost around US$1,800 per square metre, with larger apartments US$2,300 per square metre.
Rental yields in Lima are no longer as good as they were. Yields on smaller apartments have fallen in the last few years from over 13% to around 7.5%, while yields on larger apartments are nearer 5.0%).
In currency terms, Peru’s Sol has somewhat depreciated over the last two years, but by less than the Chilean Peso, Brazilean Real, or Argentinian Peso.
Additionally, leasing real estate in Peru is subject to VAT at 18%. VAT is imposed when legal entities (individuals and corporations), resident or not, rent out Peruvian properties.
Capital Gains: Gains earned by nonresidents selling Peruvian property are taxed at a flat rate of 30%.
Inheritance: There are no inheritance or gift taxes in Peru.
Residents: Residents are taxed on their worldwide income at progressive rates, from 15% to 30%.
Tenant Eviction: Legal proceedings to evict the tenant can be burdensome and highly time-consuming (even tedious).
Financial services had the largest contribution to GDP over the said period with a 9.6% growth. It was followed by hotels and restaurants sector by 9.2% and transport and communications by 8.8%.
Exports were up by 34.7% to around US$ 3.99 billion, during the year to January 2012. It was despite having a stronger PEN over the previous months. The PEN was traded around 2.66 against the US$ last April, with PEN gaining 5.7% over the past year.
This trend has been on since 2011 due to China’s demand for raw materials (i.e. copper and other metals), combined with tight supply, benefiting Peru with high export prices. Aside from large demand, Peru’s exports are also less vulnerable to exchange rate volatility due to BCRP’s frequent intervention in the spot market.
The Peruvian economy is projected to expand by 5.7% in 2012, according to the central bank. In 2011 the economy had a strong growth by 6.9%, reflecting increased activity in non primary sectors such as commerce and services.
During the year to March 2012, CPI reached a 4.23% hike, largely due to supply shocks. Inflation is expected to be down at 2.8% in 2012, which is within the BCRP’s 1% to 3% target rate. Despite the higher-than-target inflation rate, BCRP will still be taking a neutral stance in its monetary policy by maintaining its benchmark interest rate at 4.25%.