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Buying a property in Peru: mistakes, scams and pitfalls

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Over the past few years, we've seen a noticeable uptick in interest from international buyers looking to snap up residential property in Peru. It's not hard to see why – Peru is a country full of vibrant culture and stunning scenery.

But it's worth noting that navigating the property market here can be a bit of a complex journey, especially for those who aren't local residents. There are plenty of potential hurdles and hidden pitfalls along the way that could easily catch you off guard if you're not careful.

Chances are, you might already be aware of some of the more common pitfalls when it comes to buying property, like overlooking ongoing maintenance costs or not doing your due diligence.

But when it comes to buying property in Peru, there are some unique challenges that might not be immediately obvious. The ones below have been reported by our community of customers and also our local experts in Peru. We’re going to take a closer look at a few of these in this article.

For a fuller picture and more detailed information, feel free to check out our Peru Property Pack. And remember, we’re always here to help – just drop us a line at our contact page.

Is it considered safe to invest in real estate in Peru?

Buying property in Peru, especially as a foreigner, can be a bit of a mixed bag. It’s generally considered safe, but it’s really not like buying property in a Western country.

The real estate market has been growing, and more foreigners are investing, but you’ve got to be careful because scams and fraudulent activities aren’t exactly rare.

The legal system does offer some protection for property owners, but it might not be as quick or transparent as what you’d find in Western countries. The process of buying property can get pretty bureaucratic, and sometimes things aren’t as clear as they should be. This can lead to complications, misunderstandings, and sometimes, costly mistakes.

Foreigners do face some unique challenges. Issues with unclear property titles, zoning regulations, and disputes over property boundaries can be a real headache. And if you end up in a dispute, resolving it can take a lot of time and money.

While you can own property as a foreigner, there are some areas, especially near the borders, where there are restrictions.

In terms of safe investment, cities like Lima, Arequipa, and Cusco are popular among foreigners, but even there, you’ve got to do your homework and make sure you’ve got good legal advice.

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Mistakes, scams and pitfalls you might face when buying a property in Peru

You should that the property has legal and reliable access to water

This issue may not be as common as others, especially in more developed urban areas.

One specific and lesser-known mistake that people, especially foreigners, tend to make when buying residential property in Peru is not thoroughly checking the property's water rights and access to utilities.

In some areas of Peru, especially in rural or less developed regions, water access is not guaranteed, and water rights might not be clearly defined or might be subject to disputes.

You should make sure to verify that the property has legal and reliable access to water and other essential utilities. This could involve checking the property's documentation to ensure that water rights are clearly stated and are transferable upon sale. You might also need to consult with local authorities or a local real estate expert to get a clear understanding of water access in the area and to identify any potential issues.

Failing to secure water rights could lead to significant issues down the line, including legal disputes, difficulties in obtaining necessary permits, and challenges in accessing clean and reliable water.

You have to make sure the Autovaluo of the property has been updated

The Autovaluo is an annual statement that property owners must submit to the local municipality, detailing the value of their property and any improvements made.

In the context of buying property, you might encounter a situation where the seller has not kept their Autovaluo updated, meaning the property’s declared value is significantly lower than its market value.

This discrepancy often happens because a lower declared value results in lower property taxes.

While this might seem like an advantage at first, it can lead to complications when you, as the buyer, try to secure financing or when you later decide to sell the property.

Banks in Peru typically base their mortgage loans on the declared value of the property, not the purchase price.

If the Autovaluo is outdated and shows a lower value, you might find that the bank is willing to lend you significantly less money than you need to purchase the property.

This can leave you scrambling to come up with additional funds to cover the difference.

Additionally, when you decide to sell the property, the low declared value in the Autovaluo can lead to higher capital gains taxes.

In Peru, capital gains tax is calculated based on the increase in the property’s declared value from the time of purchase to the time of sale.

If you bought a property with a low declared value and later update the Autovaluo to reflect its true market value, you could end up with a significant increase in declared value and, consequently, a hefty capital gains tax bill.

The discrepancy between declared property values and market values may not occur with every property purchase, but it can be a significant issue when it does.

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You have to make sure that the whole property is properly registered

Informal properties can be found across the country, but they are particularly prevalent in rural areas and on the outskirts of major cities like Lima. These properties may not be properly documented, and the seller might not have legal ownership or the right to sell the property.

If you’re a foreigner looking to buy residential property in Peru, you might be unaware of the intricacies of property informality and the potential risks associated with it.

Ensure that a comprehensive title search is conducted to verify the property’s ownership history and check for any liens, encumbrances, or legal disputes. This process can be complex in Peru, and it is advisable to hire a knowledgeable local lawyer who is experienced in real estate transactions to assist you.

Perform thorough due diligence on the property. This includes checking the property’s registration in the Public Registry (Registro Público), ensuring that the property boundaries are clear and match the official records, and verifying that all necessary permits and approvals are in place. We have a document dedicated to the Due Diligence process in our Peru Property Pack.

Make sure to verify the identity of the seller and ensure that they have the legal right to sell the property. Request and check all relevant documents, including their National Identity Document (Documento Nacional de Identidad - DNI) and proof of ownership.

Be cautious of sellers who prefer cash transactions, as this could be a red flag for informality or potential legal issues. Ensure that all transactions are conducted securely through official banking channels.

Ensure that all agreements, contracts, and terms of the sale are clearly documented in writing, and have them reviewed by your lawyer before signing anything.

You should verify the property's measurements and boundaries

In Peru, it's not uncommon for the public registry's records to contain outdated or inaccurate information regarding a property's size or boundaries.

This can be due to a variety of reasons, such as historical errors, lack of proper surveying, or changes in the property's boundaries over time that were never officially updated in the registry.

As a prospective buyer, you should take proactive steps to verify the property's measurements and boundaries before proceeding with the purchase.

This might involve hiring a qualified surveyor to conduct a thorough survey of the property and compare their findings with the official records.

You have to scrutinize the property's "Partida Registral" or registration document, which should be available at the SUNARP (Superintendencia Nacional de los Registros Públicos). This document contains detailed information about the property, including its boundaries and measurements.

If discrepancies are found, you will need to work with a local notary and the public registry to update the records and ensure that everything is accurate and up-to-date.

Failure to address these issues before finalizing the purchase could lead to boundary disputes with neighbors, challenges in obtaining permits for construction or renovation, and potential legal issues down the line.

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You have to be cautious with the construction of additional floors (“derechos de aires”)

A specific concern that may not apply to all property buyers.

In Peru, especially in dense urban areas like Lima, space is at a premium.

As a result, property owners sometimes sell the rights to build on the roof of their building, known as “Aires.” When you buy Aires, you are essentially purchasing the right to build additional floors or a separate dwelling on top of the existing structure.

However, this practice can lead to several complications and potential mistakes for unaware buyers.

Before buying, we would advise you to hire a structural engineer to assess the building and confirm that it is safe to add additional floors.

Also, there may be legal and zoning restrictions that limit what can be built on the Aires. You should verify that your planned construction is allowed under local zoning laws and obtain all necessary permits and approvals before proceeding.

Ensuring access to the new construction and connecting utilities can be complex when building on Aires. You should clarify how access will be provided (e.g., through the existing building or via a separate entrance) and confirm that utilities can be connected to the new construction.

Moreover, buying Aires and constructing on the roof of an existing building can lead to conflicts with the current residents. They might be concerned about issues like noise, privacy, and structural integrity. It’s important to communicate openly with the existing residents and address their concerns to avoid conflicts.

Finally, there may be hidden costs associated with buying Aires and constructing on an existing building, including potential upgrades to the building’s structure, access, and utilities. Ensure that you have a clear understanding of all costs involved before proceeding.

You have to understand how the Alcabala tax works

The Alcabala is a specific Peruvian tax that applies to the transfer of real estate properties.

When you buy a property in Peru, you, as the buyer, are typically responsible for paying this tax, which is calculated based on the transfer value of the property. The Alcabala tax rate is generally around 3%, but it can vary depending on the specific circumstances of the property transaction.

What makes this tax particularly tricky for foreigners is that there are certain exemptions and reductions available, but they are not always well-understood or communicated. For example, if the property being transferred is the seller’s primary residence and the sale price is below a certain threshold, the transaction may be exempt from the Alcabala tax.

Additionally, if you are not familiar with the Peruvian tax system and the specific documentation required, you might find yourself in a situation where you have paid the Alcabala tax but are unable to prove it or reclaim it later if you are found to be exempt.

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You might have to check whether the property is near historical sites

This issue may not affect all property buyers but can be crucial when it does.

In Peru, properties located in or near historical centers or archaeological sites are subject to stringent regulations to preserve their cultural and historical integrity.

You must check if the property you are interested in falls within such a zone, as this can significantly impact your ability to make modifications, renovations, or even perform basic maintenance.

You should also verify the property’s status with the Ministry of Culture or the local municipality, as they oversee historical preservation efforts. You need to obtain clear information on what alterations are permitted and what processes you must follow to obtain approval for any work you plan to do on the property.

If the property does fall within a protected area, you should be prepared for potential delays and additional costs associated with complying with preservation regulations. In some cases, the restrictions may be stringent enough to limit your ability to alter the property to suit your needs.

You should also inquire about any potential future development plans for the area. Sometimes, properties in or near historical zones may be affected by broader urban development or preservation initiatives, which could impact your property’s value or your enjoyment of it.

You have to understand that the “Minuta” is legally binding

This one would affect all the buyers.

In Peru, once you sign the "Minuta," you are legally bound to go through with the purchase, and if you back out, you might lose your deposit. This is different from some other countries, where a preliminary agreement might not be legally binding.

In this context, you should thoroughly review and understand all the terms in the "Minuta" before signing it.

Make sure you have a clear understanding of what you are agreeing to and be aware that this document holds significant legal weight in Peru.

Additionally, it is not uncommon in Peru for properties to have irregularities in their paperwork or legal status.

As mentioned before, you should conduct a comprehensive legal review of the property to ensure that there are no outstanding legal issues, liens, or encumbrances that could affect your purchase.

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