BURSTING THE BUBBLE

Peru 2015 | REAL ESTATE & CONSTRUCTION | INTERVIEW

TBY talks to Milton von Hesse La Serna, Minister of Housing, Construction, and Sanitation, on Peru's new leasing and property law, demand and supply in the housing market, and making the channels to credit more accessible.

Milton von Hesse La Serna
BIOGRAPHY
Milton Von Hesse La Serna is an economist educated at Universidad del Pacífico, with a master's degree in economics from Georgetown University. He was Minister of Agriculture of Peru from 2012 to 2014. Previously, from 2009 to 2012, he served as professor and researcher at Universidad del Pacífico, as well as Director of the MPA of Universidad del Pacífico. He worked in the Minister of Economy and Finance for a decade, forming part of the team that designed and implemented the National System for Public Investment.

What kind of impact has the new leasing and property law had on the country?

It is not just a leasing law, but also one that encompasses renting, selling, and the financial leasing of properties. The aim of the law is to add depth to the leasing market in Peru. For a country of Peru's level of development, leasing and renting should account for approximately 20% of total savings. In Peru, the leasing market is somewhat distorted. Until this new leasing law came into effect, a tenant had certain rights that could actually override the rights of the landlord. So, for example, even if a tenant failed to pay rent over an extended period, the owner still could not have them evicted. Now with the new leasing law, the landlord has a right to evict tenants that are in arrears. This law also adds dynamism to the construction sector and enables a larger part of the population to have access to good, dignified housing. Furthermore, there is a large informal economy in Peru, and this new law will help address it. By far the largest source of income for lower and lower middle class people in Peru is in the informal economy, be it working as taxi drivers or street vendors. These people earn money, however little, but they are off the grid as far as banks are concerned. They have no access to credit, and certainly no access to mortgages or housing credit. The new law enables these people to start by renting with monthly payments, which can then lead to buying once they have a credit history for the banks, or in more complex processes, a certain quota is put aside from each month's rent, which then goes into a fund that can be used to buy the property one is renting at a future date.

The demand for housing has exceeded the amount of housing available in Peru. What is the government doing to address this situation?

Firstly, the sector has developed new and innovative mechanisms to provide more people with easier access to financial instruments, with the poorest urban segments and rural areas receiving considerable subsidies when it comes to acquiring housing. In fact, subsidies are virtually 100% in rural areas, and 80% in the poorest urban areas. For example, in the Fondo MIVIVIENDA, we have two types of subsidies: the first is “Techo Proprio." In this case, if the house is worth up to $25,000, the state gives a bond worth PEN 18,000-19,000, which is about $6,000. This bond is basically a subsidy, which the buyer does not have to repay. If they opt for a cheaper home, this bond could be a much higher percentage of the price. For a house right at the limit, the bond is a smaller percentage of the price. The other type of subsidy is for those who can make slightly bigger investments, people from the lower middle class. These people are eligible for the “Nuevo Credito MIVIVIENDA," by which families have access to easier and cheaper lines of credit than they would normally. This type of credit also includes an important subsidy, and is designed for houses priced between $25,000 and $50,000. If the house is cheap, the bond is more expensive, at around $6,000. However, if the house is more expensive, the bond is smaller, at $4,000.