Interview: Gonzalo Sarmiento Giove
Has the real estate market sufficiently adapted to meet changing demands?
GONZALO SARMIENTO GIOVE: The general profile of homebuyers in the country has been evolving over the past 20 years. It has become more sophisticated due to a growing middle class and increased purchasing power. To this we have to add the demographic dividend, which means that Peru’s average age is 26 and the implications for potential economic growth are great.
This also increases demand for housing, and although the sector produces around 40,000 houses per year, it has not been able to meet demand. This translates into a housing deficit, which is particularly pronounced in Lima. Other factors that have changed in recent years include an increased savings capacity due to higher salaries and a greater desire to buy a home rather than to rent one. The last component is influenced by the fact that potential customers have more knowledge and access to possible financing tools. That being said, a lot remains to be done, as there are just a little over 190,000 mortgage loans in a market of around 6m families, meaning that only 3.1% of families have home loans. This number is low, even when compared to the region. There has to be additional government efforts from the Superintendence of Banking and from the financial institutions to reactivate the industry and increase credit penetration.
How serious is the problem of self-construction?
SARMIENTO: It is estimated that every year there are as many houses being developed through self-construction as there are being built by real estate developers. This data is supported by the fact that around 60% of cement is sold to individuals rather than to companies. Self-construction by itself is not a problem. It’s part of the Peruvian idiosyncratic and entrepreneurial spirit. The issue is informal construction on land without planning, infrastructure or services. Self-construction helps alleviate the housing deficit, especially for the lower segments of the economy, but in the end, most of these projects turn out to cost more, take longer to develop and are more unreliable than if the consumer were to buy a house.
There are two factors required for this to change.
First and foremost, there has to be a change in public education initiatives to show the benefits of formalising. There needs to be a combined strategy from both the public and private sector to help raise awareness. Secondly, access to credit needs to improve. Some efforts are being made by the government, mainly through MiVivienda’s Techo Propio programme with around $380m planned to grant 60,000 loans in 2014, but a lot remains to be done.
Given the slowdown in activity, what are the main challenges facing the real estate sector?
SARMIENTO: Although the real estate market slowed at the end of 2013 and throughout 2014, there is still potential and the sector is expected to grow in specific niches during 2015. This is the case not only in Lima, but also in provincial cities like Arequipa, Trujillo, Piura or Chiclayo. This deceleration was mainly caused by a rise in land prices – especially in the capital – as they have multiplied tenfold in recent years.
With high-income segments largely satisfied, the opportunities lie with the middle-income segment, where the biggest developments are under way. The offer for the middle segment is very dependent on land prices in order to be economically viable, and though these have started to come down, there is still a long way to go. When current office projects are completed in 2014, market demand will be satisfied for at least three years and occupancy rates will fall to more realistic figures. The retail segment has very good prospects, as there are only around 60 shopping centres in the country. Half are in Lima, but in a city of more than 9m people there is still space for more. There is potential in the provinces as well, but we must also avoid flooding the market.
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