Peru’s construction, real-estate boom still strong

Peru’s construction, real-estate boom still strong
Published: 28 October 2009

Investors are continuing to fuel Peru’s already fast- growing construction and real estate sectors, propelled in good part by political stability and rising levels of public spending for the better part of the last decade.

The construction sector has taken off alongside a strong expansion in gross domestic product, which grew a red-hot 10% in 2008. Real estate sales have followed suit as demand for housing and office buildings continues to boom.

Despite a weakening of growth this year, the construction sector has remained strong. "The construction sector is the most dynamic in Peru," said Gonzalo Argandona, a corporate finance partner with Pricewaterhouse Coopers.

In many parts of the capital city of Lima, house purchase prices have easily doubled over the past five years.

Argandona listed a number of new investments in offices and hotels, including one of the biggest, the Westin Hotel development by the Brescia Group in Lima.

The Central Reserve Bank of Peru this week forecast that the construction sector will expand 7.4% this year and by 8.4% next year, despite forecasting full-year growth in gross domestic product of only 1.8% for 2009.

Scotiabank economist Pablo Nano was a bit more pessimistic, forecasting construction will expand by 4.5% this year and 5.0% next year. He said two main factors are driving construction: public sector investment from the government’s fiscal stimulus package, and a recovery in private investment.

Nano said retail home building and home improvement were important factors, accounting for 60% of local cement demand.

Figures from the national cement producers association show 2.17% growth in cement production for this year to September, compared to the same period in 2008.

Analysts also note that money laundering from narcotics trafficking as another factor boosting the construction and housing sectors. Peru is one of the world’s largest producers and exporters of cocaine.

Various government programs are also spurring activity in low- to mid-income housing projects.

Increased competition in the banking sector has also spurred mortgage loan growth, albeit from a very low base.

The Central Bank says mortgage loans were 16% higher in September this year than in the same month a year earlier.

Luis Zapata, a director of brokerage Intercapital, said there is good demand for housing financing, but interest rates needed to be lower.

Business Monitor International, an economics and business analysis firm, forecasts that financing will grow in the next five years, and that real estate prices will rise steadily.