Tuerto

In which your correspondent is informed that he was more right that he knew. (Image by Christian Haugen, CC-BY-2.0, www.creativecommons.org/ licenses/by/2.0, via Wikimedia Commons)

(Another guest post from our friend Otto.)

After yesterday’s post on the rapid rise in real estate prices in residential ‘hoods of Lima, Peru, your author had an interesting exchange with a friend who lives there and is immersed in the issue (his ID will be reserved, however). Here’s what he said:

…those are average, not real prices, so don’t try to go shopping for apartments relying on them. As my stats teacher said: ‘beware of statistical data because if I eat a chicken and you eat none, statistics will say we ate half each, which is not true.”

So number-nerd is as number-nerd does, I poked him with a stick by shooting this back:

It’s still a good enough dataset to see the surge.

At that point, I was put in my place:

Of course, but just for bureaucrats at the BCR and the like.

I’m trying to buy an office using similar sources of data but the owner (a friend of mine) just laughs at me. He shows me his purchase contract where 3 years ago he paid what my source says I should be paying him today.

And sure, those are average prices, in average zones, in average time frames, which should not be used to buy or sell property (what most of us need them for), just to do macroeconomic studies.

And yes, on further examination it does seem that the average (probably median in this case) price for a square meter of land in a pleasant residential area costs far more than the plain Peru Central Bank (BCRP) figures suggest. Here for example is a link that talks of prices between US$1500 and US$2500/m2 in March of 2011 in the very barrios taken into account by the BCRP. And here’s another report from just four days ago that tells of US$1500/m2 being the average price in San Isidro or Miraflores. This is already much higher than the US$1300 calculated by the BCRP for the third quarter of 2011, but on top of that prices are also expected to go up between 20% and 30% in 2012. In other words, we’re already staring $1800 of perhaps $2000 in the face this year for the average plot, so add a premium onto that for the swankiest areas.

The question is whether this is a problem as yet. Credit facilities in Peru are now much easier to get if you’re a professional with a middle class type income, so as is usual in a credit bubble, the high-end real estate feels the effects first. Therefore, the datasets best watched are those of percentage changes in house prices for upper-end and lower-end real estate, because if the expensive square meters show a levelling out of prices while cheaper ‘hoods show rapid price climbs, watch out.