Record Credit Volumes in Peru Drive Residential Sector Growth

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Reflecting Peru's continuing macroeconomic strength, it has been reported that residential real estate sales in the second quarter increased nearly 28 percent compared with the same period last year.  During this time, over 7,173 units were reportedly sold in Lima and Callao compared with 5,609 units sold in the same period in 2011.  Nearly 90 percent of residential demand has come from socioeconomic segments B and C, an important part of Peru's rapidly expanding middle class.

Apart from high volumes, properties have been selling at a significant premium to appraised values.   According to the Peruvian newspaper Gestión, between January and August of 2012 4,000 parcels, valued at 455 million Peruvian Nuevo Soles, were sold for 700 million Nuevo Soles.

In addition to rising per capita and disposable incomes, a key driver of Peruvian residential sector growth has been the growing availability of housing credit.   Housing loans in the month of July reached US $148.5 million, an historical record. A total of 3,308 loans were made in July, the second highest in Peru's history.  The highest number, 3,410, was made in March of this year.

Another important factor in Peru's growing housing credit market has been comparatively low interest rates.  The recent rate for US Dollar-denominated loans of 7.9 percent was the lowest on record and the rate for Nuevo Sol-denominated loans of 9.02 percent is at a two year low. 

The combination of strong demand, Peru's favorable credit rating and low interest rates has created opportunities for Peruvian loan providers to look to international credit markets to finance portfolio growth.  Fondo Mivivienda, for example, announced plans to place US $500 million in bonds abroad to in order to finance credit products.

Given the rapid increase of real estate prices, particularly in parts of Lima, there are concerns that the Peruvian regulatory authorities may introduce measures to restrict credit volume growth in an attempt to slow housing price increases.  It has been reported, however, that credit penetration in Peru as a percentage of GDP is currently only 3 percent compared to 18 percent in neighboring Chile.

The provision of affordable housing is an important part of Peruvian President Ollanta Humala's political platform.  Earlier in the year it was announced that his goal is to build 500,000 homes by mid-2016.

As land costs continue to rise, one urban housing strategy under consideration is the  redevelopment of currently existing space.  According to one study, there are presently one million square meters of space in buildings in the center of Lima that are abandoned or underutilized that could be used for different types of housing.

The construction sector in Peru grew 21.47 percent in July compared with July 2011, a record.