Overview of the Real Estate Buying Process in Peru
It is very common that foreigners want to acquire houses in countries other than those of their origin and residence, either for business or because they are looking for new places. That is why at HalloCasa we strive to receive reliable and concrete information on how the process is carried out.
On the issue of restrictions for the acquisition of properties, there is none for foreigners in Peru. Similarly, in terms of properties, foreigners, whether natural or legal persons are in the same condition as nationals. An investment treatment is based on the principle of “national treatment.” Foreign investments are allowed, without restrictions, in the vast majority of economic activities and do not require prior authorization because of their foreign status. According to the Political Constitution of Peru 1993, Article 71 states that the State grants guarantees of legal stability to domestic and foreign investors and to the companies in which they invest, through the signing of agreements that have the character of a contract-law, and which are subject to the general provisions on contracts established in the Civil Code.
2. You like a property
We are glad to see that you are interested in a property published on HalloCasa. On HalloCasa you can use a lot of tools in order to understand the process of buying a property, besides finding general information. On HalloCasa you can also find available documents and additional information, which will allow you to investigate in detail the environment and infrastructure of the property, facilitating the purchase process.
If you like a property and are interested in knowing more about it in order to easily make a purchase decision, the first step is to investigate at the public registry office to confirm that the property is free of mortgage liens or limitations that may affect the purchase process.
3. Contact the seller
In Peru, you can acquire a property either by contacting your seller directly, or hiring a real estate broker. HalloCasa will indicate the language in which you can communicate with the respective person. Most of the agents speak English, but in case you need a translator, you will also find translators on HalloCasa.
4. You receive detailed information about the property
The seller will send all available and necessary documents for you. However, a visit to the property may be of interest to you, so if you need assistance with travel arrangements, HalloCasa experts will be available to advise you at the time you contact them. We recommend that you take a look at the tour operators; this will allow you to realize how beautiful this country is.
5. You negotiate the contract and the price
Contract negotiations are often processes in which both parties gradually approach each other. It is important to keep in mind that in Peru specific conditions apply to the contract of sale, so it will be useful to know its details. You will be able to know notes regarding the additional purchase costs in our frequently asked questions; it can be very interesting for you.
6. You sign the contract and make the payment
You are about to acquire your property! You sign the contract, either personally in Peru or through an authorized representative of the country of origin. At HalloCasa you can consult information about notaries whom you can contact. Also, read below our detailed process of buying real estate in Peru.
7. You become the owner of the property
Your property is registered at your name at the Peruvian Property Registry. Congratulations! You recognize that this country has great potential, and believe that this is a promising country. We are happy for you! Enjoy your property!
- 1. You likes a property
- 2. Contact the owner / agent
- 3. Transfer Information
- 4. In case of requesting a valuation
- 5. Signing of the promise of sale agreement
- 6. You transfer the money to a bank account in Peru
- 7. Buying from abroad or travelling to Peru
- 7.1 Option 1: You travel to Peru
- 7.2 Option 2: You buy from abroad
- 8. When signing the contract in Ecuador
- 9. When signing the contract abroad
- 10. Registration of Property Title
- 11. Open a Bank Savings Account
1. You like a property
For each property, you will find information on the following topics:
- General information about the property
- Its location
- Its infrastructure
- Demographics of the area
- Additional Information
2. Contact the owner / agent
Methods of contacting the owner / agent:
- Via email
- Via Telephone
- Via Skype
3. Transfer Information
The owner or broker in charge of the sale of the property will send you the following documents:
Legal Requirements for a second-hand real estate purchase
- Purchase -sale Draft authorized by the lawyer
- Identity document of the participants
- Original and copy of HR (Summary Sheet) and PU sheet (Urban Building) or PR (rustic building)
- Original and copy of proof of property tax payment corresponding to the full year in which the transfer is made or proof of non-debt issued by the corresponding Municipality
- Current literal copy of the property transfer issued by Public Records
- Receipt of payment of the income tax of second category (5% of the difference between the sale price and the acquisition price of the asset and the property that was acquired after January 1, 2004).
- “Alcabala” Tax (Mayor Tax): Original and copy of the receipt of payment and its liquidation or proof of inaccuracy, if applicable, issued by the SAT or corresponding Municipality.
- Take advice by an attorney specializing in real estate.
- Verify that the property does not have liens: Mortgages, lawsuits, foreclosures, precautionary measures, among others.
- The address of the property must match what appears in the tax issued by the Public Records and in the Municipality.
- Arbitrates paid in the month that the acquisition is made.
- Water and electricity receipts paid to date
In addition to the requirements indicated above, specific cases are often presented with respect to sellers. Here are some cases:
- A) MINORS: Judicial authorization will be attached to sell the assets of the minor.
- B) DISABILITIES: Interdiction registered in the natural persons register of Public Records and judicial authorization to sell the property of the disable shall be attached.
- C) PEOPLE OVER 65 YEARS: A medical certificate issued by a neurologist or psychiatrist shall be attached.
- D) SEPARATION OF HERITAGE: Registry document of the Assets Separation issued by the public records shall be attached
- E) LEGAL POWERS: It is required to record in an undeniable manner the legal power to alienate and by public deed duly registered in the Mandates and Powers Register (Power of Attorney).
- F) LEGAL PERSON: Parameter or registration form of the legal entity, which includes the express granting of powers to dispose or acquire property of the legal representative or attorney of it. (Power of attorney).
♦ Always seek advice by real estate lawyer. Remember, each case is different.
♦ When transferring a property, do not forget to request the registration and withdrawal in the corresponding municipality within the last day of the month following the purchase.
Minimum content of Purchase Agreement of Future Asset:
The Consumer Protection and Defense Code has set out in detail the content of a sales Agreement. In this way, builders must establish, implement and maintain procedures to demonstrate that the purchase agreement is accessible and contains at least the following information:
- Identification of the contracting parties indicating their respective legal domiciles.
- Identification of the property for sale.
- Identification of the property registration; In the case of future good, of the property matrix.
- Exclusive and common area, if applicable, perimeter measurements, finishes of the property and relevant characteristics of the property.
- Sale price of the property offered.
- Method of payment and term
On the other hand, according to the case, the following information must be given to the buyer at the time the purchase contract is signed:
- In the case of future goods:
- Resolution issued by the corresponding municipality and map of the urban habilitation project approval.
- Map of the lot, detailing the location of the lot
- Map of the lot with indication of the area and perimetric measures.
- Characteristics of urban habilitation.
- Approval of the preliminary project or project ISSUED BY Corresponding Municipality.
- Distribution Map.
- Characteristics of finishes, home public services, common areas and other relevant characteristics.
- In the case of finished goods – lots or buildings:
- Copy of the registration document
- Map of the facilities of the property services
- Map of common service facilities, in the case of common property, giving the latter to the respective owners’ board.
4. In case of requesting a valuation
In the case of Peru, there is the National Pricing Regulations of Peru, whose purpose is to establish the criteria, concepts, definitions and regulatory technical procedures to formulate the valuation of real estate and furniture.
Appraisal, pricing, or valuation is understood as the procedure and concept given by a specialist in this subject, on the value that should be assigned to a property for its subsequent sale. In order to issue such a concept, the appraiser conducts a visual inspection of the property, studies it, analyzes and dictates its qualities and characteristics, taking into consideration several aspects: the state of the property, its age, the area where it is located and general physical characteristics, at a specific date, to establish the fair value estimate of the good in accordance with the rules of the National Valuation Regulation.
HalloCasa offers you the option to contact experts and/or real estate appraisers.
- Name of the Evaluator
- Contact Details
- Available languages
5. Signing of the promise of sale agreement
For this procedure, you will need to hire an attorney to make the draft of the property. Purchase-sale- This service could cost you between S / .100 and S / .200.
Purchase-Sale Agreement: What is it?
The sale-purchase agreement is the act by which a person called seller, is forced to transfer to a buyer the property of a good in exchange for payment of its price in money.
From this perspective we can say that the Purchase-sale has certain characteristics;
- It is autonomous because it does not depend on other agreements.
- It is mandatory: in this agreement there are reciprocal obligations. The seller must transfer the property and the buyer must pay the agreed price.
- It is an onerous title. There is enrichment.
- It is consensual. The necessary agreement between the two parties is required.
- It has freedom of form. That is, it can be celebrated in written or oral form, except for the purchase and sale of property, which necessarily has to be celebrated in written form.
ELEMENTS REQUIRED FOR A PURCHASE-SALE AGREEMENT
From the definition of the previous lines we can deduce that the Purchase-sale Agreement is constituted by a serious of elements of compulsory concurrence. These elements are:
The Subjects: They are the holders of the reciprocal obligations and rights. In the case of the purchase agreement, the subjects are the buyer and the debtor. Under no circumstances can we forget to record the names of subjects in a contract.
The Object: In the purchase-sale agreement, the objects are the goods or things that are to be transferred in the economic operation. These can be material or incorporeal. These can be tangible or intangible.
Transfer of the Property of the Good: It is one of the main obligations of the agreement. The agreement must state the moment of delivery. All accessory obligations must also be recorded.
The Price: Along with the transfer of the good, the price constitutes one of the main obligations of the agreement. This amount must also be included in the agreement.
HOW TO MAKE A PURCHASE AGREEMENT
A PRELIMINARY QUESTION: THE FORMALITY OF THE AGREEMENT.
Many times the contract is often confused or identified with the way in which it has been expressed. We explain:
It occurs that the agreement is not the paper where reciprocal obligations of the parties is stated, but the simply agreement in which the parties are obliged to perform certain actions; Regardless of the form in which the agreement was expressed.
Thus, agreements can be expressed in a paper, or simply verbally. In the first case, the agreement will have a written form, and, in the second, oral form.
However, as a general rule, the way in which the agreements between the parties are made do not affect their validity. The Peruvian Civil Code is governed by a principle called “Freedom of Form”.
However, there are some exceptions to the general rule. There are some cases in which the law requires that a certain form be respected. This is the case of the purchase-sale of real estate, which must be held in writing, necessarily, and by public deed.
THE WRITING OF A PURCHASE-SALE AGREEMENT
Having made these clarifications, below are some general guidelines for the drafting of sale’s agreement.
The main idea of the drafting of the contract of purchase-sale is that it must include all the elements that form the agreement: the subjects, the object and the obligations (transference of ownership and payment of the price).
Thus, the first step in the drafting of the agreement – obviously, after placing the title – is the identification of each of the intervening subjects. It must indicate the name, identity document and, if applicable, the address of the buyer and seller.
The second step will be to describe as accurately as possible the good to be transferred. In the case of a real estate, the load becomes greater since all services (water, electricity, sewerage, etc.) must be indicated, as well as the conditions in which the property is.
The third step is to describe the main obligations of the contract, which are:
- I) the transfer of the property and ii) the payment of the price of the property.
On the first case, the transfer of the good, must indicate the moment in which the good will be given.
On the second case, the payment of the price of the good, must indicate the amount of the price of the good and the modality of payment of that amount.
Finally, the agreement must be signed by both parties and raised to public deed if applicable.
THE PURCHASE-SALE PROMISE AGREEMENT
The commitment or promise of sale is a kind of preparatory agreement where the parties are obliged to enter into a future contract of sale.
We must not confuse ourselves, by the word “promise” we should not understand a commitment likely to be breached. The promise of sale is a binding agreement, whose non-compliance is sanctioned with the payment of compensation for damages and prejudices.
The promise of Purchase-sale must have a determined or determinable term. The code states that if a deadline is not established, a one-year term will be assumed. Also, in case the parties do not want to conclude the agreement yet, they may extend the duration of the agreement for a period not greater than that indicated in the previous promise.
THE RESOLUTION OF A PURCHASE-SALE AGREEMENT
The resolution of a contract operates when, after the conclusion of the agreement, there is some cause for resolution. Unlike what happens, for example, with nullity, our code does not regulate the specific causes of the resolution of an agreement..
The resolution action corresponds to the creditor and therefore, the most common cause of the resolution of the agreements is the breach of any of the obligations derived from it. In the case of the purchase-sale, the main cause of resolution is the non-fulfillment or transfer of the good or payment of the sum of the price or the guarantee that falls on the product. In the event that the contract is terminated for non-payment, the creditor will be entitled to compensation according to the rules established in the code.
Another cause of resolution is manifested when the purchase-sale is made on a sample basis. In that case, the creditor will have the right to terminate the contract when the quality of the property is not the same as that offered in the sample.
6. You transfer the money to a bank account in Peru
7. Buying from abroad or travelling to Peru
7.1 Option 1: You travel to Peru
Before traveling it is ideal to previously confirm the time you will need to carry out the complete business. Remember to bring all the necessary documentation. Check with your bank about the best option to transfer the money to Ecuador according to the seller.
You must enter the country with a Business Visa, which allows you to sign contracts in Peruvian territory. In case of entering with Tourist Visa, you must apply in immigration to seal your passport with the text “able to hire” so that you can sign purchase-sales agreements without difficulty.
7.2 Option 2: Power
If the real estate operation is by power is done as follows:
The real estate purchase and / or sale operations through power will only be carried out under the Digital Intermediation System (SID) implemented by the National Superintendence of Public Registries (Sunarp).
That is, notaries who are not subscribed to the SID will not be able to make registrations in the Register of Mandates and Powers of the Registry Office of Lima, not admitting, under responsibility, the presentation of the notary part in paper. This is established by the thirteenth complementary, transitional and final provision of Legislative Decree 1232, which amended the Legislative Decree of Notaries.
The purpose of this rule is that the entries in the Registry of Mandates and Powers of the Registry Office of Lima, extend only through the use of notary parties with digital signature.
Since October 2014, when the Sunarp SID was implemented, a total of 94 notaries have been subscribed to at national level.
This measure also seeks to avoid the falsification of public instruments on the granting of powers, because paper is not used in the registration process, but this is done in a virtual way using the digital signature.
8. When signing the contract in Peru
You must enter the country with a Business Visa, which allows you to sign agreements in Peruvian territory. In case of entering with Tourist Visa, you must apply in immigration to seal your passport with the text “able to hire” so that you can sign purchase-sales agreements without difficulty.
The notary checks all documents
- You sign the contract.
- You make the negotiated payment.
On the date, specified location and before a public notary, you and the seller or broker in case it is done through an intermediary, will meet to sign the deed. To do so is the legal celebration of the transfer of ownership over the property
After signing, you will transfer or make delivery of the agreed money and the seller will proceed to make the transfer of the property.
9. When signing the contract abroad
- The notary checks all documents.
- Your representative signs the deed and makes the agreed payment.
10. Registration of Property Title
The last step is to register the property in the property registration of the Sunarp and access freely to the registration alert, which will notify you of any attempt to change your registration form. Registration at Sunarp costs 19 Peruvian Sol. if the value of the property is less than 51,800 Peruvian Sol (14 ITU). If you exceed this amount, you must pay 30 Peruvian Sol (Source).
11. Open a Bank Savings Account
What are the necessary expenses for the process of buying and selling a property in Peru?
Note that you must invest between 700,000 Peruvian Sol 1,000,000 for a property. For the first procedure, you will need to hire an attorney to prepare the purchase and sale note of the property. This service could cost you between 100 Peruvian Sol and 200 Peruvian Sol.
- The buyer must pay taxes associated with the acquisition, such as the alcabala (TAX), which is equivalent to 3% of the transfer value of the property. That is, if the building you just purchased costs US $ 150.000, you will have to pay about US $ 450. Be careful to keep all payment vouchers.
- The second arrangement is to place the documents in a public deed in a notary’s office. The cost could vary between 300 Peruvian Sol and 500 Peruvian Sol, according to the district where the process is carried out (Source)
- The last step is to register the property in the registration of the property of the Sunarp and access freely to the registration alert, which will notify you of any attempt to change your registration form. Registration at Sunarp costs 19 Peruvian Sol if the value of the property is lower than 51,800,000 Peruvian Sol (14 ITU). If the property price exceeds this amount, you must pay 30 Peruvian Sol (Source).
- Minimum documentation from the seller, buyer and tax payment.
|COSTS AND EXPENSES OF PURCHASE-SALES IN PERU|
|Sunarp Registration||Notary||Taxes||Legal advice||buyer|
|19 Peruvian Sol and/or 30 Peruvian Sol||300 Peruvian Sol and/or 500 Peruvian Sol|
Alcabala 3% of the purchase value
|100 Peruvian Sol* and/or 200 Peruvian Sol|
Arbitrios a day quarterly payment (public services)——————-
Predial to the day annual payment on January 1——————-
Income on gain on the sale
- Peruvian Soles http://www.precio-dolar.pe/
Mandatory expenses are:
In recent years, Peru’s economic stability has generated a variety of offers in the real estate market, with attractive prices and forms of payment.
This situation has generated the expectation to many people to make their dream come true of own a house.
However, it should be taking into account that the purchase and sale of a property not only generates the obligation of the seller to transfer the property and that of the buyer to pay the sale price, among other obligations agreed by the parties, but that act also generates Tax obligations with the State for both the buyer and seller.
In this article we will identify which are those tax obligations and what is their value
- The income tax
It is the tax on the “gain obtained as a result of the sale. In tax matters it is called “capital gains”, which is the difference between the value of acquisition of the property (calculated cost) and the value of sale.
This tax corresponds to the seller. In some cases it is not that simple to establish the acquisition value, for example in the donation, that is a free act.
In such cases, all the value of the sale price shall be taken as reference, which cannot be less than the value of the self-assessment for the property tax set by the Municipality.
At the same time, the readjustment of the monetary correction index established by the Ministry of Economy and Finance must be considered when calculating the acquisition value (calculating cost).
The gain obtained as a result of the sale is taxed with the income tax of second category. This gain is affected by the payment of income tax, which is taxed at an effective rate of 5%, which is considered as final payment.
It is important to note that properties acquired prior to January 1, 2004 are exempt from the payment of this tax.
The payment obligation is born at the time of signing the agreement and will be verified by the notary as a requirement for the purchase and sale to be raised to public deed.
- The alcabala
This tax is paid at the time of buying the property, whether it is a house, department or land in general.
It is the responsibility of the buyer to pay this tax and the rate is 3% of the selling price which cannot be less than the value of the self-value readjusted by the wholesale price index. It is important to note that the first 10 ITUs of the price are unaffected. At present, the value of 1 ITU is 3,950 Peruvian Sol.
The alcabala can be paid until the last business day of the month following the transfer.
- The property tax
This is annual tax that taxes the value of the urban properties and on the basis of its self-evaluation.
The obligation to pay this tax rests on the person who has been the owner on January 1 of the year. In case there is a sale during the period, the seller has the obligation to cancel this tax. This applies to all owners without exception.
It is important to specify that, in case of a rented land, it is the owner who must assume this tax and cannot demand a refund of this amount to the tenant.
The rate of this tax is progressive depending on the self-value pricing of the property. This value depends on the square meters built (not the terrain footage), because it is assumed that a larger built area implies a higher value property. Also, construction materials are taken into account.
In case of being a pensioner and having a single property there is the benefit of not paying for the first 50 ITU, having to only the excess. To obtain this benefit, you must meet the following conditions:
- Owning a single property (not only in the district), in his name or in the conjugal society, destined for his home.
- Your gross income must be constituted by the pension and be less than 1 monthly ITU.
It is the buyer’s obligation to declare before the Municipality that he has acquired the property until the last business day of February of the following year that the property was purchased.
However, since you must pay taxes, which is a monthly payment, the statement must be made on the last business day of the month following the transfer.
These are fees paid in the municipalities for the public services they provide, such as public cleaning, parks, gardens. The bound is the owner and pays according to the rates set by each district municipality.
The value is determined based on the self-assessment affidavit submitted by the taxpayer annually, on the last business day of February. The taxes are of monthly frequency and its collection is quarterly.
Finally, we recommend to those who are interested in buying a property to be advise, previously by a lawyer specializing in the matter not only to ensure that the purchase is safe but to evaluate the tax costs of the transaction.
Article elaborated by Collins Salvador Bejarano, principal lawyer of Lawyers of Peruvian Corporación.
Where can I find Peruvian real estate financing?
Getting financing from abroad
Peruvians abroad, resident in countries where Peru has consular representation, have the possibility to buy their house or apartment in Peru in their name. Since in 2008 this became a reality. Gradually some banks have stopped offering this type of mortgage product. However, major banks such as Scotiabank, Banco de Credito and BIF continue to offer this type of mortgage financing program with various types of very interesting products that can be adapted to the diverse needs of Peruvians abroad.
Peruvians abroad, resident in countries where Peru has consular representation, have the possibility to buy their house or apartment in Peru in their name.
Getting financing from the USA or Canada
For example, Scotiabank has a mortgage product for Peruvians residing in the United States or Canada. The highlight of this product is that the financing is up to a maximum term of 25 years and there is no need to translate or countersign the documents in the Peruvian Consulate in the USA. nor in Canada. The minimum required initial fee is 25% of the sale price of the property for Peruvians residing in Canada and 30% for Peruvians residing in the USA. The minimum amount they finance is $ 50,000 and the maximum is $ 300,000.
If the applicant, the Peruvian abroad, has social security, has declared taxes and has established credit, then to access this type of financing will not matter their legal status, although he must submit the following documents:
- Photocopy of valid D.N.I.
- Photocopy of the Tax Return Declaration of the country of residence of the last 2 years. For US: FORM 1040 (U.S. Individual Income Tax Return). For Canada: Notice of Assessment NOA
- Proof of work in case of employees or dependents.
- Bank Reference Letter issued by one of the Banks where the customer maintains their accounts or other credit product.
- Updated copy of the credit report of the credit bureau of the person applying, and of his / her spouse in case of being married.
Getting financing from within Peru with Remittance
The BIF also offers mortgage loans to Peruvians abroad, who must comply with the requirement to have a Savings-mortgage account open for a minimum period of 6 months. The Peruvian abroad must send to this account a monthly remittance equivalent to the mortgage payment of the property that he plans to acquire. Subsequently, the bank will require that the documents of the applicant are endorsed by the Peruvian Consulate of their country of residence. The maximum term they provide is 20 years, and they have not defined the maximum amount to be financed, since everything depends on the level of indebtedness of the applicant.
It should be noted that with this type of account, the house can be acquired in the name of the Peruvian resident abroad. This is an important point to consider and contrast against products from other banks that require opening and maintaining a similar account “Savings with Foreign Remittances”, but which also require that the house be purchased in the name of the relative residing in Peru.
Buy House in Peru with expedited financing
On the other hand, Banco de Credito offers a similar mortgage product for the purchase of houses in Péru from abroad, but the initial fee required is 50% of the sale price of the property, and the maximum amount they finance is up to $ 60,000 American dollars. This funding is almost immediate, it does not require more documentation, and immigration status does not matter.
About the real estate market in Peru:
The Real Estate Market in Peru, situational
The Peruvian real estate market has witnessed a period of explosive growth since the last decade, with new constructions emerging throughout the country and a fast increase in prices. Several factors contributed to this phenomenon.
The first one is obvious. The unprecedented economic growth of Peru – about 7% annually in recent years facilitated the emergence of a thriving middle class with an available income volume increasing. According to the Inter-American Development Bank (IADB), the percentage of Peruvians considered “middle class” doubled to 70% of the population between 2005 and 2011. According to Peru’s socioeconomic level system – a widely accepted system of classification of the demographic profile of the country’s population, with segments from A to E the middle class population is represented by strata C and D.
In addition to the strong growth experienced by the country, this new middle class enjoys a greater purchasing power, thanks to the newly available income conquered. For example, the median monthly earnings of Lima metropolitan area increased by 41.8% between 2003 and 2010, and much of that increase was concentrated in C and D segments.
Second, although the demand for real estate has increased significantly, the offer has fallen. Peru faces a substantial housing deficit, especially in urban areas. The population of Lima has experienced a boom, going from about half a million in 1945 to about nine million today. The Peruvian population is formed mainly by a segment that is acquiring a house for the first time, in the strip of 26.5 years. In view of these factors, the country faces an estimated shortage of real estate of 1.9 million units in the short term.
Third, the macroeconomic and political stability without precedent enabled families to adopt a longer-term view of the future and encouraged them to make long-term investments in real estate. According to Alberto Pascó-Font, general manager of Enfoca Inversiones, investment division of Peruvian private equity firm ENFOCA, Peruvians who enter the middle class tend to concentrate their optional expenses in three main areas: housing, health and education. Of these, most part is aimed to real estate improvement and the acquisition, in an indication that these consumers want to invest in their future to consolidate, in the long term, the status of members of the middle class.
However, the financial sector has not shown up to the highest expectations of the middle class. Access to credit among the emerging middle class in Peru continues to be very low, as banks, traditionally, have always favored a few segments of high income of the population. In recent years, several new financial companies, with innovative programs, have entered the Peruvian market by offering mortgages and other financial products to the new middle class, further boosting the real growth of real estate (and prices) in Lima. Peruvians reacted to the many obstacles by using creativity in different ways, among which the most important are the market for prefabricated and self-built houses.
Own construction and the new middle class
Own housing and urban development in Lima took place as a process of progressive formalization of the supply of residences. According to Hernando de Soto, a respected Peruvian economist, the informal communities that flourished in Lima over the last seven decades grew as the inhabitants occupied part of the land, they built a house, and only then did they try to obtain an official document for their land or house. Over the years, many of the houses in the urban perimeter areas of Lima were built by means of informal “invasions”, which were then formalized, which allowed their owners, finally, access to the basics services. The areas that were then home to the poorest people in the city, now they shelter the emerging middle class, who live in “formalized” areas; the poorest, especially migrants from the countryside, build in more precarious regions, particularly in the peripheral areas on the slopes of the mountains.
Peruvians in the lower and middle income segments have always built their homes. This, in general, required a gradual process of many years, given the lack of access to credit, to the extent that families saved to purchase construction materials. According to an article in the newspaper La República in May 2013, 60% of the country’s houses are built by the owners, representing about 3.6% of GDP, or $ 2 billion a year. Even in the metropolitan region of Lima, about 60% of the land occupied is the result of “invasions” or informal communities, which led to a state of permanent construction in tune with the progression of the works. Despite rising incomes, most Peruvians in the lower and middle classes still build their homes. This persistent construction trend, coupled with rising middle-class income, created a thriving market for construction materials.
Several companies began to capitalize on this emerging opportunity scenario. Three large retailers in the domestic refurbishment materials segment are expanding their operations to meet this demand in the middle and lower income regions in the Lima urban perimeter areas. Maestro, for example, a local chain of building materials stores that traditionally served the high-income sectors, grew exponentially over the past six years to supply low- and middle-class neighborhoods. Competitors Sodimac and ProMart experienced a similar growth and today offer a wide range of products for construction or improvement of properties that are being built by the customers, offering even appliances, cement, bricks and hydraulic material.
These establishments not only expanded their focus to include in it middle class strata, they also adapted their services, now offering credit to low income customers through store branded credit cards such as the CMR card of Sodimac , And Presta, of Master. The presence of these credit cards is striking because it allows families to accelerate the process of self-construction – which, historically, has always taken years – by promoting higher expenditures on short-term construction materials.
Similarly, the choice of the most popular building materials brands among the low-income segments of the population increased the financing systems for the clientele that builds their house. ProgreSol, for example, was always the preferred retailer for low-income families in that market, thanks to its network of small tool shops in low-income neighborhoods. In order to capitalize on growing construction expenditures, these stores created financing programs for the people who build their own homes.
HatunSol, a loan program that provides credit for the acquisition of materials with the support of a group of cement suppliers, offers free delivery, project services and technical support. According to Gena Pepoli, professor of Marketing at the University of the Pacific, this program is explicitly presented in its advertising campaigns as a substitute for dancing chickens, a traditional festival promoted by families with few resources to raise money for the construction of their home. Pepoli says the program is not trying to replace traditional construction techniques; On the contrary, it wants to facilitate the purchase of building materials through financing.
The Peruvian Government is aware of the importance of the phenomenon of house construction by families, so it provides subsidies and has created a loan program to finance this type of construction. As part of the MiVivienda, two subsidized loan programs – TechoPropio and MiConstrucción are helping creditors to expand the supply of credit to low and middle income families to build or expand the current housing offer. In addition, a new program, MyMaterials, specifically finances the purchase of new building materials.
These credits are provided through municipal funds (banks) or other legal financial institutions. Such programs are facilitating rapid access to building materials for large sections of the population who previously had to save for many years to build or improve their homes. Now, these programs feed the expansion of the supply of consumer credit and increase sales among retailers in the construction materials segment.
Mortgages and urbanization for low income population
Although the phenomenon of housing construction by households continues to be important in Peru, a new real estate trend has emerged between segments C and D, as an increasing number of families distance themselves from the phenomenon mentioned and migrate to Segment of prefabricated homes with the help of traditional mortgages.
The emerging middle class, in general, has been excluded from the credit system. Historically, 95% of mortgages are granted to families in the upper A and B segments through large banks, such as Scotia and Interbank, due to the rigorous credit requirements for formal employment. Mortgages were not a product that adequately addressed the specific needs of emerging middle-class families; In addition, a significant share of informal sector workers also faced obstacles when seeking formal financing.
With the spread of mortgages in the country, at a total of 6%, several companies began to recognize the latent value of the middle class consumer in the credit segment. The Government is now aware of the serious limitations imposed by the lack of access to credit and has created several government funds, mainly the MiVivienda Fund, to finance real estate risk, provide guarantees and subsidize mortgages for low-income Peruvians. These subsidies and guarantees are granted through qualified financial institutions and have helped to substantially improve the supply of housing for the low income population, facilitating even access to mortgages for new buyers of residential propertiesOne of the main companies involved in the implementation of these government programs is MiCasita Hipotecaría, a private company created in 2004 by Roberto Babea Yamamoto in order to fill the gap in access to credit for the middle class. MiCasita is one of the first financial institutions specialized in mortgages in Peru, whose specific objective is to meet the demand of low middle class families. The company offers various financing products, such as mortgages for home purchase and retirement, and specifically targets emerging middle class clients. Its most popular product, the New Mortgage Credit MiVivienda, is guaranteed and subsidized by MiVivienda, thus showing to what extent the MiVivienda Fund is stimulating the mortgage market of Peru.
In addition, MiCasita works closely with real estate developers in the middle and lower class areas. It also acts as a mortgage provider for future buyers of real estate in the promotions it finances. According to Yamamoto, “these credits promoted the growth of prefabricated housing for the low-income segments and further facilitated access to credit for those who are acquiring residential property for the first time.”
Likewise, Los Portales is a large real estate developer that has built apartment complexes throughout Peru historically focused on the consumer with high purchasing power. In recent years, the company created a series of products for the low-income consumer products through subsidies from MiVivienda Fund. Through these programs, Los Portales builds large complexes of small and relatively simple units in the urban perimeter areas of Lima and directly supplies the mortgages to the buyers, which is funded by government programs. These promotions, among others, are revolutionizing the social and economic behavior of those segments that are migrating from formalized communities to communities planned in the same areas.
What are Strata?
- What is a social class?
It is one of the two basic forms of social stratification (class and caste); For this reason, we can affirm that a social class is a group of individuals who share a common characteristic that links them socially or economically with others more. In a system of classes, the different strata are not very separated from each other, but these are in continuity since people can move from one class to another.
The formation of a system of social classes depends on the fact by which their functions are independent of the existence of a linkage and dependence to a larger social framework.
- Social classification: The classifications presented below are from the socio-economic perspective and the perspective of the lifestyles, developed by Arellano
2.1. Socio-economic perspective:
Socioeconomic level A: Represents entrepreneurs and senior executives, independent professionals or consultants. They have a permanent monthly income.
Socioeconomic level B: Represents intermediate-level dependent employees in the private sector in medium-sized or small enterprises, independent professionals, civil servants or mid-level non-professional employees in small or large private enterprises. They have biweekly or monthly income.
Socioeconomic level C: Dependent or independent workers, presence of public employees, micro-entrepreneurs and traders, intermediate professionals or specialized workers. Monthly or bi-monthly income.
Socio-economic level D: Most are independent, small businessmen with a job, skilled workers, mid-level non-professional employees in medium-sized or small companies or are a driver or transporter. They have daily or weekly income.
Legal Matters in Peru
Do I have to declare my rent income at the IR Peru?
- First Category Revenue Concept
If you had an income from the lease and sublease of lands of whatever amount, you are obliged to pay the first class Income Tax.
You should also consider in this type of income, improvements and temporary assignment of movable property or the transfer of any property, even if it is free.
Next, you can know what other types of income are also within this type of income.
First Category Rentals
- Land Rental: All types of urban or rustic properties (houses, apartments, garages, warehouses, plantations, etc.) are considered.
- Sub-lease of Premises: Sub-lease occurs when a person who rents a property, re-leases it to another person.
- Improvements: The value of the improvements introduced to the property by the tenant or sub-tenant as long as they constitute a benefit for the owner and in the part that the owner is not obliged to reimburse; In the year in which the asset is returned and the value determined for the payment at the value of the valuation.
- Assignment of furniture: The rent or assignment of movable property (for example, vehicles) or real estate other than properties (for example, ships), as well as the rights that are levied on them (ie, if he is not the total owner of the good but only a percentage), and even the rights that fall on properties.
- Free Assignment of Land: The free transfer of land (buildings or land) or at an undetermined price is taxed with a Fictitious Rent equivalent to 6% of the value of the declared land for property tax.