<< Back May 2005

Money Matters
Investing in Real Estate in Lima
By Carlos Vega Cumberland

Over the years, real estate has been a consistent producer in any investment portfolio, and this holds just as true in Lima as in just about any other major city. However, investment veterans here will warn you that housing cycles can be quick and violent, or that housing prices can bog down for years as overall investment growth in the country stagnates. If you want to invest in real estate in Lima, do so with a long-term vision and paying close attention to the “location, location, location” cliché before making your buy. Certain areas such as San Isidro and Chacarilla for example, are districts where real estate has always maintained its value, and could be a good place to pick up an income producing commercial or residential property.

Before investing, it is worthwhile to review a few of the procedures involved in the sale and to be clear about the responsibilities of both the buyer and the seller.

Steps

Once you have found what you are looking for, it is important to go to the public registry in order get a certified copy of the deed to the property. Check to make sure that the property has not been embargoed or mortgaged. Pay special attention in the “Declaratoria de Fabrica” that it shows that both the lot and the construction are registered; otherwise, you may end up buying the lot, but not the building sitting on it. The buyer also needs to request the following from the seller:

1.	Municipal taxes: this includes “Impuesto Predial” paid for the whole year, as well as the “HR Hoja Resumen” and the “PU - Predio Urbano.”
2.	“Minuta” or ownership deed for the property.
3.	“Escritura” or notarized deed.

It is also a good idea for the buyer to request a copy of the building plans, if they are available.

Expenses

The buyer is responsible for paying certain transaction fees, the most important of which is the “Alcabala”, which is 3% of the price (“auto-valuo”) less an exoneration of S/.30,000 soles. In order to pay this, the buyer will need to present the (above mentioned) “HR” and the “PU” provided by the owner of the property. Once paid, the receipt must be taken to the notary in order to have the Notarized Deed drawn-up.

On top of these fees, the buyer must also make a payment of 0.003% of the cost of the property to the office of the public registry, and must also pay all the Notary costs.

Take care

The procedure for buying real estate in Peru has improved tremendously in the past 15 years; the process is faster and more transparent. That said, it is advisable to use an experienced lawyer to guide you through the steps; fraud in the sale of real estate still exists and even the most experienced investors have been burned.

As increased exports, strong mineral prices, pre-election spending and pending free trade deals promising to strengthen the Peruvian economy in the next few years, housing prices are due for a long-overdue rise. This could be a good time to buy, but remember, cycles can be short and vicious, so keep a long term view and do not tie up cash you might need.