Peru Residential Real Estate Market Analysis 2022

Peru’s residential property market remains weak, amidst a slowing economy, coupled with the continuing political crisis in the country.

During the year to Q3 2022, the hedonic property price index rose by a minuscule 0.1%, following y-o-y declines of 1.6% in Q2 2022, 2.1% in Q1 2022, 3% in Q4 2021, and 0.6% in Q3 2021, according to figures from the Central Reserve Bank of Peru (BCRP). When adjusted for inflation, property prices actually dropped 6.2% in Q3 2022 from a year earlier.

Peru’s house price annual change

On a quarterly basis, property prices increased slightly by 0.1% but declined by 1.5% in real terms.

Demand is weakening. In the third quarter of 2022, sales of newly-built homes in Metropolitan Lima fell by 12.8% q-o-q to 3,769 units, in sharp contrast to a 44% annual growth during the whole year of 2021, according to the 26th Study of the Urban Building Market developed by the Peruvian Chamber of Construction (CAPECO).

House price growth in Peru has weakened since 2014, due to the economic slowdown caused by declining copper prices. In 2014, Peru’s economic growth slowed to 2.4%, followed by 3.3% growth in 2015. In 2016 there was 4% growth, but that was followed by another slowdown to 2.5% growth in 2017. House prices have been either rising meagerly or falling since. In 2021, house prices fell by 3% (-8.9% inflation-adjusted) from the previous year, amidst the ongoing Covid-19 pandemic.

Prior to these recent years, the country had enjoyed strong growth from 2010 to 2013, and the housing market boomed during those years.


Period Nominal (%) Inflation-adjusted (%)
2008 34.83 26.42
2009 7.09 6.83
2010 20.00 17.56
2011 20.47 15.02
2012 19.62 16.53
2013 9.52 6.48
2014 3.96 0.71
2015 -3.82 -7.88
2016 2.17 -1.03
2017 0.21 -1.14
2018 1.54 -0.64
2019 -0.67 -2.52
2020 3.88 1.87
2021 -3.01 -8.87
Sources: Central Reserve Bank of Peru (BCRP), Global Property Guide (GPG)

Overall, the housing market is projected to remain fragile in the medium term, amidst a nervous political situation, aggravated by slowing economic growth. Surging inflation is also adversely affecting the purchasing power of prospective homebuyers.

The Peruvian economy is expected to slow this year, with a real GDP growth rate of 2.7%, after expanding strongly in 2021 by 13.6%, based on projections released by the International Monetary Fund (IMF).

Home sales in Metropolitan Lima falling

During 2021, sales of newly-built homes in Metropolitan Lima reached 19,764 units, up by 44% from a year earlier and by 9.5% two years ago, according to the 26th Study of the Urban Building Market developed by the Peruvian Chamber of Construction (CAPECO). It was the fourth-highest sales figures recorded since CAPECO began collecting data in 1996.

Yet in the third quarter of 2022, home sales in Metropolitan Lima fell by 12.8% to 3,769 units as compared to the previous quarter, amidst a temporary decline in consumer confidence due to continuing political crisis. In the first three quarters of 2022, home sales in Metropolitan Lima totaled 14,070 units.

Another factor that is affecting market dynamics is the notable shift in demand to the coastal areas and surrounding districts outside central Lima, due to limited buildable land and surging prices in the cities. The enviable climate in coastal communities is also a plus factor.

Middle-income Peruvians boost Lima’s housing market, according to Jose Luis Alzamora, CEO of TALE Inmobiliaria, a Lima-based property developer. “People continue to get mortgages to buy their first home, or to move somewhere better than where they are,” said Alzamora. “Politics may worry them a bit, but they have more confidence than wealthy buyers.”

Peru exchange rate

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 Peru’s frontiers.

Most foreign homebuyers in Peru are retirees from North America, Spain, and Britain. Expatriate Peruvians account for a significant portion of the high-end market, said Alen Becerra of Lima-based Becerra Group/Leading Real Estate Companies in the world.

In the past several years, the New Peruvian Sol has fallen by nearly 37% from US$1=PEN 2.55 in January 2013 to US$1=PEN 4.05 in December 2021, largely due to copper price weakness. This reduces costs for foreign buyers.

In October 2022, the average monthly exchange rate stood at US$1=PEN3.98.

Many property transactions in Peru take place in U.S. dollars.

Yields are falling

Gross rental yields on prime residential property in central Lima are moderate and have been on a declining trend over the past few years. From an amazing 13% in 2009,  yields continuously fell to 7% in 2011, 6% in 2014, and 5% in 2017. Currently, apartments in Lima have rental yields ranging from 3.03% to 6.46%, with a city average of 4.93%, based on the Global Property Guide research conducted in November 2022.

Peru policy rates

Lima’s rental prices are usually set in US dollars. Over the last eight years, the Peruvian Nuevo Sol (PEN) has depreciated sharply, which could have pushed (the already declining) rental prices even lower. In Lima, monthly rents for two-bedroom apartments currently range from around PEN 1,900 (US$500) to PEN 6,600 (US$1,700).

In Lima’s major areas, November 2022:

  • In Barranco, one of the city’s hippest neighborhoods, monthly rents range from PEN 2,320 (US$602) for studio-type to PEN 11,890 (US$3,085) for three-bedroom apartments.
  • In Miraflores, an upscale residential and shopping district south of downtown Lima, monthly rents range from PEN 2,700 (US$700) for studio apartments to PEN 8,472 (US$2,198) for three-bedroom apartments.
  • In San Isidro, one of Lima’s most expensive areas and is home to most of the country’s embassies, monthly rents range from PEN 2,505 (US$650) for studio apartments to PEN 15,417 (US$4,000) for four-bedroom apartments.
  • Rents are relatively cheaper in the districts of La Molina, Chorillos, San Borja, and Surquillo, ranging from PEN 1,542 (US$400) for studio apartments to PEN 3,854 (US$1,000) for three-bedroom apartments.

Mortgage interest rates remain steady despite the surge in the benchmark rate

In November 2022, the Central Reserve Bank of Peru (BCRP) decided to hike the key interest rate further by 25 basis points to 7.25%, its sixteenth consecutive rate hike since August 2021, as the country battles stubbornly high inflation. The key rate was raised by a cumulative 700 basis points over the period.

Nationwide inflation reached 8.28% in October 2022, well above the central bank’s target range of 1% to 3% for the seventeenth consecutive month.

Despite this, mortgage interest rates remain more or less steady.

  • For Peruvian New Sol (PEN)-denominated mortgage loans, the average interest rate stood at 6.79% in October 2022, from 6.71% in October 2021 and 7.58% two years ago.
  • For foreign currency-denominated mortgage loans, the average interest rate was 6.02% in October 2022, down from 6.19% a year earlier and 6.69% two years ago.

Peru interest rates

Mortgage loan rates significantly fell from the second half of 2017 to the first half of 2018. The average rate for mortgages denominated in PEN dropped by more than one percentage point from 8.53% in June 2017 to 7.30% a year later, according to the Superintendency of Banking and Insurance (SBS). Much of the decline was attributed to the strong competition in the mortgage market, according to the Ministry of Housing, Construction, and Sanitation (MVCS) Deputy Minister of Housing Jorge Arévalo. Mortgage interest rates have been generally falling since, albeit at a gradual pace.

The mortgage market is still underdeveloped

Peru’s mortgage market is still relatively small, at around 6.4% of GDP in 2021. This is despite the continued growth in mortgage loans. In September 2022, the value of outstanding mortgage loans rose by 8.4% from the previous year, to reach PEN 59.85 billion (US$15.53 billion), according to the Superintendency of Banking and Insurance (SBS).

Peru mortgage loans

Homebuyers are shifting to PEN-denominated mortgage loans. In September 2022:

  • PEN-denominated mortgage loans: up 11.1% y-o-y to PEN 54.1 billion (US$14 billion)
  • Foreign currency-denominated mortgage loans: down 11.8% y-o-y to PEN 5.8 billion (US$1.5 billion)

The total number of mortgage loans also increased by 3.8% y-o-y to 250,295 loans over the same period.

Social housing deficit

Peru’s housing shortage was estimated at around 1.86 million units in 2014, according to Scotiabank. Based on more recent figures from the consultancy HGP Group, Metropolitan Lima had a housing deficit of around 612,464 units in 2016, with the district of San Juan de Lurigancho having the biggest deficit of about 15.6% of the total. Currently, the overall deficit has reached nearly 2 million units, according to official figures. To close the gap, Habitat for Humanity estimates that the country needs to allocate an annual budget of US$2 billion for housing subsidies.

In an effort to reduce the housing deficit, the government has long provided financial aid and direct subsidies, such as MiVivienda, Techo Propio, Micasa Mas, Mi Construccion, and MiTerreno.

MiVivienda, established in 1999, provides housing loans for the middle and upper-class levels (A, B, and C). MiVivienda is the largest provider of affordable housing financing in the country, accounting for nearly 25% of the residential mortgages financed in Peru last year. It provides mortgages up to US$30,000. The New Credit MiVivienda finances the purchase of completed or under-construction homes whose total cost is from PEN 57,500 (US$ 14,941) up to PEN 410,600 (US$ 106,688).

In 2021, MiVivienda granted 12,871 mortgage loans – the second highest since the program was launched.

Techo Propio is a program launched in 2002 directed at family groups who do not have their own houses and have never received State support to build or buy one. The total monthly income a household earns should not be more than PEN 3,626 (US$ 942) for house purchase and PEN 2,658 (US$ 691) for home construction or improvement. Techo Propio offers subsidies, which vary depending on the purpose:

  • For purchasing houses, the subsidy granted is up to PEN 33,600 (US$8,730)
  • For building houses, the subsidy granted can be PEN 22,890 (US$5,948)
  • For improving houses, the subsidy granted is up to PEN 9,660 (US$2,510).

During 2021, Techo Propio disbursed subsidies to finance 47,596 homes, the fourth-highest figure recorded since the program was established.

Micasa Mas is a credit program that is intended for families who already own a home (including homes that are under mortgage) that could be put on sale, in order to buy a new or used house that matches their family’s current financial and family situation. Loans that could be requested in this program range from PEN 45,000 (US$11,693) to PEN 270,000 (US$70,155), with a minimum down payment of 20% of the home’s value.

Mi Construccion allows beneficiaries to build, enlarge or improve their homes. Loans can be up to PEN 100,000 (US$25,983) with a repayment term of up to 12 years.

MiTerreno helps low-income families purchase urban land (private or public) that will be used for housing purposes. The maximum amount of funds is around PEN 50,000 (US$12,992), with a maximum financing period of 8 years.

Economic growth slowing, and inflation surging

In the third quarter of 2022, Peru’s economy grew by 1.7% from a year earlier, a slowdown from a 3.3% expansion in Q2 and the lowest reading since Q4 2022, as tightening financial conditions dragged on economic activity, according to the Instituto Nacional de Estadística e Informática (INEI). Over the same period:

  • Private consumption rose by 3% y-o-y
  • Gross fixed capital formation rose by 1.9% y-o-y
  • Government spending fell by 2.5% y-o-y
  • For net trade, exports increased by 1.8% while imports rose by 9%

During 2021, the Peruvian economy expanded strongly by 13.6%, offsetting the 11% contraction in 2020, amidst the Covid-19 pandemic.

Peru gdp inflation

However, economic growth is projected to slow to 2.7% this year and to 2.6% in 2023, based on estimates released by the International Monetary Fund (IMF).

In October 2022, overall inflation reached 8.28%, well above the central bank’s target range of 1% to 3%. Inflation averaged 2.9% from 2011 to 2021.

Nationwide unemployment dropped to 7.2% in the three months of October 2022, down from 9.6% in the previous year, as the number of unemployed fell by 115,000 to 385,500 people, according to the Instituto Nacional de Estadística e Informática (INEI).

Unemployment averaged 6.8% in 2010-2019, before surging to 13.9% in 2020 due to the Covid-19 pandemic. In 2021, the jobless rate fell slightly to 10.9%, according to the IMF.

Peru’s deepening political crisis

Just this November, Peruvian President Pedro Castillo reshuffles its cabinet again, including leadership changes to six ministries, as his embattled administration engages in sweeping conflicts with opposition leaders. This follows Castillo’s earlier move to appoint his close ally, Betssy Chavez, as the new prime minister, amidst a possible no-confidence vote.

Since taking office in July last year, more than 60 ministers were fired or have resigned. Further, corruption allegations have plagued the leftist president and his inner circle. The president is facing six criminal investigations and the Congress has twice impeached him but failed to oust him.

The country is mired in a long-standing conflict between its independent state powers, which escalated lately on Castillo’s decision to reshuffle his cabinet after Congress rejected his request for a confidence vote.

Castillo alleges that Congress and the attorney general have sought to carry out coups against him through impeachment attempts and criminal probes. Mass protests against soaring inflation and the way Castillo handles the government began in March 2022.

Opposition lawmakers, on the other hand, claim that Castillo is maneuvering to dissolve the legislature.

According to the Constitution, if Congress issues a vote of no confidence, the entire Cabinet should resign. If Congress then issues a second no-confidence vote, the president is entitled to dissolve the parliament and call for legislative elections.

“It is what the President is openly seeking,” said legislator Roberto Chiabra of the conservative Alliance for Progress party.

In 2019, centrist President Martin Vizcarra dissolved Congress after two votes of no confidence during an intense quarrel with the opposition. Then in 2010, a new Congress ousted Vizcarra amidst charges of corruption.

Since 2011, Peruvians have lived under seven presidents and seen four former leaders arrested or wanted on corruption charges.