Cost of Living in Peru

by moveforward on September 22, 2010

If you were to suggest a potential move to Peru there is no doubt that many eyebrows would be raised and very few people would understand what the country has to offer and why you might be looking to move there. However, the Peru of today is very different to that of 50 years ago and many believe the country has the potential for significant growth in the short, medium and longer term. Up until now it has been a country which has been relatively ignored by many expats, by many business people and by many tourists. However, the massive potential in this country is beginning to show through and investors are finally waking up to the potential for the South American country.

Before we look at the living costs in Peru it is worthwhile gaining some background knowledge on the country, the economy, property markets and an array of other information which will ultimately be required before you can even consider a move overseas.

Where is Peru

The country of Peru is located on the west coast of South America with neighbours such as Ecuador, Colombia, Brazil, Bolivia, Chile and it is very close to the Pacific Ocean. Many people will be surprised to learn that Peru is actually the 20th largest country in the world with a population of just over 29 million and a landmass in the region of 1.2m kmĀ². Like so many South American and Central American countries Peru can often be overlooked in favour of perhaps other well-known countries such as Brazil, Argentina and the like.

The vicinity to the Pacific Ocean offers the Peru economy a useful trading route something which has not gone unnoticed by a number of international companies. While it would be wrong to suggest that Peru is perfectly placed within the worldwide trading sector it does offer something a little different and the potential for a very comfortable lifestyle for expats looking for a new place to live in the future.

Economy

The economy in Peru is officially classed as the 42nd largest in the world although it is still seen as an emerging economy with a significant level of foreign trade offering hard-currency to fund imports and the development of the internal economy. The country still depends heavily upon exports with the likes of copper, gold, zinc, textiles and fish meal very prevalent. The country carries out the vast majority of its trade with the United States America, China, Brazil and Chile. Despite various attempts to equalise the economy, between imports, exports and internal sales this is still proving to be very difficult at the moment.

However, over the last few years there has been a shift towards the services sector with 53% of Peruvian gross domestic product emanating from this particular area of the economy, manufacturing supplies 22.3%, extractive industries 15% and just under 10% from taxes. The Peru economy has an awful lot going for it at the moment after the agreement of free trade arrangements with the United States of America and China. It is interesting to see that inflation in Peru is one of the lowest in Latin and even though unemployment has shifted higher in line with the rest of the world it now stands at around 9% which is not too high compared to other difficult periods in the Peruvian economy.

On the whole it is the agriculture, industry, services and natural resource sectors of the economy which are the engine room of Peru. However, over the last years the economy has been managed very well by the Peru government and we are seeing an increase in overseas investment in the region which is benefiting the economy. There has been significant overseas investment from Spain, United States of America, Switzerland, Chile and Mexico and it is common knowledge that the government is looking to increase dramatically the levels of overseas investment in the country. It has to be said that the outlook for the Peruvian economy has never been better with inflation firmly under control, sovereign debt as a percentage of gross domestic product falling and growth rates amongst the highest in Latin America. As a consequence it is no surprise to learn of ever-increasing investment from overseas companies looking for an entry into the lucrative Latin American market.

Property

If there is one area of Latin America in particular which has benefited from the housing boom it has to be Peru where property prices have tripled since 2006. Even though the worldwide recession seen in 2008 and 2009, and still continuing in 2010, took a little steam out of the market there is no doubt that demand is still very buoyant. While a number of experts are questioning whether now is the time to acquire property in Peru and indeed maybe the property boom has run its course and now may be the time to sell there would appear to be more mileage left yet.

At this point in time there is no doubt that the bulk of the increase in property values has occurred within and around some of the major cities in Peru. However, like all property boom periods there is no doubt that we have seen a mushrooming of the demand for Peruvian property as inner-city properties become too expensive and demand takes in a wider area. On the plus side foreign investors are able to own property in their own name, mortgage interest rates are fairly stable between 9% and 12% and property taxes are relatively low. When you also take into account relatively high rental yields, secured entry in many property developments and the modest cost-of-living, these are factors which do attract investors.

On the downside the purchase of a property can take anywhere up to six months to complete, perhaps not so much of a downside when you compare the UK system, although Peru’s laws are very much in favour of the tenant. If you acquire property with a spouse then both parties will need to be present to sign the relevant documents or power of attorney can be arranged although this will incur a charge. There are also some restrictions with regards to access to finance for those who are not married to a Peruvian or not from Peru itself. If you have no legal residence in Peru then you will need to acquire specific special permission from the government to sign contracts which can only cause further delays.

It is also becoming more and more apparent that large vacant plots of land are being targeted by squatters and addressing these issues can be expensive and time-consuming. On the whole there have been improvements in Peruvian real estate laws but ultimately they’re nowhere near the level of security offered for property buyers in the likes of the US and the UK.

Living costs in Peru

The cost of living in Peru is for many people one of the major benefits when re-housing and relocating in the future, but what should you expect to pay to live in Peru? Compared to the New York index the consumer price index is 41.15%, retail index 18.06%, groceries index 48.2%, restaurant Index 34.03%, consumer price index plus rent 29.65% and local purchasing power is 41.16%.

In general the cost of living in Peru is relatively modest by today’s standards with an inexpensive meal at a restaurant costing around five dollars, meal for two with a midrange restaurant in Peru $22 and a combination meal at McDonald’s would cost you under five dollars. Domestic beer is fairly cheap at $1.38 although imported beer will cost you around the $2.22 with coke and water both around 65c. Goods acquired in local markets offer excellent value with a litre of milk under one dollar, a loaf of bread $1.9, 12 eggs $1.28, a kilogram of fresh cheese around $6.5 and water again around 65 cents. A midrange bottle of wine will set you back around eight dollars, domestic beer in the marketplace around 90c and imported beer around 93c with a pack of Marlboro cigarettes $1.74. Transportation in Peru is fairly cheap although it has to be said that the transportation infrastructure is not the best in the world. You should also pay no more than $50 a month for electricity, gas, water and refuse collection with Internet access not too bad at just under $38.

If you’re looking to rent, a one-bedroom apartment in the city centre will set you back around $425 a month, outside of the city centre around $275 a month. A three-bedroom apartment in the city centre will cost you just under $800 a month and outside of the city centre a more realistic $412 per month. The median monthly disposable income, after-tax, in Peru is around $524 although mortgage rates are slightly alarming in the teens. On the whole the cost of living in Peru is relatively cheap although there are various areas which you need to monitor carefully and do your homework on.

Entertainment

As you might expect from an area of the world which is heavily influenced by Spain there are a number of Spanish traits in the entertainment industry in Peru. There is also limited influence from Africa, China and Japan and more and more we are seeing European expats looking to the region. It would appear to be the relatively low cost of living, variation of culture, landscape as well as the potential for the future which is attracting more and more overseas investors and visitors.

Only recently we saw the Hilton Hotel announce a joint venture in Peru which the company hopes will act as a springboard for a major expansion in Latin America. When you see companies such as the Hilton Hotel looking to acquire property and build hotels in Peru then you know that the tourism industry is very buoyant. It will be interesting to see how many other Hotel and tourism companies join the party in Peru as many people believing the potential for growth in the future is enormous.

Taxes

When you take into account the relatively low cost of living in Peru you may also be enthused to find that corporation tax is just 27% and personal taxation varies from between 15% and 27%. VAT/sales tax will set you back between 2% and 19% which compares relatively well to areas such as the UK and the US. Even though there has been a general increase in the cost of living over the years, as Peru becomes more and more popular with investors, visitors and expats there is no doubt that taxes and the relatively low cost of living are very much two of the main attractions.

Expat Communities

As we touched on above, yet again there is a relatively high Spanish influence within Peru although African, Chinese and Japanese visitors are also very visible. However, for Europeans looking to move to Peru they will be relieved to learn that there is a growing European presence in this country and it is something which is likely to continue to expand in the short, medium and longer term. The ability to incorporate yourself into a local expat community and take the relevant advice could literally be the difference between enjoying your time in Peru and deciding to move elsewhere.

Conclusion

There appears to be significant changes afoot with regards to Peru with the property market now effectively open to overseas investors and the economy well positioned for the future. When you also take into account the landscapes, climates and relatively low cost of living then it is no surprise to learn that it is becoming something of a honey-pot for expats. While there are still issues regarding poverty in Peru, an ill planned and often dysfunctional infrastructure, this is a country which has benefited from tighter financial controls and expansion of the economy over recent years.

One area which has certainly caught the attention of many investors is the property sector which has seen prices treble since 2006. Whether prices will take a breather in the short to medium term remains to be seen but there are long-term benefits associated with the Peru property market.

Again, Peru is maybe not a country in the world which is on your hit list to check out but there’s no doubt there are natural attractions and fiscal attractions catching the eye of many looking to set up home and begin a new life overseas.

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