What You Need To Know About Buying Land Or Houses In The Sacred Valley

What You Need To Know About Buying Land Or Houses In The Sacred Valley

The Sacred Valley is a beautiful place with fertile, verdant land. So no wonder foreign residents and non-residents alike are interested in buying Peruvian property.

Unlike many countries, here, real estate ownership is generally absolute – there’s no weirdness like there is in the UK, where you own your house, but not the land it’s on. Transactions are fairly easy to complete, too. It’s highly recommended that you have a translator and/or estate agent present during the transaction, which can last between one or two weeks.

The transfer of a piece of property must be made by public deed. Notary publics are obliged to report to the tax authorities all transfers they register. All deeds must be hand-written and are kept in the notary’s registry.

You do need to be careful that the land is actually the legal property of the person who is selling it – quite often, someone claims the land is theirs, but they sell it ‘sin titulo’ – or without papers.

Sometimes, this is fine – for example, if you buy a piece of land from the municipality of Arin, it may be without a title, and the condition is that you will get it after a few years of attending town meetings. But things can change, and this is a risky business.

Land without titles will be far, far cheaper for this reason, but again, you are running a risk. Property prices can vary wildly, from $20-$30 per square metre for untitled land, to $40-60 for land without easy access to water, roads or electricity, to $80-$150 for land in a desirable area with all services intact.

To ensure that the title is clean, a Property Registry Certificate must be obtained from the property registry. This ascertains the property’s existence and information details, and if it is free of mortgage debt, liens, or any other encumbrance.

After you’ve agreed to a price on your property, the Notary Public prepares and files the Sale Purchase Agreement (SPA), or “minuta”, for registration and to be converted to a public deed. It is advisable to use the option to “block” the property register for 60 days while the SPA has not yet been converted to a public deed. This can be done through a pre-emptive registration to prevent any third party filings.

Transaction costs

Transfer Tax

Transfer tax is generally levied at 3%. The tax base is the municipal value of the property exceeding the 10 official established tax units (Unidad Impositiva Tributaria or UIT. The threshold amount is PEN39,500 (US$11,618) for 2016, and PEN40,500 (US$11,912) for 2017.

Notary Fees

Notary fees are levied at 0.10% to 0.25% of the property value.

Registration fees

These are levied at 0.81% of 1 official established tax unit (Unidad Impositiva Tributaria or UIT, plus 2.5/1000 or 0.0025% of the property value over 14 UIT.

What You Need To Know About Buying Land Or Houses In The Sacred Valley

A Good Investment?

Many expats from California, London, New York or Australia are used to the notion that once you buy a piece of property, it inevitably goes up in value, and will be easy to sell. Not so here in the Sacred Valley. Demand is generally low, and turnover time is incredibly slow. You are not likely to make a profit on your investment, but at least you will have the home you want, without having the hassle of paying rent to a potentially irresponsible, unreliable landlord.

Some people do make some money from Airbnb houses, but success with this depends on the location and beauty of your house. You should also be aware that Airbnb income will have to be declared, and officials have been cracking down on landlords more and more.

All About Income Tax on Housing  (Impuesto a la Renta)

Taxable income is classified into five categories, according to the nature of income. Rules in computing taxable income depend on the income classification.

  • First category: income from letting property
  • Second category: investment income (capital investments, dividends and royalties)
  • Third category: business income from a sole proprietorship and other income not specifically included in another category
  • Fourth category: income from independent professional services
  • Fifth category: employment income

Non-residents are taxed at a flat rate of 30%. Keep in mind that even if you have your carnet de extranjeria, you are still considered a non-resident (non-Peruvian).

An official established tax unit (Unidad Impositiva Tributaria or UIT) is used to determine the tax liability. The UIT is a benchmark figure established to maintain the taxes, deductions, etc. at constant proportions to income. The UIT value for 2016 is PEN3,950 (US$1,162). The UIT value for 2017 is PEN4,050 (US$1,191).

Rental income earned by non-Peruvians is subject to a 30% flat rate. Non-residents are not entitled to any deductions.

The annual rent from leased property in general may not be less than 6% of the value of the property established for the purposes of local taxes.

VAT (Impuesto General a las Ventas)

Generally, leasing properties in Peru is liable to VAT at 18%. However, if the leasing of property is not effectively connected with a trade or business, the lease transaction is then not liable to this tax.

Capital gains earned by non-residents from selling Peruvian property is considered as investment income, and is taxed at a flat rate of 30%. The taxable gain is computed by deducting the invested capital (acquisition and improvement costs) from the gross selling price or market value of the property. These costs can only be deducted upon approval of the tax authorities.

Municipal Sales Tax (Impuesto de Promoción Municipal)

The rules regarding transactions subject to VAT also apply to municipal sales tax which is levied at a flat 2% rate.

Property Tax (Impuesto Predial)

Real estate tax is levied on the cadastral value of the real estate, as assessed by the government, at progressive rates. The property owner is liable to pay this tax annually.

An official established tax unit (Unidad Impositiva Tributaria or UIT) is used to determine the tax liability. The UIT is a benchmark figure established to maintain the taxes, deductions, etc. at constant proportions to income. The UIT value for 2017, for example, was PEN4,050 (US$1,191).

What You Need To Know About Buying Land Or Houses In The Sacred Valley

New Or Old Build?

Many people in the Valley decide they’d like to build their own home. But a simple glance at all the unfinished constructions around the pista will show you that this can be problematic, for several reasons.

  1. You will need to find a place to stay while your home is being built. This normally takes between 12-18 months.
  2. You will need to have a good grasp of Spanish in order to communicate exactly what you want the builders to do.
  3. You will need to budget very well indeed – many houses in the Valley remain unfinished (and frankly, are an eyesore) because people don’t plan their budgets well. Costs generally run from $400-$500 per square metre of build, depending on the quality and type of materials used.
  4. You should know a bit about pricing in the Valley in order to avoid financial ‘surprises’
  5. You should seek out a good architect and engineer before you buy. Most people avoid this, thinking they can design their own houses, no problem. But then they’re shocked when they discover their adobe walls are cracking, their windows don’t fit, their doors don’t shut right, or they’ve build on clay that’s constantly shifting.

For all of these reasons, it may be wiser to purchase an exisiting property and renovate it to your liking.

Summary

If you’re considering buying property or a home in the Sacred Valley, it’s highly recommended that you consult several professionals: an estate agent, a notary public, an accountant to determine your tax responsibilities, an architect, engineer and building company. The costs of these professionals should be factored into your purchase.
It’s never easy to buy a property, no matter which country you live in. But that feeling of home ownership can’t be beat, and the hassles are usually worth it.

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