OBG talks to Mario Alvarado Pflucker, CEO, Graña y Montero

Interview: Mario Alvarado Pflucker

To what extent do delays in obtaining construction permits hold up housing unit delivery?

MARIO ALVARADO PFLUCKER: The main problem is the lack of clear criteria. A lot is left to discretion. There is also a lack of responsibility from the side of the committees and bodies engaged in the approval process. Someone can just deny approval without properly justifying it. And there is no institution that oversees this process that you can approach with complaints. If there are no clear criteria for rejecting a project or rules about how long an evaluation should take, it is very easy for a public sector employee to slow things down.

Another problem is the project paralysis that follows every municipal election with the pretext of “reorganisation”. We do not have solid institutions that can function independently despite changes in leadership. By this I do not mean that there cannot be changes in legislation. Simply that the more technical day-to-day affairs should keep going.

What will be the balance between low-cost housing and high-end developments in coming years?

ALVARADO: We will be concentrating on low-cost housing since we believe that is where the real growth potential is. This segment of the population is the one experiencing the biggest change in consumption capacity. There is also a cultural shift in living standards as people’s ideas about what constitutes good quality housing are evolving. Building one’s own home is less viable now than it was before. Phenomena like subsidies, the invasion of land or getting neighbours to help are no longer as common as they once were.

Would fewer, larger companies increase efficiency and meet demand better?

ALVARADO: Here, like everywhere, the housing sector is very fragmented. There are a lot of companies and it is a very competitive market. The main reason why large companies are needed is to carry out bigger projects, the advantage of which is that they now offer a better quality of life. They can include public and private spaces in a way that satisfies inhabitants’ needs.

Another important benefit to bigger companies has to do with security. In an economic crisis, small companies can disappear, leaving the inhabitants with no security in relation to their investment. This is less likely with bigger companies, which own more than just one building.

To what extent is a scarcity of qualified engineers affecting infrastructure development?

ALVARADO: It is true that there is a lack of engineers here but the problem is by no means as severe as in neighbouring countries. I see it as an opportunity for Peruvians. Today, there are more employment opportunities than before. So you cannot look at this issue only from the company’s point of view. You have to evaluate it from society’s point of view as well.

Is the lack of available land in the major cities hampering development in Peru?

ALVARADO: There is still a lot of land in Lima. What is lacking is adequate land for housing and industrial use. To push down the price of the housing industry, we need more zoned land with basic services. The government is launching a project called Suelo Urbano (Urban Soil), which has the sole objective of obtaining zoning and to provide basic services like running water and sewage. However, local governments refuse to zone land, waiting for the price to go up. The only way to develop a zone is informally. But very recently the government has been making efforts to develop new urban areas by zoning them and bringing them water services. If these efforts are successful land prices will go down significantly. This would also increase land for industrial use. The authority responsible for the zoning problem is mainly the Lima Municipality. It is a lie that there is no land – there is still land north and south of Lima. With new transport and infrastructure projects, like the metro, these zones are more and more reachable.