PERU: An Introduction to Real Estate

Current Economic Conditions Affecting Real Estate

In 2023, final clients in the Peruvian real estate sector have been affected by increasingly stringent credit qualification requirements from financial institutions for home purchases. This lack of flexibility in granting loans has also impacted real estate developers, as demand has decreased. Consequently, law firms have also suffered from a reduction in work commissioned by real estate developers.

Furthermore, there is a weakness in the central government’s ability to sustain the validity of national regulations on urban and building matters, especially those related to social housing. This has caused various local governments to fail to comply with licensing procedures, resulting in delays in the conformity of works, suspension of construction processes, and the initiation of actions for nullity of preliminary designs and licences, which obviously causes insecurity and has discouraged real estate investment in districts where real estate projects were being developed under the aforementioned social housing regime.

Key Trends and Developments in Peruvian Real Estate

Firstly, a trend emerging in the real estate market is the implementation of multi-family projects, in which the real estate developer maintains ownership of all the housing units in a building after construction and exclusively rents them out for residential purposes. These properties are centrally operated by a third-party operator that manages the building and housing units and provides complementary services such as maintenance, cleaning, laundry, catering, and entertainment areas for tenants. The increase in inquiries about this alternative by real estate developers is evidence of their desire to benefit from this business model, which typically includes a smaller living space area than the minimum established by national legislation (40 square meters). However, the problem with this trend is that there are few districts where projects with the required dimensions for this rental business model can be approved, mainly due to the questionable validity of the rules approved by many district councils, which often contradict provincial regulations. Additionally, while the National Building Regulations contemplate the concept of “collective housing”, understood as a multi-family dwelling in which some common spaces cover laundry, storage, and meeting needs, municipalities argue that zoning regulations have only developed traditional housing and residential complexes, denying their application.

Secondly, there has been a trend towards the growth of single-person households from 11.8% to 16.8% in recent years, while “single mother with children” households grew from 16.7% to 18.8%. This data is considered relevant because it influences the supply of real estate, as developers seek to attract these groups as potential buyers of housing units.

Finally, as a consequence of the virtual forms of work generated during the pandemic, there has been a significant decline in demand for the purchase or rental of real estate units intended for offices. We can definitely talk about an oversupply as private companies’ offices, particularly administrative and service businesses, have significantly reduced in size due to the strong presence of remote work. 

New Legislation 

Law No 31323 (Ley de Desarrollo Urbano Sostenible), has set a deadline for initiating specific zoning change requests (26 July 2023), for cases in which provincial municipalities do not have an urban development plan, or that plan is not updated or updating in process. From that date, Peru will have a system fundamentally characterised by a period and integral zoning changes, as the individual requests will be accumulated until the next revision of the planning.

Additionally, the mentioned law regulates the Vivienda de Interés Social where it is indicated that the national policy and programmes for the application and promotion of that special housing regime will be approved and updated by the Ministry of Housing, Construction and Sanitation. As the regulation of this special housing regime is pending, and this regulation may modify the actual situation of the regime, real estate developers have an interest in obtaining and presenting the approval for their projects under the parameters of the current regime. 

Potential Hurdles or Difficulties and How These Can Be Overcome

In recent times, the authorities that have taken over the management of various local governments have highlighted the lack of solidity and predictability of the current rules on urban planning, construction, and operating permits. The sometimes arbitrary actions of municipalities in this area have a significant effect on legal certainty in the real estate sector. As a first example, we can mention Municipal Ordinance No 156-2023-MDMM issued by the Municipality of Magdalena del Mar, which illegally suspended the issuance of all building permits and reviews of preliminary designs for building types C and D, both by commissions and urban reviewers, for a period of six months. As a second example, the Municipality of Surco ordered the review of 15 projects that had building permits and suspended four building permits because they exceeded urban planning parameters. We can also point out the unexpected and disproportionate closure of the Larcomar Shopping Centre by the Office of Civil Defence of the Municipality of Miraflores, for not complying with technical safety measures in buildings, as well as the serious attacks of an elected Mayor, even before taking office, regarding the multi-purpose space Arena Peru in the district of Santiago de Surco in Lima, which led promoters, on their own initiative, to suspend all activities (previously, several concerts with international artists had been frustrated as a result of arbitrary reductions in the approved capacity for those venues).

The current regulations clearly establish the only requirements that can be demanded for the issuance of permits, authorisations, and certifications that promoters must process; however, various local governments have taken an unprecedentedly negative attitude towards the rights of promoters, invoking the protection of the interest of neighbours, in order to “fulfil” electoral promises that brought the current authorities to power. The national authority seems unable to stop this legal insecurity and neighbours have seen in this weakness an opportunity to “assert” claims contrary to the characteristics that, according to Article 3 of the Sustainable Urban Development Law (LDUS), should be typical of a modern city: equality and non-discrimination, safe and healthy habitability, diversity, social cohesion, affordability of housing, etc. This vocation for an inclusive and compact city seems to fade away through the strange conjunction of the interests of citizens of the central districts of a city who do not want any variation in the current conditions of their environment, especially with regard to social housing projects, but also with respect to commercial projects that could have some impact on safety and traffic, with the interests of land traffickers and informal actors who promote invasions and real estate developments that do not comply with urban planning regulations. The result of this conjunction of interests is discouraging: the latest fieldwork indicates that over 90% of urban growth is, in different variants, informal, peripheral, and certainly without access or with restricted access to basic services, seriously affecting people’s right to decent housing and the future sustainability of our cities.