Peru works to reduce housing debt through subsidised programmes and diversification of credit access

Despite the challenging start to 2017 that included the resignation of President Pedro Pablo Kuczynski, as a result of the lingering corruption scandal linked to Brazilian company Odebrecht and the “Lava Jato” police investigation, the Peruvian government planned and began several social housing programmes and policies. As a result, housing is expected to experience a boost in 2018, with industrial and retail segments remaining active. Office investments are predicted to remain stagnant for the rest of 2018 and into 2019.

Industry Layout

The real estate sector had high expectations for 2017, with the Economic Report on Construction by the Peruvian Chamber of Construction (Cámara Peruana de la Construcción, CAPECO) predicting 6.6% growth. However, the sector ended the year with only 2.4% growth. Despite this disappointing result, the real estate sector still managed to perform 57% higher than other goods and services sectors. Projections for 2018 remain high, with CAPECO reporting that real estate developers have a higher than average growth projection of 80%.

A growing younger middle class were the target clientele for 2017, and this trend has continued into 2018, for both residential and commercial real estate. In residential real estate, the more mature residential clientele are seeking out higher quality in smaller spaces with all-inclusive services. For commercial real estate, the clientele appears to be looking for efficiency both in cost and space.

In terms of the landscape of urban design, buildings are being designed vertically with a smaller footprint in both residential and commercial spheres, in alignment with market demands. In addition, the parameters between development types are no longer fixed or separated; the real estate sector is offering more mixed-use projects in which residential and commercial uses are combined, while apartments are trending over houses in terms of profitability for developers and accessibility for buyers. Informality continues to be a challenge to the sector, with informal housing standing at almost double the number of formal housing, according to the Real Estate Development Association ( Asociación de Desarrolladores Inmobiliarios, ADI Peru). This could be due, in part, to the lack of credit access and a limited housing stock for lower segments, up to PEN150,000 ($46,000) for low segments and from PEN150,000 ($46,000) to PEN240,000 ($73,890) for medium-low segments. Surprisingly, a cost analysis conducted by CAPECO found that informal housing can cost up to 40% more than formal housing, and safety regulations are often not guaranteed.


In Peru’s 2021 Bicentennial Plan, approved in 2011, the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, MVCS) identified the existing housing deficit of 389,745 units as a priority.

To bridge this gap, an estimated 39,000 homes need to be built annually. In response, the government set the goal of 81,329 homes to be either built or improved during 2018. In 2017, the real estate sector added 13,533 homes in Lima and Callao, 2711 more than in 2016, according to CAPECO. The Peru Real Estate Association (Asociación Inmobiliarias del Perú, ASEI) has estimated each month of 2018 will see 600 new apartments added to the market in Lima and Callao, influencing the annual new housing rate by introducing 7200 homes. Of the apartments sold there in 2017, the highest sale rate was found in the medium segment, the so-called “segment C” which refers to housing costs between PEN144,000 ($44,300) and PEN370,000 ($113,900), while the three highest-selling districts were the districts of Lima Norte, Jesús María and San Miguel.

In February 2018 the MVCS inaugurated a new programme, MiVivienda Verde, with the goal of offering eco-sustainable housing to Peruvians by providing the financial incentive to purchase these types of homes. This supplements the already existing Fondo MiVivienda, a government programme that seeks to facilitate access to housing for low-income families by granting subsidies, and promoting and coordinating social housing development between the state, financial and real estate sectors. “The new programme will be an essential element in the sector’s dynamisation because eco-sustainable homes with systems that save energy and water while reutilising wastewater will sell faster, with families saving between 30% and 40% in their energy and water bills,” Carlos Bruce, the former minister at MVCS, told local press. Although the launch of MiVivienda Verde is focused on Lima, there is an existing supply of eco-sustainable housing in Ica and Lambayeque, with plans to expand nationwide. Within the capital city, home sizes range from 40 sq metres in the San Juan de Lurigancho and Jesus María districts to an estimated 145 sq metres in Callao and Comas. Other forms of social housing are also projected to grow in 2018, positively impacting overall annual residential sales. In contradistinction to 2017, social housing sales in 2018 have had a higher rate than strictly residential sales. According to ADI Peru, in March 2018 alone, social housing experienced an almost 56% increase compared to the same month the year before, with 560 sales and 359 sales, respectively.


Following 2016’s trend of surplus in supply and a low absorption rate, 2017 was a challenging year. Growing districts, such as Magdalena, in the prime office sector, also known as A and A+ offices, saw high vacancy rates of 60%, while the more established districts like Sanhattan in San Isidro experienced a progressive increase in vacancy in 2017, reaching 38.7% by the end of the first quarter. By the end of the same year the total vacancy of prime offices was 28.2%, the highest rate in the region. As for subprime offices, or B and B+ offices, vacancy rates were not as high as the prime offices, despite there being more stock available. The highest vacancy rate by the end of 2017 was the district of Miraflores at 23.3% followed by Sanhattan at 18.2%.

Boutique offices are seeing a more promising outlook in 2018. Boutique offices are characterised by a footprint of less than 100 sq metres, located in high-profile districts and in fully-equipped buildings with shared meeting and dining spaces. This format is attractive to small and medium-sized enterprises (SMEs) as it does not require the large start-up investment that traditional office spaces might. Although actors within the real estate market have taken notice of the trend towards this format, reliable streams of funding remain uncertain. “We have observed the appearance of new boutique office projects. Although some companies in the market have launched smaller office projects, we are not seeing banks accompanying these entrepreneurial initiatives with funding programmes to provide needed finance,” Miguel Deustua, general manager of Granadero Inmobiliara, told OBG.

Due to the current overstock and low net absorption, there is likely to be little activity in the construction of commercial buildings in the remainder of 2018 and into 2019. “Boutique and subprime offices will be absorbed. Prime inventory leasing prices are dropping. Almost any company can access something they would not have been able to a few years ago. There will be no interest to develop more prime offices until everything is absorbed,” Álvaro Puga, general manager at CyJ Constructores, told OBG. However, shopping malls are in demand across the country, with eight projected to open by the end of 2018. According to Peru’s Association of Shopping Malls and Entertainment (Asociacion de Centros Comerciales y de Entretenimiento del Peru, ACCEP), as of 2017 there were a total of 78 malls in the country with stable growth projected in the years to come. Part of the consistency in the growth rate is due to the currently low vacancy rate in active malls. Industrial parks also appear to be in demand, with attractive characteristics including a low cost per sq metre, ready-to-move-in spaces and the creation of industry niches in accessible and aesthetically pleasing locations, according to George Limache, research chief at Binswanger Peru.

Provincial Growth

Growing tourism and industrialisation in provinces such as Arequipa, Cusco, and Piura are creating growth opportunities for the real estate sector outside of the capital city. Additionally, government housing initiatives, especially the new eco-sustainable housing efforts, are intended to expand to these departments along with San Martin.

That said, the growth potential of provincial areas remains susceptible to risk, natural disasters and market factors, including mining and construction projects put on hold due to the ongoing Odebrecht investigation, low banking levels, fragmented urban planning and self-constructed housing. These factors and others have limited the interest of segment A and B developers, as observed in Arequipa, for example, with a decrease in urban homes for segments A and B from 20.8% in 2016 to 17.9% in 2017.

Mortgage Loans

There was significant policy and programme development activity in 2017 that carried over into 2018, facilitating what MVCS expects to be the next real estate boom. The end of 2017 saw an overlooked increase in mortgage loans granted by banks, not seen in Peru since the real estate market of 2012. Currently the majority of qualifying mortgage loan candidates, or 62%, come from the two highest income quintiles. In order to diversify the pool of mortgage loan recipients, the government passed policies to reduce the interest rate of MiVivienda Fund mortgage loans from 7.8% to 7.1%, and included programmes such as New Credit MiVivienda which finances up to 90% of a home worth between PEN57,500 ($1700) and PEN410,600 ($11,900) and MiVivienda Verde’s 3-4% bonus of total finance received to facilitate access to mortgage loans. However, these new programmes do not yet reflect an increase in the number of credits compared to 2016, with only the months of March, July and November showing an increase. “Currently there is financial streaming towards a preferential rate that did not exist before. The sustainable bonus allows Peruvian families to earn debt at a 6.99% minimum rate instead of a 10-12% rate and it offers families an element of well-being and it also improves housing infrastructure in the country, given that these new buildings will be equipped with LED lighting, water saving systems and clean energy,” Granadero Inmobiliaria’s Deustua told OBG.

Growing the pool of citizens who can access mortgage loans will incentivise the private sector to tailor new developments towards this population. There is also an interest to make payments more manageable with a lower interest rate. This originates from the increasing late payment tendency rate at 2.8% in 2017 compared to 2.3% in 2016. Furthermore, boosting the real estate sector could facilitate the government’s housing development targets, as these new incentives come in addition to bonuses already in place for the 2018 budget, including around 34,560 family housing subsidies, 1290 rural household subsidies and 34,450 urban subsidies stemming from transfers from the Authority for Reconstruction with Changes.


Housing prices rose moderately throughout 2017 as residential real estate was not affected by economic and political instability in the same ways that other sectors were. Price variations experienced within the real estate sector in 2017 as compared to 2016 was dependent upon sub-sector trends. For example, the highest increase in apartment sales between 2016 and 2017 was the medium-size segment, ranging in cost between PEN144,000 ($4200) and PEN370,000 ($10,700), with a 26% variation rate. The highest availability of apartments fell within the next segment, medium-high, with the cost ranging between PEN350,000 ($10,100) and PEN660,000 ($19,100). Commercial rates, particularly for prime offices, reached the lowest historical rate between 2011 and 2017. By the end of 2017 the average rental rate for prime offices in Lima was $16.84 per sq metre.


The real estate boom expected as a direct result of the government incentivising social housing and facilitating mortgage loan access remains to be seen. Real estate formality is also waiting on positive feedback based upon these new measurements; however, any impact is more likely to be observed in Lima rather than the provinces, simply due to the maturity of the sector in the capital city. The stagnation of new commercial real estate development is also not likely to see change until the net absorption of existing stock catches up, leading to a decrease in rental rates, which are expected to continue into the remainder of 2018 and into 2019.


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The Report: Peru 2018

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