Real Estate Bubble in Peru?

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Real Estate Bubble in Peru?

Postby tupacperu » Thu Jan 14, 2010 1:00 pm

Reading a few articles this week: One was from Gestion.pe, which mentions that credit card interest in Peru can reach 124% on many cards. It was speaking about Peruvian buying food on quotas (installments), etc...: bad idea. It is in spanish so I am just summarizing. (too lazy to translate) :)

But an article in Yahoo about Bubbles got me thinking.
What is your opinion?

DO you believe there will be an eventual real estate bubble in Peru?

Real Estate in Peru has increased 15% (this is not only in Miraflores or San Isdiro). They are speaking of San Miguel, Jesus Maria and Los Olivas (Los Olivas???). This is according to an article in gestion.pe

By Simon Maierhofer , On Thursday January 14, 2010, 12:27 pm
Talking about asset bubbles of any sort hasn't been a popular subject. Stocks are up and nobody wants to rock the boat, it seems. But since the first decade of the new century has been called the bubble-bust decade and stocks have rallied nearly 70%, as have many other asset classes, it makes sense to pull out the bubble radar.

Bubbles always have one thing in common. They rise and pop unexpectedly. The very fact that there are no bubble trouble worries, is actually one of the key ingredients needed for bubbles to form, grow and ultimately bust.



Trouble in paradise?

Bubbles occur in a very particular, pre-defined pattern. First, there are rising prices, whether stocks, real estate, commodities (NYSEArca:GSG - News), or even bonds.

Rising prices attract attention and buyers, which in turn results in even higher prices. For a while, this becomes a self-fulfilling prophecy as expectations are justified by the very action that sends prices higher.

This process continues until the sentiment that higher prices are here to stay sets in. Notions of a bubble at that point are dismissed. 'This time is different' is the most commonly used expression of dismissal.

In 2008, it was 'different' with oil (NYSEArca: USO - News). The world was running out of oil. Just as analysts began to prepare us for $200/barrel oil, oil prices started to tumble; more than 75% top to bottom.

The first few months of the past decade were christened by the bust of the tech bubble (NYSEArca: XLK - News). Hardly anyone foresaw the Nasdaq (Nasdaq: ^IXIC) dropping from above 5,000 to below 1,500, yet it did.

Fortunately, the early 2000s recession was softened by rising property prices. This ultimately resulted in the real estate bubble, which no one foresaw.

In fact, in 2004, Alan Greenspan said the rise in home values was 'not enough in our judgment to raise major concerns.' In 2005, Ben Bernanke said that a housing bubble was a 'pretty unlikely possibility.' Even in 2007, Bernanke stated that the Fed 'does not expect significant spillovers from the subprime market to the rest of the economy.'

Well, spill over it did. In fact, the tentacles of the real estate bust were as far reaching as they were unexpected. By the end of 2007 they had infected the financial sector and broad market indexes a la S&P 500 (SNP: ^GSPC) and Dow Jones (DJI: ^DJI).

By 2009, the ramifications of toxic real estate assets had nearly eliminated key financial players and severely damaged the foundation of our entire financial system; Once again, unexpectedly.

It's easy to conclude that there are no current bubbles. History, however, teaches us that bubbles never have been, and likely never will be expected. Therefore, it makes sense to fine-tune and double check our bubble-radar.


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Re: Real Estate Bubble in Peru?

Postby mahou123 » Thu Jan 14, 2010 7:10 pm

To get a real estate bubble, you need a limited land supply, cheap credit, large number of retiring baby boomers who invest their life savings in real estate, and migration, either internal (retirees moving to the warm places) or immigrants coming from overseas, preferably new rich from Asia. Also, high building costs, and difficulties in getting building permits would help. Of all that, Peru only has some internal migration, people coming to the coast from internal areas.

Having said that, I think there is a real estate bubble here already. Stockmarket index gone up like 5 times between 2005 and mid-2007, which was clearly a bubble, then when it corrected big time, I guess lots of profits gone to real estate. Plus plenty of new money and available credit, government lending programs like ´techo propio´ all help pumping up the prices. Wouldn´t be surprised if it makes a move similar to stockmarket (from 23800 in July 2007 to 5500 by the end of 2008).

I think prices will stay high where land supply is limited, like on Malecon in Miraflores. Wouldn´t be too easy to sell though, judging by the number of places for sale over there. In the same way as prices are still high in good areas of Manhattan or Madrid, and will stay so, because it is cool to live there and supply is limited. But Chiclayo for example, I see it developing in similar way to Phoenix, Arizona. Eventually they will build up good infrastructure and there will be plenty of good quality housing on quite large territory, which could be expanded further if there is a need. So there is no way to sustain a bubble, supply is not really limited, and if there is a bubble, it bursts quite quickly.
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Re: Real Estate Bubble in Peru?

Postby Serionlv » Thu Jan 14, 2010 8:52 pm

Has the real estate gone up 15% per year? This is very strong but not like the Vegas bubble. In Vegas it rose over 50% for a couple years. Then the crash! My friend had an older home appraised at $250,000 two years ago. Undesireable neighborhood. 1960's block home. Now is worth about $70,000 at the most. In 2004 it was probably worth $100,000. That's a bubble.

In Chicago when I lived there we had a couple years with 15% increase but no bubble.
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Re: Real Estate Bubble in Peru?

Postby Alan » Thu Jan 14, 2010 9:43 pm

The economy is growing at at sustained rate of 5 to 6%, the average age in Peru is 25 years old, mortgage loans are getting easier to get, there is a deficit of housing..... and the current prices are still below what they are in other progressive latin american economies. I think prices will continue to rise over the mid-term.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Fri Jan 15, 2010 12:13 pm

Alan wrote:The economy is growing at at sustained rate of 5 to 6%, the average age in Peru is 25 years old, mortgage loans are getting easier to get, there is a deficit of housing..... and the current prices are still below what they are in other progressive latin american economies. I think prices will continue to rise over the mid-term.

I tend to agree on all points. In order to create a bubble, you need speculation and current interest rates and sub 1% inflation discourages this activity. Zoning laws in Miraflores have become much more restrictive over the past few years and many parcels (unless bundled) provide to small a return (14%) for builders. Prices in Lima tend to stagnate for long periods of time (10 years) and then play catch up in very short periods of time.

Sector C the corridor between (Venezuela & Argentina) from Centro to Callao is heating up now with condo's going for $25,000 and could be a good area for those who wish to speculate (over the long term).
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Re: Real Estate Bubble in Peru?

Postby craig » Fri Jan 15, 2010 4:40 pm

Over the last few years I have been worried that a real estate bubble might develop. I saw people buying 2 or three apartments in a building (instead of the one they wanted to live in) just because they expected to be able to resell the others in a few months and double their money. That is the sort of speculation that leads to bubbles. And, ominously, the building activity seemed to be being fueled by cheap bank credit.

There is certainly plenty of need for the housing. But the question is: are there enough people who can actually afford the units being built to buy them all at current prices?

However, I see new buildings (large and small) going up all over the place. And they are still being filled almost as soon as they are completed. So, so far, I do not see my fears coming true.

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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Fri Jan 15, 2010 4:58 pm

craig wrote:Over the last few years I have been worried that a real estate bubble might develop. I saw people buying 2 or three apartments in a building (instead of the one they wanted to live in) just because they expected to be able to resell the others in a few months and double their money. That is the sort of speculation that leads to bubbles. And, ominously, the building activity seemed to be being fueled by cheap bank credit.
Craig

What country was this?
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Fri Jan 15, 2010 5:40 pm

Average square meter prices for resale apartments in Capitol cities. (120 sqm)
Mexico $3,227
Brazil $2,277)
Argentina $1,994
Uruguay $1,691
Colombia $1,688
Costa Rica $1,602
Panama $1,520
El Salvador $1,239
Chile $1,204
Nicaragua $1,187
Ecuador $973
Peru $944
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Re: Real Estate Bubble in Peru?

Postby Alan » Fri Jan 15, 2010 5:55 pm

Alpineprince wrote:Average square meter prices for resale apartments in Capitol cities. (120 sqm)
Mexico $3,227
Brazil $2,277)
Argentina $1,994
Uruguay $1,691
Colombia $1,688
Costa Rica $1,602
Panama $1,520
El Salvador $1,239
Chile $1,204
Nicaragua $1,187
Ecuador $973
Peru $944



Curious thing that Santiago is so cheap.....
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Fri Jan 15, 2010 7:31 pm

Alan wrote:Curious thing that Santiago is so cheap.....

I felt that way as well and still believe it is more along the lines of BA.

Somethings to consider:
LAM has a history of very unreliable data
The data is Nov 2008 and reflects a decline in Chile of over -8%.
Data may not take into account local currencies.

Very curious and unexplainable is the price discrepancy between apartments under 60 m and over 330 m?

SANTIAGO -
Apartments COST (US$) YIELD (p.a.) PRICE/SQ.M. (US$)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
60 sq. m. 98,520 598 7.29% 1,642 9.97
120 sq. m. 144,480 1,068 8.87% 1,204 8.90
180 sq. m. 227,880 1,625 8.56% 1,266 9.03
250 sq. m. 328,250 2,720 9.94% 1,313 10.88
330 sq. m. 581,790 2,977 6.14% 1,763 9.02
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Re: Real Estate Bubble in Peru?

Postby edwin » Fri Jan 15, 2010 11:08 pm

This is information regarding capitol cities, or the most expensive areas of a capitol city, because the vast majority of properties sell for less that the amount given in Lima $944. In fact, I recently saw a large house in a very good part of San Isidro listed at $880 per meter. Who is providing this reliable mystical information?
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Sat Jan 16, 2010 10:34 am

craig wrote:Over the last few years I have been worried that a real estate bubble might develop. I saw people buying 2 or three apartments in a building (instead of the one they wanted to live in) just because they expected to be able to resell the others in a few months and double their money. That is the sort of speculation that leads to bubbles. And, ominously, the building activity seemed to be being fueled by cheap bank credit.

There is certainly plenty of need for the housing. But the question is: are there enough people who can actually afford the units being built to buy them all at current prices?

However, I see new buildings (large and small) going up all over the place. And they are still being filled almost as soon as they are completed. So, so far, I do not see my fears coming true.

Craig


Economies are cyclic and if if can happen in the US , it can happen anywhere.

There is certainly plenty of need for the housing. But the question is: are there enough people who can actually afford the units being built to buy them all at current prices?

However, I see new buildings (large and small) going up all over the place. And they are still being filled almost as soon as they are completed. So, so far, I do not see my fears coming true.



I lived in Los Angeles when the bubble burst (luckily I sold my home before - divorce).

The factors you mention above are the same factors.

1. The average home was $500K but the average income was $30K. Homes were be built on every lot available and were filling fast because of cheap credit. Los Angeles was building out (spreading the suburbs), Lima is building up (High rises on any lots available).

2. Buildings (large and small going up)
The average person make 1000.00 soles per month. (I read that the prison warden that was assasinated made 1500 soles per month - I was quite surprised). Who can afford to buy at these salaries and home prices, even in Los Olivas.
The houses and apartments are fillling with ez credit.


I remember the attitude in Los Angeles when housing was at it peak. I had just sold my home and was looking to buy a small condo and even that was about $400K. Spoke to many of my friends who were racing to upgrade and buy property, which they looked at me like "chicken little - sky is falling".


I see the same factors in Lima. The Peruvian GDP is supported by ez available credit and the economic stimulus. Many global economies are hurting, recovering but hurting. High internal demand in Peru is due to credit (ez), which supports it GDP.

Unemployment in Peru 2009 increased to 7.9% (1% point 328,000 people)
The rate of unemployment in Lima, raised slightly in the trimester of October - December of the 2009 against the same period of the previous year, affecting mainly women, at moments at which the country seems to leave the global crisis.

http://gestion.pe/noticia/398255/desemp ... estre-2009



While Many are pinning their hopes on China, but by the latest news, the Peruvian stock market has been down this week (all week) 3%. This was due to China, implementing controls on it's economy an pulling in the reins.

The FTA with China has been delayed, but no one is saying why.

When these economic stimulus run out and the respirator is pulled, will the world economies be able to function (breath on it's own), Peru?

Too many unknown factors to believe all the positive predictions coming from the press.


Just my bend on it :-)
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Sat Jan 16, 2010 10:41 am

2010 is not looking like a banner year for any nation.

Big nations with major debt dangers Huge national debts threaten many of the world's biggest economies, from Japan to the U.K.

http://finance.yahoo.com/banking-budget ... -budgeting
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Re: Real Estate Bubble in Peru?

Postby craig » Sat Jan 16, 2010 2:30 pm

tupacperu wrote:Economies are cyclic and if if can happen in the US , it can happen anywhere.

This is a common, but false, idea.

The mistaken notion is that economica activity, naturally on its own, for random reasons beyond understanding, varies in a cyclical manner. Economic history of the last 400 years or so evidences such cyclical behavior. And it is true that politicians, pundits and most academics are too ignorant to understand why. But that does not mean that this behavior is natural or not understood. In fact, it has been well understood by Austrian economists for the better part of a century and repeatedly predicted by them.

From John Law to Greenspan and Bernanke this phenomenon is caused by the massive creation of fiat paper money and credit.

That is why repeated bubbles are happening in the US (it is not over yet).

Whether serious bubbles will occur in Peru is not random or unknowable. It will be determined by whether or not the Peruvian economy is subjected to a flood of printing press money. To the extent to which Peru is dollarized it is subjected to some of the consequences of the massive inflation of the dollar. But the main question is whether the BCR will create massive amounts of money and credit.

The BCR is creating a lot of money to depreciate the sol in step with the dollar. And the Peruvian government's "stimulus" plan (why do they always have to ape the idiocies of the gringos?) has done a lot of harm to the Peruvian economy also. But, compared to the US, UK, etc., the amounts involved are proportionately minor. And unlike those "developed" countries Peru has a solid economy (based on productivity rather than credit) which can probably bear the damage. So, so far, I do not see the makings of a bubble machine in Peru.

Best,

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Re: Real Estate Bubble in Peru?

Postby american_in_lima » Sat Jan 16, 2010 4:23 pm

Having lived in Miami for years, where the bubble hit very hard, I see some very scary things in common:

Construction..Construction and Construction -

On my street alone in Miraflores (It's a 12 block street), they will have constructed 17 new apartment buildings in the last 3 years. They are building three apartment complexes as we speak literally within a 15 second walk from me.
Miami was the same way. Lot's of construction. Back in the day, the demand also was greater than the supply. There were more people moving into Florida then housing units being built. Eventually, they stopped coming...and stopped buying as prices tanked and credit dried up.

Easy Credit - Younger Buyers
Seems that a lot of the buyers these days are younger and first time home buyers which is always a different approach. I am 34, but now have bought three houses in my life. The way I buy a house now is much different than the first time around. It's less "feeling" and more long term thinking and being practical. It reminds me of getting married to be honest. The dream of owning a property is different than the reality. I think the younger inexperienced buyer thinks about his/her monthly payment and not about the total cost for the property in 10 to 15 years. The economy going bad, was not on my mind when I bought my first property. The level of excitement of first time ownership almost makes you in "La-La" land when buying.
More access to credit in Peru is not always a good thing. Easier credit....Reminds me of Miami.

Price Per Square Meter - Based on the list, Lima is still low on the totem poll, however, I would be curious to see the same price list 5 years ago and 10 years ago. Average price in Miraflores is around $1,000 a square meet. Last February 2009, I paid $60,000 for an apartment in Miraflores with 120 Square Meters ($500 per square meter) which I think was a solid purchase. Some issues with the place - It was a fixer upper and it's on the 5th floor with no elevator. I made a choice not to get a mortgage and pay cash when I could had qualified for mortgages much much higher than that. It was a choice I made to live within my means and not get mortgage fever as I like to call it. Happy I didn't. The rumor is that my place is worth now $90,000 to $100,000. That's a big jump in just 11 months. Reminds me of Miami. One of the reasons I paid cash was to protect myself from a bubble to be honest. Good economy or bad economy, I still own my apartment. I don't see many younger people, paying in full for a house. Seems like the generation prior to them, did.
Reminds me of Miami.

I think that prices will continue to rise for another year or two but the I think the bubble will come after that.

Too many scary coincidences to what I have lived through already in Miami. To me, the writing is on the wall already.
Regards,

George
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Sat Jan 16, 2010 5:18 pm

I do not care (much) if prices rise or fall. There is no secondary (mortgage) market in Peru and you can't borrow against equity (asset based lending) which eliminates the use of leverage (for the most part).

More important than 'imaginary capital gains" are REAL "rental yields" that put money in your pocket every month. In that respect Lima is only second to Jakarta in the world.

Lima is #1 in Latin America and why investors are interested. There are rumors, yields are declining in Argentina and sales prices are likely to follow.

Peru 12.13%
Panama 10.10%
Colombia 8.91%
Chile 8.87%
Ecuador 8.56%
El Salvador 8.46%
Brazil 8.09%
Uruguay 8.06%
Nicaragua 7.81%
Costa Rica 7.06%
Argentina 6.67%

Other than a political event/natural disaster it is hard to imagine "prices declining" with yields this high and additional appreciation of 30% is entirely likely, although it would come in the form of a relief rally in the fall of 2011 much like the "Garcia rally" of a few years ago.
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Re: Real Estate Bubble in Peru?

Postby craig » Sat Jan 16, 2010 9:19 pm

I think an explanation of what is a bubble and what is not would be clarifying.

A bubble is NOT prices going up and then down (only). Prices (of real estate, sugar or whatever) can go up, and go up considerably, for perfectly valid economic reasons. And then go down again as a result of real economic events and motivations. A bubble is a quite distinct, monetary, phenomenon.

A bubble occurs to the extent that prices are bid up entirely on the expectation that future prices will be higher (not on the basis of any, actual or expected, economic utility, use, income, etc.). It is a failure of the price discovery process caused by distortions due to an inflation of the money supply.

Rises in prices, even rises in prices involving speculation, are not bubbles if, in the long run, they are supported by, or motivated by expecations of, real economic consumption. It is not a bubble even if the expectations turn out to be wrong. There is a difference between a bubble and a mistake.

However, when newly created money finances speculation motivated by price increases caused by that inflation itself, there is no real economic basis (even a mistaken one) for the process that is bidding up the prices. This bubble process cannot be sustained indefinitely since it is based on false (monetary inflation based) information. When the truth eventually becomes apparent, the bubble bursts and prices bid up by the speculative malinvestment fall back to a realistic economic level.

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Re: Real Estate Bubble in Peru?

Postby tomsax » Sun Jan 17, 2010 3:10 pm

Alpineprince wrote:Lima is #1 in Latin America and why investors are interested.

Peru 12.13%


So that means if someone buys a property for US$100.000 in Lima they can rent it out at US$1000 a month! Or if they buy a property for US$25,000 they can rent it out for US$250 a month? That is pretty impressive. Is that sort of yield top end or bottom end of the market? Or is it more business than residential? Or have I done the calc completely wrong? When I last lived in Peru I was renting an apartment that I think would have cost around US$50k and the rent was around US$180 (4.3%?) but that was 2 years ago. And I started renting it out 5 years ago and the rent didn't go up, and people did comment on that being cheap...but anyway, rents have obviously gone up.

I am wondering if you can explain without giving all your business secrets away!
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Jan 18, 2010 11:26 am

tomsax wrote:
Alpineprince wrote:Lima is #1 in Latin America and why investors are interested.

Peru 12.13%


So that means if someone buys a property for US$100.000 in Lima they can rent it out at US$1000 a month! Or if they buy a property for US$25,000 they can rent it out for US$250 a month? That is pretty impressive. Is that sort of yield top end or bottom end of the market? Or is it more business than residential? Or have I done the calc completely wrong? When I last lived in Peru I was renting an apartment that I think would have cost around US$50k and the rent was around US$180 (4.3%?) but that was 2 years ago. And I started renting it out 5 years ago and the rent didn't go up, and people did comment on that being cheap...but anyway, rents have obviously gone up.

I am wondering if you can explain without giving all your business secrets away!

No secret, It is widely available info ( I did not generate, only use). The 12.13% is for a 120sqm apartment in an older (doorman) building in excellent condition. The apartment itself must have been renovated to a high standard in the past 5 years. Newly constructed buildings (higher cost basis) will experience lower returns.

here is an easily understood example:

A 180 sq. m apartment in Lima costs about US$200,000. This can be rented out for around US$1,140 a month, giving the landlord an excellent yield of around 10.5%. Smaller apartments produce higher yields of up to 13.5%.

Prices and rents have risen significantly in the past few years, but rents have moved ahead of prices.

hope this helps.
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Re: Real Estate Bubble in Peru?

Postby Alan » Mon Jan 18, 2010 12:20 pm

Alpineprince wrote:here is an easily understood example:

A 180 sq. m apartment in Lima costs about US$200,000. This can be rented out for around US$1,140 a month, giving the landlord an excellent yield of around 10.5%. Smaller apartments produce higher yields of up to 13.5%.



When you mention "yield" are you taking into account the time spent managing the business? ie. collecting rent, carrying out inventory, booking the apartment, taking the time to advertise it, showing the place, fielding phone calls? Are you factoring in the tax that needs to be paid on the rental income?

From an outsiders perspective, it doesn`t seem as quick-and-easy as buying or selling stocks, for example.

Cheers,
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Re: Real Estate Bubble in Peru?

Postby markr » Mon Jan 18, 2010 1:22 pm

What happens to the figures when you drop below 100% occupancy?
There are a lot more rental signs in Miraflores than there were 12 months ago.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Jan 18, 2010 1:33 pm

markr wrote:What happens to the figures when you drop below 100% occupancy?
There are a lot more rental signs in Miraflores than there were 12 months ago.

They obviously would go down at a "faster rate" as you still have arbitrios/maintienmento and possibly other expenses!
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Re: Real Estate Bubble in Peru?

Postby tomsax » Mon Jan 18, 2010 2:00 pm

I had to look up the words rental yield on google and came up with this link:

http://en.wikipedia.org/wiki/Real_estat ... t_measures

Apparently there is gross rental yield and net rental yield with net being obviously after taxes and other expenses. There are also other measures of whether real estate is in a "bubble" in the web article.

Thanks for the clarrification Alpineprince. I'd never known about this measure of house price so its an education. I think if I made money from property in Lima it would have to be in a very low cost area, as in a shanty town in Lima on the top of hill without water, electricty or proper title, but I can still dream!
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Jan 18, 2010 2:14 pm

Alan wrote:
Alpineprince wrote:here is an easily understood example:

A 180 sq. m apartment in Lima costs about US$200,000. This can be rented out for around US$1,140 a month, giving the landlord an excellent yield of around 10.5%. Smaller apartments produce higher yields of up to 13.5%.



When you mention "yield" are you taking into account the time spent managing the business? ie. collecting rent, carrying out inventory, booking the apartment, taking the time to advertise it, showing the place, fielding phone calls? Are you factoring in the tax that needs to be paid on the rental income?

From an outsiders perspective, it doesn`t seem as quick-and-easy as buying or selling stocks, for example.

Cheers,
Alan

Alan,
It is no where near as easy as buying and selling stocks. The rental yields I have mentioned are for leases of 1 year or more and are "gross yields" before any expenses, so the work is very minimal if you have "qualified" renters. Tax rates are also Variable 5%-30% depending upon the investors circumstances.

ST rental yields/occupancy rates are not tracked (that I know of) although it is commonly discussed/shared in various forums or amongst business acquaintances. It is my belief that they would "track" hotel occupancy rates in the same market/quality range .
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Jan 18, 2010 2:25 pm

tomsax wrote:I had to look up the words rental yield on google and came up with this link:

http://en.wikipedia.org/wiki/Real_estat ... t_measures

Apparently there is gross rental yield and net rental yield with net being obviously after taxes and other expenses. There are also other measures of whether real estate is in a "bubble" in the web article.

Thanks for the clarrification Alpineprince. I'd never known about this measure of house price so its an education. I think if I made money from property in Lima it would have to be in a very low cost area, as in a shanty town in Lima on the top of hill without water, electricty or proper title, but I can still dream!

Thanks for the link, it explains it better than I could.

Your idea is not bad! In the USA there is a program none as HUD or section 8 housing and it has been the source of many a "slumlords" riches including "The Donald".
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Re: Real Estate Bubble in Peru?

Postby mahou123 » Tue Jan 19, 2010 12:34 pm

I think high rental yields in Peru are reflection of a high risk of renting a place out. If tenants don´t pay, it will be a serious issue, up to not being able to evict them at all. Such cases are not unheard of. And judging by number of ads in El Comercio on Sunday, number of places for rent increased in the last few months, so it doesn´t look like it´s very easy to find tenants.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Tue Jan 19, 2010 3:18 pm

mahou123 wrote:I think high rental yields in Peru are reflection of a high risk of renting a place out. If tenants don´t pay, it will be a serious issue, up to not being able to evict them at all. Such cases are not unheard of. And judging by number of ads in El Comercio on Sunday, number of places for rent increased in the last few months, so it doesn´t look like it´s very easy to find tenants.

I think you have a valid point (in the first case)and markets are rated as to "pro-tenant","pro-landlord"or "neutral". (Peru currently being pro-tenant). This can be somewhat mitigated by guarantors,credit history,job history,references, etc.

On your second point. As I do not live in Chiclayo and am not entertained by counting "rental ads", I will have to accept your figures.

I do not do "long term rentals", as I do not find these "rental yields" to be attractive. I am only providing this information as it relates to the OP!

I created a real estate group awhile back for these types of discussions but apparently there is little interest.


With that in mind, i would like to get back to the discussion at hand.

I gave my opinion that we are not in a bubble based on "comparable s" and sidetracked the thread when I brought up "rental yields" to support my opinion that prices "could" increase by 30% from here.

If in fact there is more supply (rental units) than demand, we should see rental prices and the corresponding yields decline. That is entirely possible but would not mean we were in a real estate bubble, only that the "rental sector" would be less attractive to the investor.
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Re: Real Estate Bubble in Peru?

Postby mahou123 » Tue Jan 19, 2010 9:23 pm

Alpineprince wrote:
A 180 sq. m apartment in Lima costs about US$200,000. This can be rented out for around US$1,140 a month, giving the landlord an excellent yield of around 10.5%.


This is actually 6.84% per annum yield, gross.

tomsax wrote: When I last lived in Peru I was renting an apartment that I think would have cost around US$50k and the rent was around US$180 (4.3%?) but that was 2 years ago. And I started renting it out 5 years ago and the rent didn't go up, and people did comment on that being cheap..


This still can be done, in some not so nice areas or in provinces.
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Re: Real Estate Bubble in Peru?

Postby antonio » Mon Jan 25, 2010 8:09 pm

craig wrote:Rises in prices, even rises in prices involving speculation, are not bubbles if, in the long run, they are supported by, or motivated by expecations of, real economic consumption. It is not a bubble even if the expectations turn out to be wrong. There is a difference between a bubble and a mistake.
Craig


This is also what I think.

I tend to believe that there is no a real state bubble in Peru. On the contrary, I think that do exist speculation of prices
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Tue Jan 26, 2010 11:47 am

I believe there is a bubble, when incomes cannot support the purchases. Thye extend beyond the means of many people. I am seeing more and more apartments up for sale.

The Peruvian domestic economy is driven by ez access to credit. MUch like what happened during the Housing crisis all over the world.

Read on

viewtopic.php?f=15&t=8430&p=55626#p55626
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Sun Jan 31, 2010 8:35 am

tupacperu wrote:I believe there is a bubble, when incomes cannot support the purchases. Thye extend beyond the means of many people. I am seeing more and more apartments up for sale.

The Peruvian domestic economy is driven by ez access to credit. MUch like what happened during the Housing crisis all over the world.

Read on

viewtopic.php?f=15&t=8430&p=55626#p55626



That is the property of a bubble, you never know when it will burst (large or small).
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Sun Feb 28, 2010 9:14 am

Peru? one of the emerging economies?

Translated - online (excuse grammatical errors)

Brazil and other emerging countries undergo risk of economic bubble

Washington (Peru.com). - (EFE). - The managing director of the IMF, Dominique Strauss-Kahn, alerted this Friday that emergent Brazil, Indonesia and other countries they are in “real risk” to undergo a bubble in the price of their assets by the avalanche of external money.

“Great amounts of capital go to Brazil, Indonesia and other countries, that are in real risk to have bubbles”, noticed the head of the International Monetary Fund (the IMF) in an economic forum in Washington.

Brazilian the Bovespa Index, was under the 30,000 points at the end of 2008, during the worse of the crisis, today surpassed the 66,000 points, in spite of registering losses in this of year, which means a valuation of more of the double of the invested money.

Similar circumsatnces have registered emergent Indonesia and other markets.

In order to restrain the external influence of capital Brazil it has established capital controls, when instituting a tax of the 2 percent to the foreign investments in rent titles determines or variable.

The Monetary Bottom had been pronounced in opposition to that type of measures in the past, but it accepts now them in certain circumstances.

Strauss-Kahn said that the capital controls are not the panacea of the Governments to solve the problem, but indicated that “final S.A. is no another resource that to use them of temporary form to avoid more damages to its economy, why they would not have to do it”.

The ex- minister of French Economy said that “the normal” answer to the capital influences is to allow the appreciation of the currency, but that can take to an excessive ascent of the type of change, according to have recognized expert of the IMF.

Another possibility is that the central bank accumulates currency reserves, but some countries already have more sufficient.

In those circumstances, the capital controls are “a legitimate” measurement to fight with the problem, according to affirmed to experts of the IMF in a study on the published subject the 19 of February.

Nevertheless, they noticed that its generalized application could harm the world-wide growth and redirigir the external bottoms to countries that are not able to absorb them.
EFE
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Sat Mar 06, 2010 8:57 pm

here' s your bubble:

http://www.andina.com.pe/Ingles/Noticia ... LoQeFxrjQ=

When low income housing becomes affordable with ez credit
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Re: Real Estate Bubble in Peru?

Postby Alan » Thu Jun 24, 2010 9:44 am

LIMA (Dow Jones)--Mortgage lending in Peru is at an all-time high, with banks saying the sector is booming and predicting loan growth of up to 25% this year.

On Wednesday the banking association, ASBANC, said mortgage lending in May reached a record 13.5 billion soles ($4.8 billion), up 16% on the same month last year, driven by lower interest rates, longer lending terms, better economic conditions and "unsatisfied demand."

(the rest of the article is paid content on the following site)
http://online.wsj.com/article/BT-CO-201 ... 12315.html
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Re: Real Estate Bubble in Peru?

Postby PTTurboe » Thu Jul 01, 2010 8:49 am

Uh oh, that aint' good...
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Re: Real Estate Bubble in Peru?

Postby Alan » Thu Jul 01, 2010 11:38 am

This seems like a "glass is half empty vs. half full" scenario; one view is that "easy credit" is leading us towards a collapse in the real estate market, while others rejoice that people are qualifying for loans to buy a decent home to live in. Both sides have merit, but what I don´t get is this belief that getting credit is easy in Peru, or cheap. I qualified for a loan at 9.25, which was the most competitive rate in the market at that time. Rates at other banks were as high as 13% or even 14 %. To qualify, I needed to put up a 20% down payment, take out life insurance, take a full medical exam, take out insurance for the building, and jump through 1000 other hoops. This was not a mivivienda loan, but from what I have heard, you also need to qualify to receive those... nobody is giving away money here.

Maybe there is a bubble, but I think that it is based on optimism in the marketplace, and not easy credit.

Can anybody comment as to how difficult it is to qualify for Mivivienda loans?

Cheers,
alan
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Re: Real Estate Bubble in Peru?

Postby edgeclinger » Sat Jul 03, 2010 10:40 am

This is a very interesting discussion thread. For those of us who are about to move to Lima, confusion reigns. We read that Lima has the lowest housing costs of all the Latin American capital cities. But then we read that housing costs have risen dramatically in recent years and are still rising at a fast rate. But then we read that prices are overheated and in a bubble, which may burst at any moment. Although prices seem high, rental prices seem even higher.
So I'm afraid that if we wait longer, we won't be able to find anything we can afford. And I'm afraid that if we buy now, our property will lose it's value when the bubble bursts. When we arrive, we will either buy a new apartment, buy a used apartment, be long-term renters or... I wonder to myself how much chance we have of making the right choice.
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Re: Real Estate Bubble in Peru?

Postby american_in_lima » Sat Jul 03, 2010 4:44 pm

I would personally rent an apartment for a few months or even a full year before deciding to buy in Lima. You might not like it and decide it is not place for you. You might love it and it will only reconfirm your decision to invest in Lima real estate.

It will give you time as well to get to know the ins and out s of the districts before deciding where to buy.
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Re: Real Estate Bubble in Peru?

Postby PTTurboe » Thu Jul 08, 2010 12:08 pm

I agree with George. Rent for a while then find out where you want to live.

In my opinion we are in a huge real estate bubble here in Lima (and the rest of SA.)

Only 1.5% of the population of Lima has $5,000 or more in disposable income.

8,000,000 * 1.5% = 120,000 people!

They have built that many condos (it seems) over the last few years.

A LOT are investors buying. That is not good for home owners....
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Tue Jul 27, 2010 4:26 pm

Alan wrote:This seems like a "glass is half empty vs. half full" scenario; one view is that "easy credit" is leading us towards a collapse in the real estate market, while others rejoice that people are qualifying for loans to buy a decent home to live in. Both sides have merit, but what I don´t get is this belief that getting credit is easy in Peru, or cheap. I qualified for a loan at 9.25, which was the most competitive rate in the market at that time. Rates at other banks were as high as 13% or even 14 %. To qualify, I needed to put up a 20% down payment, take out life insurance, take a full medical exam, take out insurance for the building, and jump through 1000 other hoops. This was not a mivivienda loan, but from what I have heard, you also need to qualify to receive those... nobody is giving away money here.

Maybe there is a bubble, but I think that it is based on optimism in the marketplace, and not easy credit.

Can anybody comment as to how difficult it is to qualify for Mivivienda loans?

Cheers,
alan


EZ Credit:

Livivng in Peru 2008:
http://www.livinginperu.com/news-6130-e ... is-as-u-s-

RGamarra in her blog ( 2008)
http://enperublog.com/2008/12/14/peruvi ... o-come-by/

So what is driving all this consumerism in Peru?

The Peruvian economy is increasing, foreign investment is on the rise, GDP and exports are growing, however the average Peruvian wage is bucking the growth spurt and remaining stagnant.

The common Peruvian is depending more and more on plastic and retailers are encouraging its use by making the acquisition of retail credit as easy as pie.

The biggest malls and supermarkets aren’t found in exclusive districts such San Isidro, Miraflores, or La Molina, but rather in low income a.k.a. “C-Class” districts such as Los Olivos and the Cono Norte of Lima. Retailers in Peru specifically target the C-Class market, a socio-economic group that averages $200 USD or less per month.

Imagine your local supermarket offering you store credit (for us Americans this only exists with Wal-Mart.) Sounds odd, why buy groceries with a grocery store credit card? In Peru this is common practice with Metro Supermarkets, a part of the Wong (now Chilean Cencosud) family.

EZ-CREDIT is the name of the game and for Peruvians that cannot prove formal income, they can always provide proof of receipt of 6 foreign money transmittances to get their Metro Supermarket Card or Tarjeta Metro.


My position is not about credit worthiness. It is about banks stringing the population along who have income to qualify. There are families buying homes cars etc... for more than their income to debt ratios.
This may not be as pronounced as the US Mortgage crisis.

The bottom line in the US, People were buying homes they could not afford (income/debt ratio). I have family, friend and associates (Peruvians) who admit to be over the barrel in credit, they have no savings but own aparments cars, flat screen TV's etc.. Saga and ripleys keep uping the credit limit.

The US got hit with a double whammy, first the mortgage crisis, then unemployment reeked havoc on the housing market. My concern is how long can Peru sustain an economy based on internal demand. There has to be growth in the external sectors for Peru to survivie a double dip in the world economy. A drastic drop in exports can cause a ripple effect via unemployment. I see Peru going down the path as the US, but maybe in reverse (unemployment causing credit crisis, followed by housing). I do not see a bubble as much as I did previously , but there is a high posibility of a correction. There is too much speculation going on.

MHO
Last edited by tupacperu on Tue Jul 27, 2010 5:10 pm, edited 2 times in total.
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Tue Jul 27, 2010 4:37 pm

edgeclinger wrote:This is a very interesting discussion thread. For those of us who are about to move to Lima, confusion reigns. We read that Lima has the lowest housing costs of all the Latin American capital cities. But then we read that housing costs have risen dramatically in recent years and are still rising at a fast rate. But then we read that prices are overheated and in a bubble, which may burst at any moment. Although prices seem high, rental prices seem even higher.
So I'm afraid that if we wait longer, we won't be able to find anything we can afford. And I'm afraid that if we buy now, our property will lose it's value when the bubble bursts. When we arrive, we will either buy a new apartment, buy a used apartment, be long-term renters or... I wonder to myself how much chance we have of making the right choice.
Laurie :?


My personal solution was to get out of LIma. Lima like any other metropolis is running out of land to build, that causes prices to rise. I myself looked at the model behind the US housing crisis, the cities that had the moderate rise did not fall much . Many cities in TEXAS were not affected by housing crisis becasue the rise was small and incremental.
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Re: Real Estate Bubble in Peru?

Postby rgamarra » Thu Jul 29, 2010 9:57 am

tupacperu wrote:My personal solution was to get out of LIma. Lima like any other metropolis is running out of land to build, that causes prices to rise. I myself looked at the model behind the US housing crisis, the cities that had the moderate rise did not fall much . Many cities in TEXAS were not affected by housing crisis becasue the rise was small and incremental.


I don't think Lima's issue is w/limited land. IMO, it has to do with a.) speculation and b.) loose credit.

You are right about TX (where I live now), the lending laws are stricter here and this year property values have remained even or declined by only 4%.

One reason why there's also a record # of foreclosures in the U.S. is do to refinancing (people taking the hyper-inflated equity out of their homes.) In TX there are limits to what % of your home value you can refinance, which helped to curb any sky rocketing inflation that we've seen in the sunbelt states (and Lima).

Another thing about TX, is that most people, even of humble incomes, own their homes free and clear. Sort of like Peru, but I see that very concept has been fading these past few years with real estate speculation and easy credit in Lat.Am.
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Fri Jul 30, 2010 8:03 pm

Hopefully is will be a correction and not a real estate bubble brewing.

Hopefully not like the asset bubble in Japan in the 1990s .

It was called the Lost Decade:

http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

The strong economic growth of the 1980s ended abruptly at the start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a massive wave of speculation by Japanese companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities.
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Re: Real Estate Bubble in Peru?

Postby PTTurboe » Tue Aug 03, 2010 9:24 am

We are in a land bubble in Peru. Period.

And it is happening ALL over SA.

The economies here are booming because of exports. And thankfully the growing middle class. But, without the exports the middle class growth will slow and possibly reverse.

When I was here over a year ago I saw very little financing in the stores like Ripley and Vea.

Then when I moved here there were not many. I bought 3 TV's, stereo, etc.

NOW, ALL the prices are the credit prices and you have to squint to see the cash price.

And I saw in Vea - at an Interbank - a sign that said something like: "Does your debt have you down? We can help!"

Also, I have been studying the numbers and the real estate market in Miraflores, San Isidro, and La Molina.

There is an expansion of properties for lease and sale and they are staying on the market longer.

It also comes to utility - I see the price and think "No way is that worth it..."

I think the bubble will hit when the China Bubble pops. 18 months to 2 years out.

Why listen to me?

I have a degree in Real Estate Finance. I am a CCIM. And I have been a commercial real estate broker for 25 years.

It is obvious...
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Tue Aug 03, 2010 5:45 pm

PTTurboe wrote:We are in a land bubble in Peru. Period.

And it is happening ALL over SA.

The economies here are booming because of exports. And thankfully the growing middle class. But, without the exports the middle class growth will slow and possibly reverse.

When I was here over a year ago I saw very little financing in the stores like Ripley and Vea.

Then when I moved here there were not many. I bought 3 TV's, stereo, etc.

NOW, ALL the prices are the credit prices and you have to squint to see the cash price.

And I saw in Vea - at an Interbank - a sign that said something like: "Does your debt have you down? We can help!"

Also, I have been studying the numbers and the real estate market in Miraflores, San Isidro, and La Molina.

There is an expansion of properties for lease and sale and they are staying on the market longer.

It also comes to utility - I see the price and think "No way is that worth it..."

I think the bubble will hit when the China Bubble pops. 18 months to 2 years out.

Why listen to me?

I have a degree in Real Estate Finance. I am a CCIM. And I have been a commercial real estate broker for 25 years.

It is obvious...


I am in agreement with you, and I am just an economics major :-).

It is not rocket science.
As many economist know, the economy is cyclic (about 7 to 10 years). Look at the tech stock crash, overvalued tech companies (2000-2002). safest investment are liquid assetss or cash in the long run.


It's been a bumpy ride: (hills and valleys). The secret is to know when to get out.
http://www.bea.gov/briefrm/gdp.htm

http://4.bp.blogspot.com/_K3ry7Q_rEB4/T ... lusgdp.bmp

Would have been nice to buy some gold back in 2000-2002 :-).

Denial is the first reaction when things are going well. In my circle I perdicted the bubble in California (which went global), telling my friends to sell in 2004-2005. Prices were ridiculous.
But they were in denial , things were going too good (Bemmers, flat screens etc..). People buying more on credit than they could afford, including a mortgage.

Left Lima 3 month ago, and along the miraflores coast line you could see more rental and sales signs. But the pattern that got me speculating on the bubble, The apartments start with a rental sign and a few months later change to a sale sign. This would indicate to me that there were not enough renters at the price offered and the investor was losing money. When I am in Peru I often take a bike ride along the coast and count the amount of sales and rental signs. Have not been there in 3 months. Any one see the same pattern lately?

Some stores like Ripley's and Saga will not sell you the sales item at all, you have to pay with there store credit cards. They will not accept major credit cards like Visa or Master card for sales items. Some request that you pay the cash to a current customer and they put it on their card. There were al ot of willing customers who would accept the cash, but I do not think many paid it against their card


Years ago I came to Peru because of affordability, working over the net, and a beautiful Peruvian girlfriend (now wife - wife first in that order),, I am starting to think twice about returning anytime soon. I am finding better deals on real estate here in the USA (Phoenix), and just last week it was announced that there would be an additional 10% drop in many major cities. I am looking at 200 M2 homes with swimming pool for $130K (on a Lake in Glendale AZ), in state tuition for my 8 year old is great (ASU). So I thinking in reverse now: Rent my home in Pimentel when completed and buy a home in Glendale or Phoenix and retire.

Things have changed in Peru
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Tue Aug 03, 2010 6:27 pm

tupacperu wrote:
PTTurboe wrote:We are in a land bubble in Peru. Period.

And it is happening ALL over SA.

The economies here are booming because of exports. And thankfully the growing middle class. But, without the exports the middle class growth will slow and possibly reverse.

When I was here over a year ago I saw very little financing in the stores like Ripley and Vea.

Then when I moved here there were not many. I bought 3 TV's, stereo, etc.

NOW, ALL the prices are the credit prices and you have to squint to see the cash price.

And I saw in Vea - at an Interbank - a sign that said something like: "Does your debt have you down? We can help!"

Also, I have been studying the numbers and the real estate market in Miraflores, San Isidro, and La Molina.

There is an expansion of properties for lease and sale and they are staying on the market longer.

It also comes to utility - I see the price and think "No way is that worth it..."

I think the bubble will hit when the China Bubble pops. 18 months to 2 years out.

Why listen to me?

I have a degree in Real Estate Finance. I am a CCIM. And I have been a commercial real estate broker for 25 years.

It is obvious...


I am in agreement with you, and I am just an economics major :-).

The way to prevent the bubble or correction is salary growth, and that is not happening in Peru. Put more money in the hands of the internal economy -hopefully to pay their bills and purchase more. Companies want to profit from a cheap labor force. Workers want the good life, the results, living beyond their means.

There are companies now who once set up shop in Brazil and argentina and are moving to India (Chenai) in droves. Labor costs are no longer attractive in SA.

It is not rocket science.

As many economist know, the economy is cyclic (about 7 to 10 years). Look at the tech stock crash, overvalued tech companies (2000-2002). safest investment are liquid assetss or cash in the long run.


It's been a bumpy ride: (hills and valleys). The secret is to know when to get out.
http://www.bea.gov/briefrm/gdp.htm

http://4.bp.blogspot.com/_K3ry7Q_rEB4/T ... lusgdp.bmp

Would have been nice to buy some gold back in 2000-2002 :-).

Denial is the first reaction when things are going well. In my circle I perdicted the bubble in California (which went global), telling my friends to sell in 2004-2005. Prices were ridiculous.
But they were in denial , things were going too good (Bemmers, flat screens etc..). People buying more on credit than they could afford, including a mortgage.

Left Lima 3 month ago, and along the miraflores coast line you could see more rental and sales signs. But the pattern that got me speculating on the bubble, The apartments start with a rental sign and a few months later change to a sale sign. This would indicate to me that there were not enough renters at the price offered and the investor was losing money. When I am in Peru I often take a bike ride along the coast and count the amount of sales and rental signs. Have not been there in 3 months. Any one see the same pattern lately?

Some stores like Ripley's and Saga will not sell you the sales item at all, you have to pay with there store credit cards. They will not accept major credit cards like Visa or Master card for sales items. Some request that you pay the cash to a current customer and they put it on their card. There were al ot of willing customers who would accept the cash, but I do not think many paid it against their card


Years ago I came to Peru because of affordability, working over the net, and a beautiful Peruvian girlfriend (now wife - wife first in that order),, I am starting to think twice about returning anytime soon. I am finding better deals on real estate here in the USA (Phoenix), and just last week it was announced that there would be an additional 10% drop in many major cities. I am looking at 200 M2 homes with swimming pool for $130K (on a Lake in Glendale AZ), in state tuition for my 8 year old is great (ASU). So I thinking in reverse now: Rent my home in Pimentel when completed and buy a home in Glendale or Phoenix and retire.

Things have changed in Peru
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Ron
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Re: Real Estate Bubble in Peru?

Postby Ron » Wed Aug 04, 2010 5:45 pm

My wife and I like to watch the prices of beach houses. Houses in the 3-4th fila selling for $250-300K, unbelievable!!! Cheap money will run out and prices will fall dramatically.
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Alan
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Re: Real Estate Bubble in Peru?

Postby Alan » Wed Aug 04, 2010 9:46 pm

Ron wrote:My wife and I like to watch the prices of beach houses. Houses in the 3-4th fila selling for $250-300K, unbelievable!!! Cheap money will run out and prices will fall dramatically.


Like others, I have watched this thread very carefully and with great interest, and I appreciate all the great ideas I have read. What I still don´t understand is this concept I keep reading about "cheap money". Last time I checked, mortgage rates were hovering between 9% and 10% and it is hard to qualify for loans, unless maybe they are of the "mi vivienda" variety.

If there is a real estate bubble, I suspect that it is optimism, not easy credit, that is driving it.
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"Hay que distanciarnos hoy para luego abrazarnos más fuerte".
-Guiseppe Conte, primer ministro italiano.
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Re: Real Estate Bubble in Peru?

Postby PTTurboe » Thu Aug 05, 2010 1:03 pm

I think the one thing that might be better here than in the USA is that in the US ANYONE that could breathe got into the real estate market.

Here, I think it is the "old school rich" who are buying on speculation. Most are all cash deals when you own multiple properties.

Same thing happened in Panama - the 80 families that control 50% of the GDP did a lot of the development deals for cash too. And a lot of dumb gringos bought at the top too. (Costa Rica is going to get much worse REAL fast. Crime is skyrocketing.)

Look in Urbania on on a Sunday and there is almost a whole page of rentals for Miraflores. Same in Surco. Those are the bubbles for sure.

San Isidro seems to have a bubble in the cheap places. People buy there in the larger places (200 m2 and up) because they want to live there. They don't care how much the market goes up or down. All cash deals and the properties will stay in the families for generations.

La Molina? Not sure. Definitely a bubble in land prices. New money or old money kids wanting yards.

I think overall the market will drop 50-70% or more. Surco and Miraflores 80-90%. La Molina the same. San Isidro makes no difference because the real expensive properties are bought to live in.

Like I said this is happening ALL OVER South America. About the only bargain is Ecuador. But, people are afraid of the government there. (I am not. I am more afraid of the gov't here.)

Uruguay, Brazil, and Chile are all heading for a spectacular fall.

Peru - take what properties were worth 4-5 years ago and you have the price level I am looking for before I even think about it...
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Fri Aug 06, 2010 11:18 am

I can see the bubble being regional especially in Lima. I cannot see a large bubble throughout Peru. I define this as a correction. The MIvivienda is the same agency as Fanny Mae in the USA. They are giving out mortgage in the same manner. Yes the money is not cheap and the interest rates ar high in Peru. But if you look at what the housing market is doing it looks as if it is mimicking the same characteristic as the USA before the mortgage crisis. ===> Subprime loans=Mi Vivienda. They are raising the limit so that more low end housing can enter the already low end mortgage pool.

They are raising the Peruvian FHA Program limits (Mi Vivienda) that way more poor or lower middle class will buy more home than they can afford.

Article from Gestion.pe
60% of supply of Limean houses can finance with Mivivienda
[excerpt]
American Bank of Finanzas (BIF), Javier Núñez. and the minister of House, they are to increase the maximum value of the houses that can be financed with the new Mivivienda credits, the limits are currently s.180,000 (equivalent to 50 Tributary Tax Units - ITU). The president of the Mivivienda Fund, Caesar Mendoza, says that the new limit would be of a s.210,000.

The full article is in Spanish, but the title says it all.
http://gestion.pe/impresa/noticia/60-of ... 8-06/21468

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