Boom in Lima

Lima (pop. 8.2 million) is seeing an explosion of construction of new apartment buildings in residential areas, new shops, new buildings. Prices of residences have been rapidly during the past two years, after a long period of stagnation.

“The economic growth has strongly affected things,” writes Helen Modenesi, a realtor from the small elite residential town of Los Condores, in the Andes district of Chaclacayo, 28 km from Lima.

“A couple of years ago, the price of land was around US$30 the square metre. But since last year you can’t find anything below US$60 for larger lots, and US$100 for smaller ones. Los Cóndores - the elite zone of Chaclacayo - has tripled its value to $150 and $200 per square metre. After years of slack, most of the houses that were on sale have been sold, and all are being remodeled and modernized. Not many are left to be sold.”

Peru has enjoyed spectacular economic growth during these years (2006-2007), with 8.5% GDP growth in 2007, after 8% growth in 2006. Combined with much other good economic news, this has had a miraculous effect on Peruvian property values.

The good news includes more private investment (growing at 20% a year), and a new willingness to save (now 24% of GDP). And consumer confidence, higher than it has been for decades.

Before 2006, residential prices had been static for 6 years, partly because the shock of the scandals, corruption, human rights abuses, and political unrest surrounding the end of the Fujimori presidency (1990-2000), which undid much of Fujimori’s achievement of macro-economic stablization and lower inflation.

The pivotal year was 2006

2006 was a pivotal year. The economic performance of the government of Alejandro Toledo (2001-2006) was in reality good, and laid the foundations for what followed.

However confidence was low in anticipation of the return to power of Alan Garcia, who had presided over a directionless and high-spending leftist government during his first term as president (1985-1990).

However, when Garcia returned in July 2006 he seemed a reformed man, determined not to repeat the mistakes of his first administration.

Fiscal rectitude became the government’s No 1 priority. Garcia saw how Chile’s restrained state spending won it lower credit costs from the international lenders, and followed the same route. The overall surplus of Peru’s non-financial public sector jumped to 3.1% of GDP in 2007, up from 2.1% of GDP in 2006 – the biggest budget surplus for 30 years.

Savings began to rise. As the economy improved, the international credit rating agencies upped their ratings and the cost of Peru’s debt-service dropped. In April 2008 Fitch Ratings gave Peru a rating of BBB-, the only Latin county aside from Chile and Mexico to have an investment grade rating, allowing more pension funds and insurers to buy Peru's debt, driving spreads down to record lows.

In March 2008 the country bought back US$838 million in Brady bonds, and also announced that it would pay $1.1 billion in World Bank and Inter-American Development Bank loans ahead of schedule. The current account and the trade account are both in healthy surplus. Remittances are strong. Finally, Garcia has made Peru the first Andean country to secure a free trade agreement with the United States He has also signed free trade agreements with Canada and Singapore.

Economic growth slowed to an annual 5.6% in March (2008). However this is a necessary pause after so much growth.

Key residential areas.

For the elite, the Miraflores area has high priced apartments with magnificent sea views. For the most exclusive buyers, there is the San Isidro district. There is also Barranco in the Los Malecones area.

Further from the centre, the Surco area has a large number of good-quality apartment blocks, and is well-administered so that values tend to be well-maintained. Within Surco, agreeable areas are Las Casuarinas, Chacarilla del Estanque, San Jorge, Santa Teresa and parts of Valle Hermoso. For detached housing Surco is also interesting, as is San Borja.

The housing market

Of the 7.2 million housing units in Peru in 2005, a total of 5.8 million residences are permanently occupied, according to INEI (National Institute for Statistics and Informatics). About 71% of these houses are owned, either on credit or fully paid. Owner-occupancy for urban areas in 2004 was at 73.9%.

Rented houses, on the other hand, comprise 13% of the total number of occupied housing units. Houses either provided by companies or by other institutions make up 6.7%, while 2.2% are acquired in other ways.

To revive the housing sector, previous governments launched several housing projects such as MiCasa, MiVivienda, Techo Proprio, and MiCasita. Micasa provides loans for the renovation of specific segments of the house such as converting wooden walls to brick, replacing zinc roofs or adding additional rooms, one at a time.

Fondo MiVivienda was established in 1999. Mivivienda housing loans are especially created for the middle and upper class levels (A, B and C). MiCasita, on the other hand, targets middle to low-income segments. It is a full service mortgage financing company catering to first-time borrowers.

Techo Propio is a program directed at family groups who do not have their own houses and have never received State support to build or buy one. The total income a household earns should not be more than 1,450 Peruvian Nuevo Sols (PEN) (classes D and E).

Techo Propio offers loans for purchasing houses up to US$12,000, while Fondo MiVivienda provides mortgages up to US$30,000.