From house to home: High demand creates opportunities in low-income housing

Although low-income housing is not usually a high-earner in the real estate market, favourable conditions in Peru for such ventures may dismiss that judgment. With a large number of people in need of homes and government policies that assist both clients and developers, there is much room for growth.

Housing demand in Lima currently amounts to 407,000 units, while the immediate supply is just 16,000 units. According to José Luis Ayllón, the technical director at the Peruvian Chamber of Construction (Cámara Peruana de la Construcción, CAPECO), nearly 90% of the demand for housing is for units that cost between $10,000 and $30,000, which indicates that the this segment of the market is seeing significant demand.

STATE-RUN PROGRAMMES: The Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, MVCS) administers two financing programmes that target different social classes. Techo Propio is aimed at the very poor, with prices of living units ranging from $8000 to $12,000, while MiVivienda targets more middle-class clients seeking to buy a home valued from $18,000 to $30,000. Both programmes entail a voucher system that is backed up by bank loans and have been very successful in promoting homeownership instead of renting. In 2011 nearly 30,000 government-issued credits from these programmes helped people acquire a home.

Project management company CV Project has much experience consulting companies in these low-cost endeavours. According to its CEO, Carlos Cornejo, promoters can usually make a 10-15% profit by participating in these housing projects. However, Cornejo has observed problems within the Techo Propio programme. “Developers are often local landowners looking for great returns with the help of governmental funding,” he told OBG, adding that these smaller developers tend to lack knowledge of the construction industry, which causes poor planning and incomplete projects. Walter Piazza de la Jara, president of CAPECO, is in favour of social housing initiatives which he believes have been quite successful. However, to really boost the construction of housing units to a number capable of closing the housing deficit, he said the government should concentrate on resolving land-ownership issues which are really hindering development.

LOCAL CHALLENGES: Split into central, regional and local jurisdictions, the complicated politics in Peru often take a toll on initiating construction projects. While MVCS dictates regulations, municipalities are in charge of enforcing them. However, the discrepancy between policies and actions is commonplace and municipalities have a poor reputation for upholding standards.

Local issues on the ground also play a part. In Lima’s northern Piedras Gordas district the prospect of 100,000 new homes was lost in 2011 due to problems over land and water sanitation concerns, according to Carlos Lock Sing, chief of housing promotion at MVCS. A large consortium interested in developing the area also encountered issues with archaeological sites in the area that are generally difficult to circumvent.

The National Institute of Competition Defence and Protection of Intellectual Property (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual, INDECOPI) serves to supervise the legality of investment projects, regulating responsibilities of companies and municipalities alike. According to Lock, INDECOPI is very successful in defending the rights of social housing beneficiaries since municipalities do not always regulate the quality of construction.

Despite setbacks in the low-income housing market, government officials remain confident that demand can be met with the help of innovative ideas. Luis Tagle, the head of MVCS’s urbanism department, told OBG that there is currently 500,000 ha of military land in disuse which could provide a solution for constructing mass low-income housing and improve the lives of many families in need. This potential solution would avoid dealing with municipal complications. If the military agrees to concede these lands for housing projects it may open the way for significant works to begin.