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Everything you need to know is included in our Peru Property Pack
Are you considering buying real estate in the land of the Incas? Are you questioning if it's a good time to invest?
Market timing is a subject where opinions vary among individuals. Your Peruvian colleague may suggest that it's currently a good time to buy property, but your friend residing in Lima might suggest waiting for a couple more months.
At TheLatinvestor, when we create articles or update our pack of documents related to the real estate market in Peru, we use verifiable facts and concrete data, not just subjective opinions.
We've done extensive research on official reports and government website statistics, resulting in a comprehensive database. Here's what we've learned, which can provide valuable insights for your decision-making process regarding real estate purchase in Peru.
We hope you find this article helpful!
How is the property market in Peru these days?
Peru is, nowadays, a relatively stable country
If you want to invest in properties, prioritize stability as it attracts sustainable development and investor confidence. It is an information you need as a foreigner looking to buy a property in Peru.
Currently, Peru is somewhat stable as a country. The last Fragile State Index reported for this country is 69.8, which is a decent number.
Peru has experienced economic growth and political stability in recent years due to strong economic policies and a commitment to democracy by its government. Additionally, the country has benefited from a large influx of foreign investment and international aid, which has helped to create a more vibrant and diverse economy.
We should now evaluate more data to see if the timing is right to buy property in this country.
Peru is on track for significant expansion
Before diving into real estate investment, the initial step is to look into the country's economic condition.
In line with IMF predictions, Peru is set to conclude 2023 with a growth rate of 2.4%, which affirms the country's positive direction. As for 2024, the figure we're looking at is 3%.
Besides that, the economy will keep growing since Peru's economy is expected to increase by 12.9% during the next 5 years, resulting in an average GDP growth rate of 2.6%.
The expected sustainable growth rate in Peru is a good thing for someone who wants to invest in real estate in this country because it indicates a steady increase in the value of property investments over time, and provides a reliable way to maximize returns on investments.
Let's now look at other metrics.
Peruvian business owners don't have faith in the economy
The GDP growth is arelevant metric, but may not fully encompass business community expectations. Luckily, in Peru there is an established metric that is routinely disclosed. This doesn't apply to every country, so we're in luck.
Surveys and assessments of business leaders contribute to the calculation of the Business Consumer Index (BCI), a metric that reflects their confidence in the present and future economic conditions.
The Central Reserve Bank of Peru's data indicates that the Business Confidence Index is currently -6 for Peru.
Peru has been experiencing protests and political intrigue since the ouster of its former president, Pedro Castillo, in December 2022. These events have created a climate of uncertainty and intrigue, contributing to the country's current low score.
This is not new, business operators were not confident 12 months ago either. The BCI score, back then, was at -14.
A lack of confidence among local businesses in Peru can translate into a sluggish property market. Economic uncertainty may discourage investment and hinder property price growth. Buyers may experience limited options in terms of available properties, potentially leading to reduced demand and a buyer's market.
Peru's population is growing and getting (a bit) richer
When it comes to buying real estate, population growth and GDP per capita play a significant role, because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Peru, the average GDP per capita has changed by 0.4% over the last 5 years. Though not substantial, there is still a positive trend of growth. Furthermore, the Peruvian population is growing (+2% in 5 years).
This means that, if you purchase an apartment with a view of Machu Picchu and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, there might be an increase in rental demand in Peruvian cities like Lima, Cusco, or Arequipa in 2024.
Properties promise modest rental yields in Peru
Our attention will now be directed towards the rental yield.
It's the annual rental income of a property divided by its price. For example, if a property in Peru is purchased for 1,000,000 PEN and generates 50,000 PEN in annual rental income, the rental yield would be 5%.
The website Numbeo indicates that rental properties in Peru promise gross rental yields from 3.2% and 5.9%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Peru.
It suggests a satisfactory level of income relative to the property's value.
Everything you need to know is included in our Peru Property Pack
In Peru, inflation is anticipated to be moderate
Simply put, inflation is when prices keep going up.
It's when your customary ceviche dish in Lima costs 30 Peruvian soles instead of 25 Peruvian soles a couple of years ago.
If you're about to invest in a property, high inflation can benefit you:
- property values tend to increase over time, leading to potential capital appreciation
- inflation can result in higher rental rates, increasing cash flow from the property
- inflation reduces the real value of debt, making mortgage payments more affordable
- real estate can act as a hedge against inflation, preserving the value of the investment
- diversifying into real estate provides stability during inflationary periods
- tax advantages, like depreciation deductions, can help offset the impact of inflation
In line with IMF predictions, over the next 5 years, Peru will have an inflation rate of 10.7%, which gives us an average yearly increase of 2.1%.
This data infers that Peru could experience a moderate rate of inflation in the future. Then, prices would rise. It might become more expensive to buy in the future. However, if you buy now, your investment might appreciate and you can sell for a higher value later.
Is it a good time to buy real estate in Peru then?
Time to conclude !
While there are some favorable signals, 2024 might not be the optimal time for property investment in Peru due to a combination of factors that warrant caution. The projected significant expansion could be promising, but it's essential to acknowledge that economic growth doesn't always guarantee a corresponding positive impact on the property market. Other critical elements, such as regulatory stability and infrastructure development, play a key role in determining the overall attractiveness of real estate investments.
Despite the growing population and improving financial status of Peru's residents, these factors might not directly translate into a thriving property market. Other variables like demand-supply dynamics and property investment laws can significantly impact the potential returns on property investments.
While Peru's current stability is relatively neutral, the modest rental yields offer limited income potential for property investors. This, in combination with the neutral inflation projection, can affect the overall attractiveness of real estate as an investment option in the country.
Moreover, the lack of faith in the economy expressed by Peruvian business owners is a concerning factor. A lack of confidence can lead to reduced economic activity, impacting multiple sectors, including real estate. This, along with the other signals, suggests that 2024 might not be the most opportune time for property investment in Peru.
We sincerely hope this article has provided you with beneficial information!. If you need to know more, you can check our our pack of documents related to the real estate market in Peru.
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
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