Peru’s explosive housing market is showing a decline as inventory increases. As I’ve mentioned in these pages before, the amount of debt in dollars is weighing on the marketplace, and the overbuilt market is screaming “bubble.” Furthermore, as many new units are set to come on the market in the next year, expect declines in prices as builders realize that they have to sell something in order to keep up with debt service. The construction sector has been a big employer in recent years both through construction jobs & all of the ancillary services and products related to housing. As construction slows, so will the overall economy.
Via El Comercio using Bing translator – authors’ corrections in parenthesis
Lower Home Sales Permit Slower Price Rise in Peru
Even if the reduction in the sale of homes is a poor outcome for builders and real estate that are behind the project, the same situation becomes good news for buyers since prices tend to stabilize, as a consequence…
According to a recent report by BBVA Research, since the third quarter of 2014, housing prices have recorded a more moderate advance than for some time. Thus, last year ended with an increase of around 3%, well below the annual increase shown in previous periods, when it came to range between 10% and 20%.
Only in the fourth quarter of last year, the average price of the square meters of a house in Lima rose 2.8% in comparison with similar period of 2013. And ten districts analyzed, in San Borja, Miraflores, La Molina and Mary Jesús were more pronounced downturns in real estate prices, which came to represent about ten percentage points less.
Meanwhile, in San Isidro, Groove, Lynx and Pueblo Libre the increase of prices of dwellings Yes managed to overcome variation that recorded a year ago, although in none of the cases exceeded double digits, as it used (to) previously.
Taking into account that behavior, the report of the financial institution provides that “in the next two or three quarters real estate prices not displayed greater recovery since the market will require some time to absorb the supply increase last year”.
DEMAND FOR CARE
In addition to this, also warns that other element that delves into the slowdown in demand is that the effort to acquire a dwelling is greater than before. According to the report, this situation would reflect a moderation of the labor cycle cooling product family income, which is compounded by the increase in the exchange rate.
Even so, BBVA sees a reaction of the demand from the second half of this year, in line with the recovery that will begin to show the growth of the economy.
► 40% grew the inventory of homes available in Lima during the 2014, which meant an increase of 8,000 additional units.
40% housing inventory growth in 2014 reads bubble in my mind. In addition to the overbuilt market, the dollar denominated debt continues to grow ever more expensive as the dollar strengthens, putting additional pressure on existing homeowners who borrowed in dollars which may result in even more inventory on the market.
©2015 Ben Gangloff
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