New Home and Prime Office Market in Lima Metropolitana March 2019 New Home and Prime Office Market in Lima / 2 Summary
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New home and prime office market in Lima / 1 Peru New home and prime office market in Lima Metropolitana March 2019 New home and prime office market in Lima / 2 Summary The recovery of new home sales in Lima continued to consolidate in 2018, most notably in the higher price segment. This took place against the backdrop of an improving formal labor market and financing conditions that remain attractive. With improved sales dynamism, housing prices increased. Demand for apartments in Lima exceeds available market supply. In this environment, supply responds by gradually adapting to the nature of the demand, such as with smaller apartments featuring fewer bedrooms. For its part, the Government is using green bonds to encourage the set-up of projects that incorporate environmental sustainability. A solution to some more structural problems—such as the difficulty of obtaining building permits, land scarcity, lack of access to drinking water and electricity (on the outskirts of Lima) and fragmented municipal regulations (the lack of an urban development plan for Lima)—would help to increase supply. We forecast that sales of new apartments in Lima will continue to grow in 2019, reaching between 16,500 and 17,000 units. This will help to improve the population's spending power (an increase in formal employment), helping more families to secure mortgage loans. Furthermore, interest rates will remain attractive and housing subsidies (such as green bonds) will continue to encourage the financing of apartments of certain types and prices. New home and prime office market in Lima / 3 Summary In the medium term, the demand for new homes will be supported by a growing middle class, working people having fewer dependents—favoring the sale of small apartments, where supply is already starting to develop— and the gradual adjustment of supply to changes in housing demand, such as the trend toward co-living. In the prime office market, supply continues to be absorbed amidst increased business activity and the emergence of new formats (such as co-working). As a result, vacancy rates have begun to fall but the market still has excess supply, which puts downward pressure on rents. This suggests that the new supply of prime offices will plateau over the next two years. New home and prime office market in Lima / 4 Content 01 Progress of the new home market in 2018 02 New home supply and demand in Lima 03 Outlook for the new home market in Lima 04 Prime office market 01 Progress of the new home market in 2018 New home and prime office market in Lima / 6 The recovery of new home sales in Lima continued to consolidate in 2018, most notably in the higher price segment. Sales of new apartments(1) Increase in sales of new apartments in 2018 by price(1) (in units) (in units) 22.220 21.441 1.039 16.930 +13% 888 15.238 14.516 13.179 13.533 10.571 10.822 -222 Up to Between S/ 400,000 and More than S/ 400,000 S/ 600,000 S/ 600,000 Bajo/Medio bajo Medio alto Alto 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2007 Low/Medium-low Medium-high High (1) Comprises the 49 districts of Lima and Callao. New apartments made up 98% of sales, with the remainder new houses. The information for each year covers data from August of the previous year to July of the current year. Source: CAPECO (Peruvian chamber of construction) and BBVA Research New home and prime office market in Lima / 7 This took place against the backdrop of an improving formal labor market and financing conditions that remain attractive. Formal jobs Total formal employment wage bill (average for last 12 months, % change year on year) (average for last 12 months, % change year on year) 5 12 Ene-16 Jun-16 Nov-16 Abr-17 Set-17 Feb-18 Jul-18 Dic-18 0 Ene-16 Jun-16 Nov-16 Abr-17 Set-17 Feb-18 Jul-18 Dic-18 4 0 9 2 3 2 6 4 2 4 6 1 6 3 dic.-16 abr.-17 ago.-17 dic.-17 abr.-18 ago.-18 dic.-18 dic.-16 abr.-178 ago.-17 dic.-17 abr.-18 ago.-18 dic.-18 8 Mortgage10 loans Mortgage lending interest rates* 10 (%) (% change 12year on year) Free availability of dic-08 12 up to 25% of the 11.33 10.84 14 fund accumulated 14 Series2 dic-11 15 Series1 in the AFP Banking system Series2 9.39 dic-15 Series1 (Peruvian pension 8.95 Fondo Mivivienda 8.73 10 fund 8.01 administrators) for 7.68 buying a home 7.56 7.30 5 New financial products 6.35 6.33 5.84 5.73 0 dic-16 may-17 ene-18 sep-18 Mar-19 mar-19 jul.-18 dic.-18 jun.-16 feb.-18 Moneda nacional Moneda extranjera abr.-17 nov.-16 sep.-17 ene.-16 * For banking company transactions performed in the last 30 business days Source: BCRP (Peruvian central bank), SBS (Peruvian banking and insurance regulator), ASBANC (Peruvian banking assoc.), Fondo Mivivienda (Mivivienda Fund) and BBVA Research New home and prime office market in Lima / 8 With improved sales dynamism, housing prices increased. Average price of a new apartment(1) Price of a new apartment according to district(1) (per square meter, in Peruvian soles [S/]) (per square meter, in Peruvian soles [S/], selected districts) 2017 2018 Var. % 6,000 5,550 5,500 High 5,016 San Isidro 7,545 8,475 12,3 5,000 Barranco 7,606 8,166 7,4 4,500 Medium 4,000 Jesús María 5,712 6,079 6.4 Surquillo 5,713 5,874 2.8 3,500 San Miguel 5,021 5,104 1.7 3,000 2,500 Medium - low / Low San Juan de Lurigancho 3,169 3,177 0.3 2,000 Carabayllo 2,228 2,305 3.5 Comas 2,152 2,117 -1.6 2010 2011 2012 2013 2015 2016 2017 2018 2014 (1) Simple average of prices in the 49 districts of Lima and Callao. (1) Average price for the period. Source: CAPECO (Peruvian chamber of construction) Source: CAPECO (Peruvian chamber of construction) 02 New home supply and demand in Lima New home and prime office market in Lima / 10 Demand for apartments in Lima exceeds available market supply... Interest on the purchase of an apartment in the Apartment supply next two years (number of homes) (number of homes) These households are interested in Do those households interested in buying an buying an apartment have access to apartment in the credit (assets, limited debts, next two years, formal/predictable/verifiable income) to have the initial finance their purchase? If some of deposit for the 27 tho them do not have access, effective apartment they tho 58 demand will be lower. want and the monthly instalment usand they would pay usand (within the time horizon they want) does not exceed This question is more relevant for 30% of their net lower income households, which are income. probably the ones demanding the lowest price apartments. Source: CAPECO (Peruvian chamber of construction) and BBVA Research New home and prime office market in Lima / 11 …something that is also observed by apartment price segment. Apartment supply and demand by price (in thousands of units) 13,2 12,7 10,9 Do those Segments with the most sales The gap is households significant in this interested in segment but it is buying an also the price apartment have 7,1 segment in which access to credit 6,5 supply has grown (assets, limited 5,6 the most. 5,0 4,8 5,2 debts, 4,5 4,3 Is the new supply formal/predictabl 4,1 matching e/verifiable customer income) to 1,8 demands? finance their purchase? 0,5 Between Between Between Between Between Up1 to 2 3 4 5 6 More7 than S/ 100,000 and S/ 200,000* S/ 300,000 and S/ 400,000 and S/ 500,000 and S/ 100,000 S/ 600,000 S/ 200,000* and S/ 300,000 S/ 400,000 S/ 500,000 S/ 600,000 Low Medium-low Medium Medium-high High Available supply Intention to buy (demand) * S/ 210,000 was used for supply Source: CAPECO (Peruvian chamber of construction) and BBVA Research New home and prime office market in Lima / 12 Has supply responded to this gap in the housing market? Real estate supply And the Government? Number of floors of buildings under construction Is facilitating the purchase of new homes with certain (average) features 20 Mivivienda Verde Loans Taller buildings (number) 15 2 001 10 Smaller apartments, with fewer bedrooms 5 0 2011 2012 2013 2014 2015 2016 2017 2018 Lima Top Lima Moderna Lima Centro Lima Este Lima Norte Lima Sur 106 Average size of apartments available for sale (in square meters) 20171 20182 The set-up of these types of projects will depend on local regulations 2 90 Minimum home size (m ) 88 The Mivivienda Verde (Mivivienda Green) loan is a benefit to aid the 89 84 San Isidro 40 86 purchase of homes that incorporate environmental sustainability (certified). 78 78 Magdalena 40 The Fondo Mivivienda provides the green loan as a percentage (3% Barranco 60 or 4%) discounted on the cost of financing (up to S/ 377,000) Jesús María 65 2012 2013 2014 2015 2016 2017 2018 The supply of environmentally sustainable homes has increased with demand *The city council recently raised the minimum size of apartments from 30 m2 to 60 m2 (source: Semana Económica).