Real Estate Bubble in Peru?

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tupacperu
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Fri Aug 06, 2010 12:04 pm

Alan wrote:
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.



I have gone into banks and yes, for foreigners it is dificult to get a loan (even with a CE). Many banks are skeptical. But for a Peruvian it is easier. If you know the decision makers it can be done. If you have a member of your family vouch for you, yes, loans can be had.


We wanted a loan to rebuild my home in Pimentel (which I own free in clear). The Bank would not give me the loan to rebuild but offered me a loan to buy a new apartment. I guess they are connected wito construction Companies and Developers it may be more profitable to sell us an apartment.

On the upper end of the economic scale it is not ez credit becasue there is documentation to prove income. But on the low end housing the banks accept almost any evidence of income. western union reciepts etc...

The housing crisis in the USA, the main cause was not so much ez credit. Many should have purchased homes they could afford, the result, the ez credit would not impact their economics, because they could afford to make payments.

The problem?, buying more home than they could afford. This is what is happening in Peru.

The income levels do not justify the prices that people are paying. The average income in Peru:
Men earned an average of 1,239 soles per month in the first three months of 2009,
The average monthly income for women in Peru was registered at 829 soles.


http://www.livinginperu.com/news-8783-e ... -9-percent

About 2100 soles (2.80 per dollar). $750.00 for an average couple, lump that with mortgage and other household expenses and it does not pan out (and this is average). Many Peruvians that I know , family included are underwater in credit.


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Re: Real Estate Bubble in Peru?

Postby PTTurboe » Fri Aug 13, 2010 9:33 am

I guess we have to just sit back and watch. And wait.

I have a very good friend who is a developer builder here. HE IS FRANTIC TO FIND LAND TO DEVELOP.

That is a bubble.

Believe it or not I have talked 2 of my fiance's friends into selling some spec property. They see it coming too. And one of them is in a banking family...

I wish my developer friend would listen. But, he is family and he is acting just like they did in Florida when I was advising clients to sell. He gets pissed off...
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Re: Real Estate Bubble in Peru?

Postby edgeclinger » Sun Aug 15, 2010 12:23 pm

Last time we were in Lima (beginning of the year) I had myself convinced that we should buy an apartment. After all, I read that housing costs were lower in Lima than any of the other Latin American capital cities. So I was worried that if we waited and prices kept rising, we wouldn't be able to afford a place to live! But I also looked around and saw new construction on every block and of course that made me nervous in the other direction! After reading all this talk about a bubble, I'm thinking about what happened in Florida (where we used to live), what's happening in Costa Rica (where we live now) and thinking, OK, maybe we'd better rent something when we get there and take our chances and wait and watch a while.
I appreciate all of the discussion here by all of you knowledgeable people. It's very helpful, even if I do continue to be confused by the conversations I have with myself.
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Re: Real Estate Bubble in Peru?

Postby Ron » Mon Aug 16, 2010 12:14 pm

We are doing the same "watch and wait" tactic here. We have talked to our bank (Scotiabank) and they said best way to fund a house is to use your home equity to buy in Peru and pay it of when you sell you house before you move. The other economic "indicator" that I watch are the country club membership prices. In 1999 you could join Golf Los Incas for $5000, now it is $40,000. CC La Planicie was $20,000 last year and now is $38,000. I will be watching for those prices to drop as well.
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Re: Real Estate Bubble in Peru?

Postby tupacperu » Mon Aug 16, 2010 1:36 pm

Ron wrote:We are doing the same "watch and wait" tactic here. We have talked to our bank (Scotiabank) and they said best way to fund a house is to use your home equity to buy in Peru and pay it of when you sell you house before you move. The other economic "indicator" that I watch are the country club membership prices. In 1999 you could join Golf Los Incas for $5000, now it is $40,000. CC La Planicie was $20,000 last year and now is $38,000. I will be watching for those prices to drop as well.


I am thinking about bailing the housing market in Peru in mid project. I am just finding alot of affordable houses in Tempe Arizona (with pool). I am seriously thinking about getting out now. Anybody for a 210M2 beach front property (with plans) in Pimentel? $75K :-).
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Re: Real Estate Bubble in Peru?

Postby rgamarra » Wed Aug 18, 2010 3:36 pm

Our plans are either to cash-in or keep-in, in Peru. Either way, we bought pre-bubble, so no money lost. At least we have a place to stay when we go back to visit Peru. If we did sell, the profit from our flat in Peru could buy us a nice cash home in Orlando/Kissimmee, FL. At least I have more property rights/protection for my home in the U.S.
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Re: Real Estate Bubble in Peru?

Postby Wine Lover » Thu Aug 19, 2010 10:50 pm

Real estate in Lima as an investment, no thanks.
Purchasing as a primary place of residence, maybe if I only had to borrow 50%.

Your just not going to get a decent long term return if you buy a typical newly constructed apartment at the moment. A new 2/3 BR apartment which costs +- $100k is not going to doble in just over a decade.

Peruvian companies in the Peruvian stockmarket are the best places to invest your hard earned. There's many a good blue chip company in this country across many sectors that have very little competition, are earning massive profits and have growth potential like you wouldnt believe. only 5% CGT as well
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Sat Aug 13, 2011 2:55 pm

It's been over year since we last brought this topic up again. Prices in the USA are still falling and projected to drop another 20-25%. Meanwhile, Miraflores has seen a nice increase and is now the most expensive district in Lima. A recent article in Peru 21 is expecting further growth in prices of 15% over the coming year.

I recently put a piece of property up for sale (to test the waters), It has tripled in value, but with a 24% RRR and only 5% taxes, I am in no hurry to sell it!

While, I agree with others that we have to thank our Asian neighbors for there largess, I do not foresee a hard landing in China and believe prices and the economy will continue to grow till at least 2017. If it were not for the recent election, I would not be concerned but alas, all good things must come to an end!
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Re: Real Estate Bubble in Peru?

Postby asgoodasitgets » Sat Aug 13, 2011 5:53 pm

When the banks can print money out of nothing, then they have social power - if they choose to make home loans easy and relatively cheap, that is going to inevitably, artificially cause a price increase in home prices. Eventually that artificial increase in price has to re-evaluate with real market value, even if that re-evaluation come as a result of the fraudulent paper money system no longer being able to viably or credibly print more money. It's also worth noting that even if a face value price in paper money terms of a property or any other asset goes up, that is not necessarily because it has appreciated in real value (or it may be a combination of the two). What's happened in most western nations was 98% bubble.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Sat Aug 13, 2011 8:47 pm

Alpineprince wrote: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.


When I first predicted this 30% increase it was based on the expectations of a Toledo win and would not have occurred so soon! But I prefer "luck" over " intelligence "! Barring a " Humalageddon" or major earthquake in Lima another 15-20% rise in the next two years is entirely reasonable and perhaps on the low side. It is interesting to note that the central bank did not increase rates after the election and appears to be bracing for the recession that the USA is most likely already in. As the Asian economies increasingly become our main trading partners any effect from a second "global recession" will be muted at best. In anticipation 2012 growth was ramped down by J.P.Morgan to 4.5%, but still good enough to rank Peru #1 in Latin America and supposedly the second best country in the world to invest.

With regard to Rental Rates of Return, as expected rents are not increasing fast enough and Peru's RRR is suffering. In the ST rental market RRR have dropped from a high of 32% in 2005- 2007 to 19% in 2008-2009 and have plateaued for the last 2 years in the 24% range.
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Re: Real Estate Bubble in Peru?

Postby asgoodasitgets » Mon Aug 15, 2011 11:36 am

I could be wrong but I've seen a 20 - 30 % decrease in real rental rates around Lima generally since just before the election compared to say around Dec to March, just anecdotally speaking.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Aug 15, 2011 3:30 pm

I have not seen the stats that would confirm this, But as prices rose by 30% it is an entirely reasonable assumption. In my own case a property I rent was asking (right before the election) a 11% increase in rent (albeit in dollars) which I balked at and we agreed on 7%. They also wanted to covert into soles, but I only agreed to pay at the applicable exchange rate on the day due. Naturally I converted $10,000 into Soles at 2.76 and will dole it out to the landlord monthly at the then lower dollar rate.
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Re: Real Estate Bubble in Peru?

Postby renodante » Mon Aug 15, 2011 3:39 pm

it's the shady landlord/business dealings thing that makes me realize i'm nixing my plans for a business here. it's just way too rampant.
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Re: Real Estate Bubble in Peru?

Postby rama0929 » Mon Aug 15, 2011 4:02 pm

renodante wrote:it's the shady landlord/business dealings thing that makes me realize i'm nixing my plans for a business here. it's just way too rampant.


Par for the course in Peru, I suppose, but I am getting an impression from the people there that things are getting a little better. But it seems to me that there are quite a few informal arrangements. I don't know how anyone makes money there.
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Re: Real Estate Bubble in Peru?

Postby Alpineprince » Mon Aug 15, 2011 6:03 pm

renodante wrote:it's the shady landlord/business dealings thing that makes me realize i'm nixing my plans for a business here. it's just way too rampant.

There is nothing shady about it! A landlord has the right to ask for anything they desire and I the renter can accept, negotiate or move. Obviously a business is very different as you are dealing in leases 5/10 years and you just need to get the escalation clauses built into the contract. In the past when I was renting and then subletting out apartments, landlords would become jealous of the free cash flow ($12,000 per year) they generated and wanted to renegotiate but would not assume any of my risks and would always back down!
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Re: Real Estate Bubble in Peru?

Postby asgoodasitgets » Thu Aug 18, 2011 1:00 pm

Gold money system is way more stable. Remember it's not the amount of Gold, it's that you are tied to it...

Just saying... 8)
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Re: Real Estate Bubble in Peru?

Postby el conquistador » Fri Sep 02, 2011 1:14 pm

asgoodasitgets wrote:I could be wrong but I've seen a 20 - 30 % decrease in real rental rates around Lima generally since just before the election compared to say around Dec to March, just anecdotally speaking.




I was recently in Lima helping out a friend with finding a flat. In some areas rents got more expensive than before and in some areas it became more affordable.

Magdalena Del Mar and San Miguel became much more expensive. But in areas like Surco, Miraflores and San Isidro bargain are to be picked up.
I think the reason for this is that Magdalena and San Miguel are very popular areas but there are not to many properties put up for rent on a weekly basis and rents out quickly. Whilst if you open the El Commercio on Sunday then there are at least 3 pages full of rental ads for San Isidro and Miraflores. Very few people can afford to live in those areas so places don't rent out quickly so many flatowners are willing to accept a lower offer.
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Re: Real Estate Bubble in Peru?

Postby Clemente » Mon Sep 12, 2011 8:16 am

Are actual housing prices in upper scale districts of Lima higher, lower, the same than does of other South American capitals? Any guess if the US and Euro crisis will affect the real estate market in Lima? :?:

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