Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.

Investment

Investment climate

What is the general climate of real estate investment in your jurisdiction?

The real estate market appears to be recovering after the economic slowdown of the last few years and the recent presidential elections. Some specialists and real estate experts agree that the real estate market in Peru is maturing. Although profitability for investors will be lower than some years ago, experts agree that it has not ceased. Sales rates are interesting and real estate companies are buying more land.

The recent Niño Costero phenomenon has made visible the lack of existing urban planning, the evident deficit of infrastructure and the necessary relocation of an important population group.

Investors

Who are the most common investors in real estate?

The majority of investors are pension fund managers, Peruvian insurance companies, real estate investment funds and real estate developers. With regard to the latter, in recent years the number of Peruvian developers has been increasing. However, there are still a large number of foreign real estate developers in Peru.

Increasingly, investors incorporate specific companies for projects, ensuring better fiscal transparency and management. It has also become common to prepare preliminary studies for companies interested in investing in projects.

Are there any restrictions on foreign investment in real estate?

Not for investment. There are some constitutional restrictions when it comes to foreign ownership or occupation of real estate (including foreign ownership of shares in companies holding real estate) for reasons of national security, whereby foreigners cannot acquire real estate properties near national borders, unless the Council of Ministers has expressly declared this to be a public necessity.

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

Investors seek to invest directly in real estate by buying shares in companies in this sector or by joint ventures, using mortgages, share pledges or management and guarantee trusts to secure their investment.

Other investors use pooled investment vehicles, such as trusts and investment funds. In recent months, the Peruvian government has granted certain tax benefits to real estate investment funds and trusts (FIRBIS and FIBRAS, respectively) which must comply with specific requirements. Tax benefits include the following:

  • Distributions to investors are subject to a reduced income tax rate of 5%.
  • Investors may defer income tax payments resulting from contributions to the FIRBIS or FIBRAS.
  • Capital gains obtained from the transfer of participation certificates in a FIRBI or a FIBRA through the Lima Stock Exchange have been exempted, provided that such participation certificates attain a certain trade volume.

Investment funds and trusts must comply with the following requirements in order to qualify as FIRBIS and FIBRAS, respectively:

  • At least 70% of the net worth must be invested in real estate assets capable of producing a rent.
  • All real estate assets producing a rent may be transferred only four years after they were acquired or after they were completed.
  • At least 95% of the annual net profits must be distributed.
  • The participation certificates must be placed through a public offering among at least 10 non-related investors.
  • The fund manager or the trustee, as the case may be, must appoint an investment or administration committee in accordance with applicable regulations.

Click here to view the full article.