Interview : Gonzalo Sarmiento Giove
What role can government programmes play in closing the housing gap?
GONZALO SARMIENTO GIOVE: There is no doubt that Peru’s demand for housing outstrips supply, especially among the middle class. The private sector should be the engine that bridges the gap between supply and demand. However, the biggest challenge to this is the fact that mortgages are not tailored specifically to the middle class. In the recent past, the government programme known as Fondo Mivivienda was successful, but it has lost momentum, going from 20,000 homes sold per year down to 11,000. This is a result of the banks’ failure to develop products for a middle class that is often informal, and as a result fails to meet loan application requirements. It is therefore necessary to create state mechanisms for those with the financial means to buy a home. Ultimately, in order for the government to promote housing construction, it needs to reach certain regulatory agreements with banks through which their risk can be subsidised.
How could the development of mixed-use projects work to decongest Lima?
SARMIENTO: Mixed-use projects are a global trend. They suit the lifestyle of millennials, who are the current consumers of housing and leisure spaces. At a local, regional and national government level there is little awareness of the potential that mixed-use developments have on improving cities and the special zoning requirements they need. Mixed-use developments are important as they can reduce vehicle transportation while enhancing access to services and facilities by foot, as well, there is the need in some areas for the allowance of planned densification. However, one of the barriers to the successful development of mixed-use projects is Lima’s public transport system, which is in fact, obsolete: the existing road infrastructure can no longer cope with the consistently growing automotive fleet.
How important is it to develop new industrial areas in order to strengthen the competitiveness of Peruvian industries?
SARMIENTO: One of the main challenges faced by Lima and other major Peruvian cities is that industrial zones have been located in areas with high real estate values, which is now causing these zones to lose their competitiveness. Nevertheless, the private sector is developing modern industrial zones in the south of Lima, where there are areas with lower real estate values, which has a positive impact on competitiveness. Meanwhile, as industries move from older zones to newer ones, the value of real estate in the former increases given their prime location.
What role can financial instruments play in absorbing surplus office space in the market?
SARMIENTO: The office real estate market is suffering from excessive supply. As the country grew, many of the buildings for sale were acquired with ease. Taking into account that real estate investment funds and real estate titling trusts are taking time to penetrate the Peruvian market, these private owners are now struggling to sell their office real estate assets in a market that has a 20% vacancy rate.
However, it is likely that the market will absorb the surplus over the next three years and that this situation will not reoccur – the market has learned its lesson. Private investors will invest through financial vehicles, allowing them to decrease their risk, while the bulk of investments in available office real estate will come from institutional investors.
To what extent are consumers affected by the recent increase of cement prices in Lima?
SARMIENTO: Fluctuations in cement prices do not have a great impact on the final product. However, they do affect the self-construction segment, which accounts for 70% of housing development in Peru.
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