Credit: Willian Justen de Vasconcellos / Unsplash

Peru Real Estate Players to Face COVID-19 as United Front

April 6, 2020Real Estate
The Peruvian market is in a wait-and-see position as they enter the fourth week of the country-wide lockdown. The real estate industry members agreed that none of them had ever experienced something such as COVID-19, but to overcome this challenge, the industry will have to work together, now more than ever. 

More than 50 leaders logged on last week to join our eMeeting on how the Peruvian real estate market is reacting to COVID-19. Real estate players from the residential, hospitality, retail and office sectors had an overall cautious approach to business at the moment. 

According to GRI Club surveys during the meeting, 61 percent of real estate players are observing and holding investment right now, while 30 percent are investing and expanding their business, but with caution. This is a different sentiment from that of Mexico and Central American countries. When it comes to which asset classes would be hit the most in Peru by COVID-19, hospitality, retail and the office sector will take the worst blow according to members. 

The highlight of the eMeeting was a call to action to all real estate players and sectors. Members said that “crises allow us to see things in a different light and find new models to change old dynamics. Once the quarantine is lifted, it is our responsibility to make sure projects continue, and along with it economic activity.”

The reactivation of the Peruvian economy was the member’s greatest concern. The Peruvian government recently announced a US$8.5 billion economic relief fund, equivalent to 12 percent of Peru’s GDP. Nevertheless, members were worried that a great amount would be destined only to the residential sector, leaving the rest of the industry in harm's way. “The uncertainty has generated great problems for the entire industry. We need to consolidate our approach and ask for support and incentives from the government to overcome this crisis. The Peruvian real estate industry must make a strong, united front to reach the government.”

Peruvian Hospitality on Thin Ice

Members shared that approximately 1 to 1.4 million direct and indirect jobs are at stake due to the deceleration of the peruvian tourism sector. According to CANATUR, there is an estimated loss of US$3 million in international tourism income and US3.2 million of local tourism comparing 2019 to 2020. Members in the sector shared that hospitality companies are experiencing liquidity problems due to reservation cancelations, as well as a large loss of human capital. Members agree that hotels are the most hit by this pandemic, especially Latin America which has around five percent occupancy rate and expect a very slow recuperation. 

To help relieve some pain, the National Chamber of Tourism of Peru (CANATUR) is suggesting a Comprehensive Financial Rescue Plan for Tourism with a value of US$700 million. This consists of a special line of credit guaranteed 100 percent by the government and issued by the banks to help companies linked to tourism activity.  When taking into consideration past crises, such as H1N1, there are talks of a recuperation period of between six to nine months. 

Members have seen the impact and the complete halt of the sector. They are in a defensive position to make sure companies can survive this difficult time. This will generate a series of interesting opportunities, and investors will analyze hotel risks. Competitivty will increase and more companies will analyze options to mitigate risks like these next time. Changing the mindset in the future of the guest that they are safe will be difficult. Members are waiting to see what measures the government will implement to help ease the pain of the private sector. The government is currently analyzing a package of economic measures, which includes tax breaks and soft loans which could significantly help the hospitality sector. 

Residential Sector to Reactivate Peruvian Economy

Members discussed that when simulating the 2008 downturn, it took mortgage rates to recover at least three quarters. The 1H09 was very slow, and then it finally started to pick up a bit. The government will have to intervene and bolster the economy through social housing. This way people will acquire housing through these subsidies. Some members believe that housing will have a tough year and it may not recover until late 2021. 

Members have hope that the sector will not plummet drastically, but to make sure it does not they asked that they all strain to ensure that the project pipelines can fulfill their presale phases and they can take off. This is the only way the sector can generate jobs, and if they do generate these jobs, then there will be a quicker economic recuperation. 

When it comes to interest rates, members also feel that it is the country’s responsibility to create measures to ensure interest rates do not rise due to the increase in country risk. If banks are going to obtain finance themselves, nationally or abroad, it will impact country risk. The industry will  have to combat this with loans straight from the government at lower rates, so that mortgages do not rise. If mortgages rise, the quotes for clients will raise too and they will ultimately delay their purchase decision. 

Funding multifamily projects will become a real team effort in the next months. Members said that banks are exploring alternatives to push along sales. Both developers and banks will have to increase facilities to homebuyers, without increasing their own risk and are brainstorming solutions together to improve the products. 

A Need for Digitizing Government Processes for Real Estate Development

An important matter that came up during the discussion was that at the moment, notaries and government offices are closed, therefore licensing and permits are at a halt. Some companies are having to ask banks for exceptions and they are being flexible, but the industry will have to analyze the government’s digital presence during this time. 

Members discussed that they must analyze all levels of government, including municipalities and state governments because they are the counterpart of this business, and right now as they are forced to work remotely, there are many areas of opportunities emerging. Members said that the industry needs push for a digital transformation that will facilitate business in the future. 

Retail to Must Regain Consumer Trust

The retail sector, particularly shopping centers will have a difficult year as they have to close down their facilities, and then open them back up. Members believe that it is very important how the reopening of shopping centers, and the challenge lies on how we will manage the visitors journey and experience to build trust back up. Clients have to feel comfortable in public places once again, and it will be a challenging task for us all. 

New projects will be especially hit, for instance movie theaters. All over the country, theaters have had to close down completely. The quarantine also hits all of the things people used to do to have fun, not just leaving the house. Asset classes are being hit differently. Offices for instance will also take a while to recuperate according to members. The first thing that will happen is that companies will look for the best ways to reduce CAPEX and OPEX, which will put new offices at the end of any list. 

This information was discussed during our last GRI eMeeting with our Peru Real Estate members. Join the discussion and register for the next eMeeting here:
griclub.org/emeetings