Lima (pop. 8.2 million) is seeing an explosion of construction of new apartment buildings in residential areas, new shops, new buildings. Prices of residences have been rapidly during the past two years, after a long period of stagnation.

“The economic growth has strongly affected things,” writes Helen Modenesi, a realtor from the small elite residential town of Los Condores, in the Andes district of Chaclacayo, 28 km from Lima, who belongs to the Asociación Peruana de Agentes Inmobiliarios (Aspai).

“A couple of years ago, the price of land was around US$30 the square metre. But since last year you can’t find anything below US$60 for larger lots, and US$100 for smaller ones. Los Cóndores - the elite zone of Chaclacayo - has tripled its value to $150 and $200 per square metre. After years of slack, most of the houses that were on sale have been sold, and all are being remodeled and modernized. Not many are left to be sold.”

Peru has enjoyed spectacular economic growth during these years (2006-2007), with 8.5% GDP growth in 2007, after 8% growth in 2006. Combined with much other good economic news, this has had a miraculous effect on Peruvian property values.

The good news includes more private investment (growing at 20% a year), and a new willingness to save (now 24% of GDP). And consumer confidence, higher than it has been for decades.

Before 2006, residential prices had been static for 6 years, partly because the shock of the scandals, corruption, human rights abuses, and political unrest surrounding the end of the Fujimori presidency (1990-2000), which undid much of Fujimori’s achievement of macro-economic stablization and lower inflation.

Foreigners can freely buy properties in Peru. Real estate investments do not need prior approval from the governments except for properties near the borders. Foreigners, however, tend not to be attracted to buy in Peru.

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Peru has a rich and varied cultural and architectural heritage, with some of the most spectacular and varied scenery in South America. Tourists are attracted to Macchu Picchu and Cuzco, the ancient capital, and to Lake Titicaca, the world’s highest navigable lake. Millions of highland Indians still speak the ancient tongue of Quechua and maintain a traditional way of life.

However, Peru’s development has been held back by endemic corruption and the failure of successive governments to address the problems of social and economic equality.

2006 was a pivotal year. Confidence was low in anticipation of the return to power of Alan Garcia, who had presided over a directionless and high-spending leftist government during his first term as president (1985-1990).

However, when Garcia returned in July 2006 he seemed a reformed man, determined not to repeat the mistakes of his first administration.

Fiscal rectitude became the government’s No 1 priority. Garcia saw how Chile’s restrained state spending won it lower credit costs from the international lenders, and followed the same route. The overall surplus of Peru’s non-financial public sector jumped to 3.1% of GDP in 2007, up from 2.1% of GDP in 2006 – the biggest budget surplus for 30 years.

Savings began to rise. As the economy improved, the international credit rating agencies upped their ratings and the cost of Peru’s debt-service dropped. In April 2008 Fitch Ratings gave Peru a rating of BBB-, the only Latin county aside from Chile and Mexico to have an investment grade rating, allowing more pension funds and insurers to buy Peru's debt, driving spreads down to record lows.

In March 2008 the country bought back US$838 million in Brady bonds, and also announced that it would pay $1.1 billion in World Bank and Inter-American Development Bank loans ahead of schedule. The current account and the trade account are both in healthy surplus. Remittances are strong. Finally, Garcia has made Peru the first Andean country to secure a free trade agreement with the United States He has also signed free trade agreements with Canada and Singapore.

Economic growth slowed to an annual 5.6% in March (2008). However this is a necessary pause after so much growth.

GDP per capita is around US$3,584 in 2007. Peru’s 28 million people are deeply divided politically and economically. A small elite of Spanish descent controls most wealth and political power. On the other hand, indigenous peoples are largely excluded; they make up majority of the 50% of Peruvians who live below the poverty line. The economy and infrastructure have been neglected, a fact which for years fuelled Peru’s guerrilla insurgencies.

Lima’s historic buildings and modern multistory apartment houses contrast with the shacks of outlying pueblos jovenes (literally, young towns). Recent history has seen the country switch between democracy and military dictatorship. The economy likewise goes through swings of economic growth, recessions and hyperinflation. Because of these problems, foreign investors have generally given Peru a wide berth.