(Reuters) - Peru's topsy-turvy presidential election, already whipsawing financial markets, is now affecting the real economy as the middle-class balks at buying real estate, until now an engine of the country's boom.
Fears left-wing Ollanta Humala will beat right-wing Keiko Fujimori in a June 5 run-off have caused buyers, lenders and builders to pause and postpone projects for the time being.
They are worried Humala, a former military officer, could roll back years of free-market reforms, despite his move toward the political center and repeated promises to respect private investment and keep existing macroeconomic policies in place if elected.
In a tight but changeable race, Humala is several points behind Fujimori, polls show. She is trusted by the business community, because her father, former President Alberto Fujimori, opened Peru's economy and tamed rampant inflation. He was later jailed for corruption and human rights abuses after his government fell in 2000.
The construction sector, driven largely by demand for new homes and easier access to mortgages, grew 17,4 percent last year, helping lift the broader economy almost 9 percent and turn Peru into one of the world's fastest-growing economies.
But in March, before the election caused a sell-off in Peru's stocks and currency, the construction sector grew just 0.15 percent from February as firms became more cautious. Broader economic growth was the slowest in 13 months.
Cement purchases, a leading indicator of the construction sector, rose just 1.25 percent in April from a year earlier.
"Everything has slowed down. I've sold one apartment since the first-round vote on April 10. Normally it'd be 4 or 5 a month. The number of people dropping by to look at projects has gone to zero," said Daniel Kohn, general manager of Inverko, a Chilean real estate development firm in Peru.
He says he is lucky that most of the 56-unit tower he is building in the fashionable Miraflores district was sold before election jitters took root and says he is being cautious about his next investment.
"I'm in negotiations right now to buy a lot to build on, but everybody involved in the deal knows that it depends on Keiko winning, and that the contract would be signed on June 6, the day after the election."
More evidence (if any were needed) of a drop in activity in the real estate sector in Peru: on Thursday at Hotel Las Incas here in Lima there was an auction of 16 plots for beach houses in one of the more exclusive condominiums along the Asia beachfront. I get the impression that in "normal" times these are highly sought after; one day before this auction only 11 people had been signed up (in the event they relaxed some requirements to allow another 8 people in.)
Interesting that the stock and fx markets now point to a Fujimori win, whereas real estate apparently points the other way. But there's been a real boom in property over the last few years (fuelled, as these things usually are, by an expansion of credit), maybe it's due a correction, or a levelling out, anyway.